# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

# WASHINGTON, D.C. 20549

# FORM 10-K

ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year
Ended December 31, 2006 Commission file number
0-15087

TRAILER BRIDGE, INC.  (Exact name of
registrant as specified in its charter)

|DELAWARE                        |  | 13-3617986                           | 
|------------------------------- |  | ------------------------------------ | 
|(State or other jurisdiction of |  | (I.R.S. Employer Identification No.) | 
|incorporation or organization)  | 

10405 New Berlin Road
E., Jacksonville, FL 32226 (904) 751-7100 (Address and telephone
number of Principal executive offices)

Securities Registered
Pursuant to Section 12(b) of the Act: None

Securities Registered
Pursuant to Section 12(g) of the Act:  $0.01 Par Value Common Stock

Indicate by check mark if the
registrant is well-known seasoned issuer, as defined in rule 405 of the Securities Act.
Yes No [x] Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes    No [x] 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrants knowledge,
in the registrants definitive proxy statement incorporated by reference in Part III
of this Form 10-K. [ ] Indicate by check mark if the registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12-b-2 of the Exchange Act. (Check one): Large accelerated
filer __ Accelerated filer __ Non-accelerated filer [x] Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes No [x] The
aggregate market value of the shares of the registrants $0.01 par value common
stock held by non-affiliates of the registrant as of June 30, 2006, the last business day
of the registrants most recently completed second fiscal quarter was $29,886,465
(based upon $7.25 per share being the price at which the common equity was last sold). In
making this calculation the issuer has assumed, without admitting for any purpose, that
all executive officers and directors of the registrant are affiliates.

As of February 28, 2007 11,787,787
shares of the registrants common stock, par value $.01 per share were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:
The information set forth under Part III, Items 10, 11, 12, 13, and 14 of this Report is
incorporated by reference from the registrants definitive proxy statement for the
2007 annual meeting of stockholders that will be filed no later than 120 days after the
end of the year to which this report relates.

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# TRAILER BRIDGE, INC. FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2006

# TABLE OF CONTENTS

| | PART
I
| | ------

|Item 1  | Business                                            | 4 
|------- | --------------------------------------------------- | --
|Item 1A | Risk Factors                                        | 10
|Item 1B | Unresolved Staff Comments                           | 11
|Item 2  | Properties                                          | 11
|Item 3  | Legal Proceedings                                   | 12
|Item 4  | Submission of Matters to a Vote of Security Holders | 12

| | PART
II
| | -------

|Item 5  | Market for Registrant's Common Equity, Related Stockholder  | 13
|------- | ----------------------------------------------------------- | --
|        | Matters and Issuer Purchases of Equity Securities           |   
|Item 6  | Selected Financial Data                                     | 15
|Item 7  | Management's Discussion and Analysis of Financial Condition
|        | and Results of Operations                                   | 16
|Item 7A | Quantitative and Qualitative Disclosures About Market Risk  | 30
|Item 8  | Financial Statements and Supplementary Data                 | 31
|Item 9  | Changes in and Disagreements With Accountants on Accounting
|        | and Financial Disclosure                                    | 57
|Item 9A | Controls and Procedures                                     | 57
|Item 9B | Other Information                                           | 57

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| | PART
III
| | --------

|Items 10 - 14 | Incorporated by Reference | 58
|------------- | ------------------------- | --

| | PART
IV
| | -------

|Item 15       | Exhibits, Financial Statement Schedules | 59
|------------- | --------------------------------------- | --
|SIGNATURES    |                                         | 63
|EXHIBIT INDEX |                                         | 59

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# PART I

# Forward Looking
Statements

This report on Form 10-K contains
statements that constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The matters discussed in this Report include
statements regarding the intent, belief or current expectations of the Company, its
directors or its officers with respect to the future operating performance of the Company.
Investors are cautioned that any such forward looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results may differ
materially from those in the forward looking statements as a result of various factors.
Without limitation, these risks and uncertainties include the risks of changes in demand
for transportation services offered by the Company, any changes in rate levels for
transportation services offered by the Company, economic recessions and severe weather.

# Item 1.   Business

# BUSINESS OVERVIEW

Trailer Bridge, headquartered in
Jacksonville, Florida, is an integrated trucking and marine freight carrier that provides
truckload freight transportation primarily between the continental U.S. and Puerto Rico.
Trailer Bridge was the first, and remains the only company serving markets governed by the
Jones Act to exclusively operate marine vessels fully configured to carry 48 and
53 long, 102 wide, high-cube equipment. This configuration enables
the Company to achieve operating efficiencies not readily available to traditional ocean
carriers that primarily use smaller capacity equipment, such as 40' containers.

In 1996 the Company increased its
vessel capacity by 56% by inserting midsections (mid-bodies) into its two
existing barges, increasing the capacity of each barge to 405 53 equivalent
truckload units.

Trailer Bridge increased its vessel
capacity again in 1998 and 1999 when it took delivery of five 403 long container
carrying barges designed specifically for the Companys integrated truckload marine
transportation system and bearing the Companys Triplestack Box Carrier® trade
name. The Triplestack Box Carriers are versatile, low-draft vessels that have a capacity
of 281 53 containers. The Company currently utilizes two mid-bodied roll-on roll-off
vessels and two Triplestack Box Carriers to provide twice weekly sailings directly between
Jacksonville, Florida and San Juan, Puerto Rico. Three Triplestack Box Carriers are
currently available for charter.

# OPERATIONS

At December 31, 2006, Trailer Bridge,
Inc. operated a fleet of 106 tractors, comprised of 74 company owned units and 32 leased
and owner operator units, 2,880 53 high cube containers, 2,171 53 chassis, 281
high-cube trailers and 305 53 vehicle transport modules that transport truckload
freight between the Companys San Juan, Puerto Rico port facility, its Jacksonville
port facility and inland points in the US and Puerto Rico. In addition the Company leased
261 chassis and 172 40 high cube containers. The Company provides full truckload
service between inland points within the continental U.S., primarily to reposition empty
equipment to service loads to and from Puerto Rico. The Company maintains a centralized
dispatch and customer service center at its Jacksonville headquarters to coordinate the
movement of customer freight throughout our system. Sales and customer service
representatives solicit and accept freight, quote freight rates and serve as the primary
contact with customers. Dispatch, sales and customer service personnel work together to
coordinate freight to achieve the most optimum load balance and minimize empty miles
within the Companys truckload operation.

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At December 31, 2006, Trailer Bridge
operated two 736 triple-deck, roll-on/roll-off (ro/ro) ocean-going barges and two
403' Triplestack Box Carriers. Loading of the ro/ro barges is performed with small
maneuverable yard tractors operated by stevedores hired by an outside contractor. Each
ro/ro vessel is towed at approximately 9 knots by one 7,200 horsepower diesel-powered tug.
Each Triplestack Box Carrier is towed at approximately 9 knots by one 4,600 horsepower
diesel-powered tug. The tugs are time-chartered and are manned by employees of an
unaffiliated tug owner. Compared to a self-propelled vessel, a tug/barge unit has reduced
Coast Guard manning requirements and higher fuel efficiency compared to the steam turbine
vessels operated by competitors. The tug/barge model results in less toxic emissions than
steam turbine vessels which use residual fuel. The greater fuel efficiency and much
cleaner distillate fuel associated with our tug/barge model results in 4 to 6 times less
emissions per cargo unit compared to the self-propelled vessels now serving Puerto Rico.
The large number of U.S. tugs available for charter provides the Company with a reliable
source for towing services.

# MARKETING AND CUSTOMERS

Sales professionals based in
Jacksonville, San Juan and other key U.S. cities aggressively market Trailer Bridge to
shippers as a customer-oriented provider of value-priced and dependable service. The
Company services major shippers with high volume, repetitive shipments whose freight lends
itself to integrated trucking and marine service.

The Company believes that price is
the primary determinant in the freight lanes in which it serves. However, the Company also
believes that it provides enhanced service that results from its use of an intermodal
model built around 53 equipment that is the standard for movements on the mainland.
The intermodal model provides for moving products from one location to another by various
means, including but not limited to water, truck and rail. This intermodal service frees
the customer from the operational complexities of coordinating the interface between
over-the-road, rail and marine service. This customer service philosophy has generated
increased demand from existing customers and has led to ongoing relationships with
customers such as Advance Auto Parts, Baxter, DaimlerChrysler, Ford, General Electric,
General Motors, Georgia Pacific, Hewlett-Packard, Home Depot, Honda, JC Penney,
Kelloggs, Kraft, Pep Boys, Procter & Gamble, Rooms To Go, SC Johnson, Toys
R Us, Walgreens and Whirlpool.

Because the Company has a diversified
customer base, typical shipments to Puerto Rico include furniture, consumer goods, raw
materials for manufacturing, electronics, new and used automobiles, and apparel, whereas,
the typical shipments from Puerto Rico normally include healthcare products,
pharmaceuticals, electronics, shoes and recyclables. Management intends to continue the
Companys efforts both to increase business with existing customers and add new core
relationships.

The Company maintains written
contracts with the majority of its customers. These contracts generally specify service
standards and rates, eliminating the need for negotiating the rate for individual
shipments. A contract typically requires a minimum tender of cargo during a specified term
in return for a set rate.

The continental United States/Puerto
Rico trade lane in which the Company operates is imbalanced with approximately 80% of the
freight moving southbound. The Companys core business is southbound containers and
trailers but it also moves new automobiles, used automobiles, non-containerized, or
freight not in trailers (NITs) and freight moving in shipper owned or leased
equipment (SOLs).

# VESSELS

Ro/Ro Barges

At December 31, 2006, the Company
owned and operated two 736 by 104 triple-deck roll-on/roll-off barges. Each
deck has ten lanes that are accessed from the stern of the vessel via ramp structures in
Jacksonville and San Juan that have been built specifically for the Company. On each
vessel, 84 equivalent 53 slots have been converted to carry new and used automobiles
on car decks that allow up to 11 cars to fit in the space previously used for one 53
unit. The containers on chassis or trailers are secured on the vessel by attachment to
pullman stands that are engaged and disengaged with specially configured yard tractors
used to pull the containers on chassis or trailers into position on the vessel.

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Triplestack Box Carriers

At December 31, 2006, the Company
owned five Triplestack Box Carriers (TBC) that are single deck barges designed
to carry 53' containers. Two TBCs are currently operating in scheduled liner service
between Jacksonville and San Juan. These vessels utilize the same port facilities as the
ro/ro barge vessels in Jacksonville and San Juan. Wheeled vehicles, known as
reach-stackers, carry and load the containers onto the vessels. These highly maneuverable
vehicles are also used by railroads to load containers on rail cars for intermodal
transportation. The reach-stackers are significantly less expensive than the cranes
typically required for loading and unloading containers from the holds of large cargo
ships and instead directly access the deck of the vessel via simple and movable linear
planks.

Currently, three TBCs are not being
used in regular service but are available for charter or additional liner service. A TBC
temporarily replaced a ro/ro vessel during the first and second quarters of 2006 while
each ro/ro vessel completed required regulatory drydockings.

# VESSELS OWNED BY THE
COMPANY

|VESSEL NAME         | TYPE  | CAPACITY      | SERVICE as of 12/31/06
|------------------- | ----- | ------------- | ----------------------
|SAN JUAN JAX BRIDGE | Ro/Ro | 405 53' units | Jax/San Juan          
|JAX SAN JUAN BRIDGE | Ro/Ro | 405 53' units | Jax/San Juan          
|ATLANTA BRIDGE      | TBC   | 281 53' units | Available for Charter 
|CHARLOTTE BRIDGE    | TBC   | 281 53' units | Available for Charter 
|MEMPHIS BRIDGE      | TBC   | 281 53' units | Available for Charter 
|CHICAGO BRIDGE      | TBC   | 281 53' units | Jax/San Juan          
|BROOKLYN BRIDGE     | TBC   | 281 53' units | Jax/San Juan          

# RAMP STRUCTURES

The loading and unloading of the
Companys two 736 by 104 triple-deck roll-on/roll-off barges is
accomplished through the use of ramp structures at both locations. The Company owns a
floating ramp structure in San Juan for the two 736 by 104' triple-deck
roll-on/roll-off barges. In Jacksonville, the Company has the preferential right to use a
land-base ramp structure built and owned by the Jacksonville Port Authority.

# OWNED REVENUE EQUIPMENT

At December 31, 2006, the Company
owned 69 line haul tractors and 5 day cabs. The line haul power units are conventional
tractors with sleeping accommodation. The day cabs are used for local delivery work in the
Jacksonville area. The Company also owned 281 dry van trailers as well as, 2,880 53
containers and 2,171 chassis. The Company anticipates taking delivery of an additional
1,000 new 53 containers and 850 new chassis during the second and third quarters of
2007.

At December 31, 2006, the Company
owned 305 53 Vehicle Transport Module® or VTMs
(VTMs) designed and built by the Company. These units are used to
transport automobiles and can hold up to three vehicles to provide an efficient unit for
loading and unloading. The Company holds three separate patents for the VTMs. Two patents
cover the VTM unit while the third patent covers the method of loading and unloading
vehicles into the VTM.

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The Company performs preventative
maintenance on equipment at its Jacksonville operations center, with the majority of major
maintenance and repairs handled by outside contractors.

# DRIVER RECRUITING AND
RETENTION

The Company offers competitive
compensation and full health care benefits comparable to those offered by truckload
operators. Management also promotes driver retention by assigning drivers a tractor for
the life of the unit. Drivers are assigned a single dispatcher, regardless of geographic
area, providing more predictable
home time for its drivers. The Companys driver turnover in 2006 was 25.7% compared
to 17.4% in 2005 which was well below the industry average.

# FUEL AVAILABILITY AND
COST

The Company actively manages its fuel
costs by requiring drivers to fuel at offsite fuel facilities where the Company
has established favorable pricing arrangements. Whenever possible in route, drivers are
required to fuel at these truck stops and service centers with which the Company has
established these volume purchasing discounts.  The Company also offers
fuel-conservation bonuses to our drivers based on achieving miles per gallon goals. During
2006 the Company purchased APUs (auxiliary power units) for use in some of its
tractors. The APUs reduce the amount of fuel used when the engine is idle while the
drivers rest.

Although the Company pays indirectly
for the marine fuel used by the large tugs it charters, tug crew personnel employed by the
tug owner control the actual fuel loading. The tug owner is responsible for providing the
tug fuel, the cost of which is rebilled at cost and paid by the Company. The tug fuel is
purchased and loaded at the nearby suppliers dock facility in Jacksonville during cargo
loading operations.

Trailer Bridge does not engage in any
fuel hedging activities as the present fuel surcharge mechanism has the effect of
adjusting revenue levels for changes in fuel prices.

In 2001 due to the increased cost of
fuel, the Company instituted fuel surcharges to its customers pursuant to its tariff and
these fuel surcharges have remained in place throughout 2006. The fuel surcharges for
domestic truck movements are charged on a per mile basis and are stipulated in the
Companys tariff at predetermined levels based upon the price of fuel. During 2006
the fuel surcharge for domestic truck movements was between $.21 per mile to $.31 per
mile. The fuel surcharges on movements to and from Puerto Rico are assessed on a per move
basis and have mitigated the increases in fuel prices. The additional fuel surcharge is
distinguished from freight revenues and both are reported in the Companys operating
revenues.

# SAFETY, ENVIRONMENT AND
INSURANCE

Trailer Bridge emphasizes safety in
all aspects of its operations. The Company maintains its own strict standards for
recruiting drivers, including a minimum of two years of verifiable commercial driving
experience, a safe driving history and a successful physical examination, including drug
and alcohol testing. Its ongoing driver safety program includes an initial orientation for
all new drivers, 100% log monitoring and strong adherence to all speed and weight
regulations.

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The Company adheres to all applicable
environmental regulations. Trailer Bridge believes that its vessel emissions are well
below certain competitors due to the cleaner distillate fuel that the Company routinely
uses in its tugs. The Company believes these pronounced differences will become a positive
differentiating factor in the future.

The Company bids annually for both
marine and land insurance policies. Major coverages include hull and protection indemnity,
pollution, excess liability, marine cargo, truckers liability, workers
compensation, directors and officers and commercial property.

# TECHNOLOGY

In January 2006, the Company upgraded
its computer system to a new IBM AS-400 iSeries which will allow for the integration of
all servers under a common platform and further enhance the security of all corporate data
by combining all data stores into a unified environment. This approach to data storage and
retrieval into a SANS (Secure Area Network Storage) environment tightens controls on
access and provides better management tools in the integrated environment. It also moves
control of traditionally vulnerable operating software into the control of the IBM OS/400
operating system, one of the most secure operating systems in the industry today.

The computer system links the
Companys headquarters, truck operations center, San Juan office and marine terminals
in Jacksonville and San Juan. The system enhances the Companys operating efficiency
by providing cost effective access to detailed information concerning available equipment,
loads, shipment status and specific customer requirements, and permits the Company to
respond promptly and accurately to customer requests.

The Companys electronic data
interchange (EDI) capability allows customers to tender loads, receive load
confirmation, check load status and receive billing information via computer. The
Companys EDI system also helps in accelerating the collection of its receivables.
The Companys largest customers require EDI service from their core carriers. It is
managements belief that this advanced technology will be required by an increasing
number of large shippers as they reduce the number of carriers they use in favor of the
more responsive core carriers.

The Company has a web-based load
tracking system, which provides its customers with real time load information. This
system, along with the EDI, has allowed the Company to better respond to customer demands.
Since the deployment of this web based tracking system, usage has increased as our
customers have found these systems to be useful for tracking their inventory and
monitoring of their current payables. These systems have also enabled Trailer Bridge to
handle increasing demand with greater efficiency, by knowing the exact location and load
of every operator as well as, open or excess capacity and identify the Companys
performing customers.

# COMPETITION

The Company currently competes with
three carriers for freight moving between the U.S. and Puerto Rico where its southbound
container volume market share, excluding vehicles, during 2006 was approximately 13%. The
current operators in the Puerto Rico trade are Horizon Lines, Crowley Liner Services,
Trailer Bridge and Sea Star Line. Based on available southbound industry data for 2006,
Horizon Lines has approximately 35% of the market and operates four steam turbine powered
container vessels that carry mainly 40 containers. Crowley Liner Services, a
subsidiary of Crowley Maritime Corporation, has approximately 32% of the market and
operates roll-on/roll-off barges in various services between the U.S. and Puerto Rico. Sea
Star Line, owned primarily by Saltchuk Resources, Inc., parent of Totem Ocean Trailer
Express, Inc. has approximately 20% of the market with two steam turbine powered
combination roll-on/roll-off container vessels. If vehicle cargos were included in the
market share analysis, Trailer Bridge, Crowley, and Sea Star market shares would be in
excess of the preceding figures.

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Puerto Rico shippers select carriers
based primarily upon price and to a lesser extent, criteria such as frequency of
shipments, transit time, consistency, billing accuracy and claims experience.

The trucking industry is highly
competitive and fragmented with, no one carrier or group of carriers dominating the
market. The Companys non-Puerto Rico domestic truckload operations, which are used
primarily to balance its core Puerto Rico service, compete with a number of trucking
companies as well as private truck fleets used by shippers to transport their own
products. Truckload carriers compete primarily on the basis of price. The Companys
truck freight service also competes to a limited extent with rail and rail-truck
intermodal service, but the Company attempts to limit this competition by seeking more
time and service-sensitive freight.

# REGULATION

As a common and contract motor
carrier, the Company is regulated by the Surface Transportation Board and various state
agencies. The Companys drivers, including owner-operators, also must comply with the
safety and fitness regulations promulgated by the Department of Transportation, including
those relating to drug testing and hours of service.

The Companys operations are
subject to various federal, state and local environmental laws and regulations,
implemented principally by the Environmental Protection Agency and similar state
regulatory agencies. These regulations govern the management of hazardous wastes,
discharge of pollutants into the air, surface and underground waters, and the disposal of
certain substances. Management is not aware of any water or land fuel spills or hazardous
substance contamination on its properties and believes that its operations are in material
compliance with current environmental laws and regulations.

The Companys marine operations
are conducted in the U.S. domestic trade. A set of federal laws known as the Jones Act
requires that only U.S. built, operated and crewed vessels move freight between ports in
the U.S., including the noncontiguous areas of Puerto Rico, Alaska and Hawaii. These
marine operations are subject to regulation by various federal agencies, including the
Surface Transportation Board, the U.S. Maritime Administration and the U.S. Coast Guard.
These regulatory authorities have broad powers governing activities such as operational
safety, tariff filings of freight rates, certain mergers, contraband, environmental
contamination and financial reporting. Management believes that its operations are in
material compliance with current marine laws and regulations. The Company has approved
Facility Security Plans in place for our waterfront facilities in compliance with Homeland
Security and the Maritime Transportations Security Act.

# EMPLOYEES

At December 31, 2006, Trailer Bridge
had 194 employees consisting of 67 truck drivers and 127 executive and administrative
personnel.

# WEBSITE

The Company maintains a website at
www.trailerbridge.com. All Company filings can be viewed on this website as soon as
practicable after filing.

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# Item 1A.   Risk Factors

# Risks Relating to the
Companys Business

The Company has
experienced losses.

Due primarily to the overcapacity and
intense competition in the Puerto Rico lane during the late 1990s and early
2000s, the Company experienced significant financial losses and associated negative
cash-flow during that time. Despite a reduction in market overcapacity and profitable
operations for the Company in 2004, 2005 and the second half of 2006, the Company cannot
assure you that it will continue to be profitable and continue to generate positive cash
flow. For example, the Company cannot assure you that a new marine freight carrier will
not commence operations in the Puerto Rico lane. Most of its competitors have
substantially greater financial resources, operate more equipment, or carry a larger
volume of freight than the Company does.

# The Companys
operations are dependent on a limited fleet and special loading structures.

The Companys current operations
depend on four vessels and triple deck loading ramps at its port facilities in
Jacksonville and San Juan, the loss of which could have a material adverse effect on the
Company. The operation of any marine vessel involves the risk of catastrophic events due
to various perils of sea. In addition, port facilities in Jacksonville and San Juan are
vulnerable to the risk of hurricanes. In the event of either a total loss of or major
damage to its vessels or ramps, the Company cannot assure you that the Company could
locate suitable replacements, or if available, that such replacements could be obtained on
suitable terms. The Company also could be adversely affected if unexpected maintenance or
repairs are required for either of the custom configured ramp systems the Company uses.
Although its vessels are insured for loss, the Company does not maintain business
interruption insurance. Accordingly, the Company cannot assure you that the loss of,
damage to or significant required repair to any of its vessels or port facilities in the
future would not have a material adverse effect on its cash flow.

# The Company currently
relies on a single market, which makes us susceptible to changes that could adversely
affect its results.

Most of its revenue is attributable
to freight moving either to or from Puerto Rico. Its reliance on the Puerto Rico market
makes us susceptible to a downturn in the local economy, local economic and competitive
factors, changes in government regulations and political changes that the Company cannot
predict.

# Repeal or substantial
amendment of the Jones Act could adversely affect its business.

The Jones Act provides that all
vessels operating between ports in the United States, including the noncontiguous areas of
Puerto Rico, Alaska and Hawaii, must be built, owned, operated and crewed substantially by
U.S. citizens. The Jones Act continues to be in effect and supported by the U.S. Congress
and the current administration. However, the Company can not assure you that the Jones Act
will not be repealed or amended in the future. If the Jones Act were to be repealed or
substantially amended and, as a consequence, competition were to increase in the Puerto
Rico market, its business and cash flow could be adversely affected. In addition, its
advantage as a U.S.-citizen operator of Jones Act vessels could be somewhat eroded over
time as there continue to be periodic efforts and attempts by foreign interests to
circumvent certain aspects of the Jones Act.

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# Item 1B.   Unresolved
Staff Comments

None.

# Item 2.   Properties

# OFFICE FACILITIES

Trailer Bridge is headquartered in
Jacksonville, Florida, where it owns a 20,500 square foot office building adjacent to its
truck operations center. This facility allows 81 Jacksonville personnel to be centralized
in one location. The office building has also been designed so that additions can be
constructed to serve the Companys future needs. The truck operations center property
consists of 27.0 acres near Interstate 95, approximately 2 miles from the Companys
marine terminal on Blount Island. In addition to the office building, the property
includes an 11,400 square foot tractor maintenance shop where preventative maintenance and
repairs are performed, as well as, a trailer washing facility, drivers lounge and
parking space for tractors and trailers.

The Company maintains small sales
office facilities in Georgia, North Carolina, Illinois, Ohio and New Jersey that are
utilized by sales personnel. The Company also rents a 2,600 square foot office in San Juan
where 16 Puerto Rico administrative and sales personnel are based and executive offices in
New York.

# PORT FACILITIES

The Company utilizes port facilities
in Jacksonville and San Juan where its vessels are loaded and freight is stored awaiting
further movement by either vessel or truck. Trailer Bridges terminal in Jacksonville
is located on Blount Island and consists of a berthing area and 25.2 acres leased from the
Jacksonville Port Authority. The lease, which expires in 2013, allows the Company to use
the berthing area on a preferential, although non-exclusive, basis and the land area on an
exclusive basis. Included in the lease is a triple deck loading ramp funded by the
Jacksonville Port Authority that the Company uses to load and unload its triple-deck
roll-on/roll-off barges. The Company pays the Jacksonville Port Authority a monthly rental
payment plus a wharfage payment based upon total cargo volume with a minimum guarantee of
approximately $1.7 million per year. The Companys marine terminal in San Juan
consists of two berthing areas and 39.0 acres that the Company utilizes on a preferential
basis under a stevedoring services agreement with the contractor who provides
cargo-handling services. This agreement calls for the Company to make fixed payments as
well as payments based upon total cargo volume and the prevailing wharfage rates of the
Puerto Rico Ports Authority. This agreement was renewed October 16, 2006 with an
expiration date of November 30, 2010 with renewals at the Companys option until
October 23, 2026. An agreement in principle has been made directly with the San Juan Port
Authority for an additional seven acres of land in the port area and we expect a lease to
be completed in 2007. The Company believes its present port facilities combined with the
additional land lease which we expect to conclude this year is sufficient for its current
and future operations. See  RAMP STRUCTURES in Item 1- Business.

The Company believes that all of its
facilities and equipment are in good condition, well maintained and able to support its
current operations. For additional information concerning the Companys properties,
see the information concerning its fleet of vessels and certain other properties as set
forth in Item 1. Business.

A substantial portion of the
Companys property and vessels are pledged as collateral for the Companys
long-term debt.

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# Item 3.   Legal Proceedings

The Company from time to time is a
party to litigation arising in the ordinary course of its business, substantially all of
which involves claims related to personnel matters or for personal injury and property
damage incurred in the transportation of freight. The Company presently is a party to
litigation arising from vehicle accidents and cargo damage. Management is not aware of any
claims or threatened claims that reasonably would be expected to exceed insurance limits
or have a material adverse effect upon the Companys operations or financial
position.

# Item 4.   Submission of
Matters to a Vote of Security Holders

No matters were submitted to a vote
of the Companys security holders during the Fourth Quarter of 2006.

Page 12

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# PART II

# Item 5.   Market For
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

The Companys Common Stock began
trading on the NASDAQ National Market tier of The NASDAQ Stock Market on July 29, 1997
under the symbol TRBR. During 2003, the Companys Common Stock was transferred to the
NASDAQ Small Cap Market. During 2006, the Company moved back to the larger NASDAQ Global
Market.

The following table represents the
high and low bid quotations for the past two years.

|
|
|
|
|
|

|
|
|
|
|
|

The following line graph compares the
Companys cumulative total stockholder return on its Common Stock since December 31,
2001, with the cumulative total return of the NASDAQ US Index and the S & P Truckers
Index. These comparisons assume the investment of $100 on December 31, 2001 in each index
and in the Companys Common Stock and the reinvestment of dividends. The Company has
paid no dividends since its inception and does not anticipate doing so in the foreseeable
future. Certain of the Companys loan documents prevent the payment of cash dividends
under certain circumstances. There is no assurance that the Companys stock
performance will continue into the future with the same or similar trends depicted in the
graph below. The Company makes no predictions as to the future performance of its stock.

Page 13

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|                       | INDEXED RETURNS
Years Ending
|---------------------- | ----------------------------
|
|Trailer Bridge, Inc.   | 160.90                      
|Nasdaq U.S. Index      | 69.13                       
|S&P 600 Trucking Index | 116.00                      

As of March 15, 2007 there were 104
stockholders of record in addition to approximately 1,000 stockholders whose shares
were held in nominee name.

The following table sets forth
information about the Companys equity compensation plans.

|                                  | Equity Compensation Plan Information                                                        |                                                                             
|--------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------
|(a)                               | (b)                                                                                         | (c)                                                                         
|Plan Category                     | Number of securities to
be issued upon exercise of
outstanding options,
warrants and rights | Weighted-averager
exercise price of
outstanding options,
warrants and rights
|Equity compensation plans appoved |                                                                                             |                                                                             
|by securities holders             |                                                                                             |                                                                             
|                                  |                                                                                             |                                                                             
|Equity compensation plans not     |                                                                                             |                                                                             
|appoved by securities holders     |                                                                                             |                                                                             
|                                  |                                                                                             |                                                                             
|Total                             |                                                                                             |                                                                             
|                                  |                                                                                             |                                                                             

Page 14

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# Item 6.   Selected
Financial Data

The selected financial data set forth below
has been derived from the financial statements of the Company. The selected financial
information set forth below should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations and the
Financial Statements and notes thereto appearing elsewhere in this report.

|                                                     
|-----------------------------------------------------
|(In thousands, except per share amounts)             
|STATEMENT OF OPERATIONS DATA:                        
|Operating revenues                                   
|Operating income (loss)                              
|Net (loss) income                                    
|Net (loss) income attributable to common shareholders
|Basic, net (loss) income per common share            
|Diluted, net (loss) income per common share          
|BALANCE SHEET DATA:                                  
|Working capital (deficit)                            
|Total assets                                         
|Long-term debt, capitalized                          
|leases and due to affiliate                          
|Stockholders' equity (capital deficit)               

---

|(1) | During
the fourth quarter of 2004 the Company aquired all the assets and certain debt of an
affiliate, resulting in the retirement of the Company's Class B Preferred Stock.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | During
the first and second quarters of 2006 the Company's two RO/RO vessels underwent required
regulatory drydocking.  This was expensed during the period incurred in the amount of
$12,765,605.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | During
the fourth quarter of 2006 the Company adjusted its valuation allowance for its deferred
tax asset by approximately $5.0 million or $.42 per share.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

Page 15

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# Item 7.    Management's
Discussion And Analysis Of Financial Condition And Results Of Operations

# EXECUTIVE SUMMARY

The  Company  earns  revenue by the
 movement  of freight by water to and from Puerto  Rico from the  continental  United
 States through its terminal  facility in Jacksonville,  Florida.  The Company also earns
revenue from the movement of freight within the continental  United States by truck when
such movement  complements  its core business of moving freight to and from Puerto Rico.
The Company's  operating  expenses  consist of the cost of the equipment,  labor,
 facilities,  fuel and  administrative  support necessary to move freight to and from
Puerto Rico and within the continental United States.  During 2006 the Company
 experienced a decline in operating  income and the  resulting  operating  ratio which
was primarily due to expensing the cost of the required regulatory  dry-docking  of its
two ro/ro  vessels  that  occurred  during  the first  half of the year as well as a
 significant increase in rent expense on vessels and  equipment.  This  dry-docking
 expense and the  associated  disruption  to the Company's normal sailing schedule
 resulted in markedly  different  operating results in the second half of 2006 compared
to the first half and that difference is highlighted following the discussion of overall
2006 results below.

RESULTS OF OPERATIONS

The following table sets forth the
indicated items as a percentage of net revenues for the years ended December 31, 2006,
2005 and 2004.

Operating Statement -
Margin Analysis           (% of Operating Revenues)

|                                                                            
|----------------------------------------------------------------------------
|Operating Revenues                                                          
|Salaries, wages, and benefits                                               
|Rent and purchased transportation:                                          
|Related Party                                                               
|Other                                                                       
|Fuel                                                                        
|Operating and maintenance (exclusive of depreciation shown separately below)
|Dry-Docking                                                                 
|Taxes and licenses                                                          
|Insurance and claims                                                        
|Communications and utilities                                                
|Depreciation and amortization                                               
|(Gain) Loss on sale of assets                                               
|Other operating expenses                                                    
|                                                                            
|Total Operating Expenses                                                    
|                                                                            
|Operating income                                                            
|Net interest expense                                                        
|Provision for Income taxes                                                  
|                                                                            
|Net (loss) income                                                           
|                                                                            

Page 16

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# Year ended December 31,
2006 Compared to Year ended December 31, 2005

The Companys operating ratio
was higher at 95.6% in 2006 compared to 82.9% 2005. The primary reason for this variance
results from the Company incurring significant dry-docking expense in 2006. Had the
Company used the defer-and-amortize method the operating ratio would have been 85.4% in
2006 compared to 83.2% in 2005. See the reconciliation located on page 19.

# Revenues

The following table sets forth by
percentage and dollar, the changes in the Companys revenue and volume, measured by
equivalent units, by sailing route and freight carried:

Volume & Revenue
Changes 2006 compared to 2005

|                                    
|------------------------------------
|Volume Percent Change:              
|Core container & trailer            
|Auto and other cargos               
|SOLs (Shipper owned equipment loads)
|Revenue Change ($millions):         
|Core container & trailer            
|Auto and other cargos               
|SOLs                                
|Other Revenues                      
|                                    
|Total Revenue Change                
|                                    

The increase in core container and
trailer revenue, and other revenue is primarily due to increases in accessorial charges
and freight rates partially offset by volume decreases.

Vessel capacity utilization on the
core continental U.S. to Puerto Rico traffic lane was 87.1% during 2006, compared to 88.9%
during 2005. Southbound trailer and container volume remained relatively stable but vessel
capacity utilization decreased due to a decrease in the auto and other cargo volume
southbound. The Company expects auto volume to increase as a result of contracts signed
during the fourth quarter of 2006 that commence in 2007.

The increase in other revenues is
primarily attributable to an increase in fuel surcharges. The Companys fuel
surcharge is included in the Companys revenues and amounted to $16.9 million in 2006
and $11.9 million in 2005. Demurrage, a charge assessed for failure to return empty
freight equipment on time, is also included in the Companys revenues and amounted to
$1.6 million in 2006 in comparison to $3.1 million in 2005. Total charterhire revenue
amounted to $1.8 million in 2006 and $1.0 million in 2005. Charterhire is rental revenue
for vessels not in use in a liner service. Security charges are charges to cover the
Companys expenses beyond the normal security required to ensure the safety of the
shippers cargo. These charges amounted to $1.9 million in 2006 compared to $1.8
million in 2005.

Page 17

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Operating expenses

Operating expenses increased by $17.8
million, or 20.3% from $87.6 million in 2005 to $105.4 million for 2006. This increase was
due primarily to the expense associated with the required regulatory drydocking of the
Companys two ro/ro barges during 2006 totaling $12.8 million. The ro/ro vessels are
not scheduled for another drydocking until 2011. Salaries and benefits decreased by $0.9
million or 5.9% primarily due to decreases in fringe benefits and incentive based
compensation. Rent and purchased transportation increased by $4.0 million or 18.3% due to
increases in fuel surcharges paid to other carriers as well as the increased usage of
inland purchased transportation. Fuel expense increased $0.9 million or 6.3% as a result
of market price increases. Operating and maintenance expense increased $12.3 million or
53.5% primarily due to required regulatory drydocking of the Companys two ro/ro
barges during 2006. Insurance and claims increased $0.5 million or 14.7% as a result of
increases in premiums due to overall market rate increases and an increase in the
Companys inland transportation fleet. Depreciation and amortization expense
increased by $0.9 million or 19.4% due to the Companys purchase of property, plant
and equipment. Gain on sale of assets increased by $0.6 million primarily due to the 2005
loss on the sale of a portion of the Companys over the road equipment. Other
operating expenses increased $0.7 million due to an increase in the period expenses
related to the Companys allowance for doubtful accounts, an increase in consulting
fees and an increase in security expenses during 2006. As a result, the Companys
operating ratio deteriorated to 95.6% during 2006 from 82.9% during 2005. The
Companys operating ratio, as adjusted to account for dry-docking using the
defer-and-amortize method like its peers, deteriorated slightly to 85.4% during 2006 from
83.2% during 2005.

Interest Expense

Interest expense decreased to $10.2
million in 2006 from $10.5 million in 2005 primarily due to the reduction in due to
affiliate and Title XI debt principal payments.

Income taxes

Income taxes are calculated using the
liability method specified by SFAS No. 109 Accounting for Income Taxes.
Valuation allowances are provided against deferred tax assets if it is considered
more likely than not that some portion or the entire deferred tax asset will
not be realized.

Management considered such factors as
cumulative earnings history in addition to projected results in assessing the need for a valuation
allowance.  Management concluded that it was more likely than not that a portion of the deferred tax asset
would be realized and adjusted the valuation allowance accordingly.  The most weight is given to near term
budgets and this reduction was calculated by applying a 38% tax rate to the 2007 business plan.  As a
result of this analysis, the Company recorded a tax benefit of approximately $5.0 million, including a
$3.1 million decrease in the valuation allowance during the year ended December 31, 2006.

As a result of the factors described
above, the Company reported a slight net loss of $18,093 or $(.00) per share, basic,
at December 31, 2006 compared to net income of $7.8 million or $.67 per share, basic, at December
31, 2005.

Page 18

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The financial information provided
below reflects the Companys operating results based on the Companys election
in a prior year to account for its dry-docking cost using the expense-as-incurred method.
Management believes that the operating results should be adjusted utilizing the
defer-and-amortize method of accounting so as not to distort the operating results due to
a dry-docking expense that occurs once every five years. As a result of the Companys
election to use the preferable expense-as-incurred method, the Company is not permitted to
change to a less preferable method even though it is predominantly used by its
competitors. However, the Company believes this is a meaningful disclosure because (i)
during accounting periods where multiple dry-dockings are performed, operating results are
not comparable to prior periods or to industry peers, and management and the
Companys board of directors believe providing this measure to shareholders will
assist them in making meaningful industry comparisons; (ii) both of the Companys
ro/ro vessels underwent regulatory dry-dockings in the first half of 2006. Note that the
dry-docking cost related to the ro/ro vessels that have three decks, each 736 long
are significantly more than the cost of dry-docking the TBC vessels that have a single
deck that is 400 long and were built more recently than the ro/ro vessels; (iii) the
defer-and-amortize method of accounting for dry-docking cost is the predominant method
used by the Companys industry peer group; and (iv) the Companys board of directors
and management team evaluates the Companys operating performance compared to the
industry peer group. The Companys operating results as adjusted, utilizing the
defer-and-amortize method to account for dry-docking cost using a 5-year straight line
amortization period beginning when the vessels resume service is included below:

|                                                                    
|--------------------------------------------------------------------
|2006                                                                
|Operating income, expense-as-incurred method, as reported           
|add back: dry docking - expense-as-incurred method                  
|subtract: dry docking - defer and amortize method                   
|                                                                    
|Operating income, defer and amortize method, as adjusted            
|                                                                    
|Operating ratio, expense-as-incurred method                         
|Operating ratio, defer and amortize method                          
|Net (loss) income, expense-as-incurred method, as reported          
|add back: dry docking - expense-as-incurred method                  
|subtract: dry docking - defer and amortize method                   
|                                                                    
|Net income, defer and amortize method, as adjusted                  
|                                                                    
|(Loss) earnings per shares basic, expense-as-incurred, as reported  
|add back: dry docking - expense-as-incurred method, per share       
|subtract: dry docking - defer and amortize, per share               
|                                                                    
|Earnings per shares basic, defer and amortize, as adjusted          
|                                                                    
|(Loss) earnings per shares diluted, expense-as-incurred, as reported
|add back: dry docking - expense-as-incurred method, per share       
|subtract: dry docking - defer and amortize, per share               
|                                                                    
|Earnings per shares diluted, defer and amortize, as adjusted        
|                                                                    

Management believes that the
dry-docking expense and associated disruptions make a review of all of 2006 results less
meaningful than it would otherwise be and points to the breakdown of overall 2006 results
shown in the table below. Management believes that the operating results for the second
half are a more relevant measure of recent performance.

Page 19

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The following table sets forth the
operating results for the six months ended June 30, 2006 compared to the earnings for the
six months ended December 31, 2006.

TRAILER BRIDGE, INC.
STATEMENT OF OPERATIONS SIX MONTHS ENDING JUNE 30 AND DECEMBER 31, 2006

|                                                         | Six Months Ended
June 30, 2006 | Six Months Ended
December 31, 2006
|-------------------------------------------------------- | ------------------------------ | ----------------------------------
|OPERATING REVENUES                                       |                                |                                   
|OPERATING EXPENSES:                                      |                                |                                   
|Salaries, wages, and benefits                            |                                |                                   
|Rent and purchased transportation                        |                                |                                   
|Fuel                                                     |                                |                                   
|Operating and maintenance (excluding depreciation below) |                                |                                   
|Dry-Docking                                              |                                |                                   
|Taxes and licenses                                       |                                |                                   
|Insurance and claims                                     |                                |                                   
|Communications and utilities                             |                                |                                   
|Depreciation and amortization                            |                                |                                   
|(Gain) loss on sale of assets                            |                                |                                   
|Other operating expenses                                 |                                |                                   
|                                                         |                                |                                   
|                                                         |                                |                                   
|                                                         |                                |                                   
|OPERATING (LOSS) INCOME                                  |                                |                                   

The Company had an operating loss of
$6.0 million during the six months ended June 30, 2006 compared to operating income of
$10.9 million during the six months ended December 31, 2006. The loss experienced during
the first half of 2006 was a result of the required regulatory dry-dockings of its ro/ro
vessels.

Page 20

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# Year ended December 31,
2005 Compared to Year ended December 31, 2004

# Revenues

The following table sets forth by
percentage and dollar, the changes in the Companys revenue and volume by sailing
route and freight carried:

Volume & Revenue
Changes 2005 compared to 2004

|                                    
|------------------------------------
|Volume Percent Change:              
|Core container & trailer            
|Auto and other cargos               
|SOLs (Shipper owned equipment loads)
|Revenue Change ($millions):         
|Core container & trailer            
|Auto and other cargos               
|SOLs                                
|Other Revenues                      
|                                    
|Total Revenue Change                
|                                    

The increase in core container and
trailer revenue, and other revenue is primarily due to increases in accessorial charges
and freight rates, offset by volume decreases.

Vessel capacity utilization on the
core continental U.S. to Puerto Rico traffic lane was 88.9% during 2005, compared to 96.5%
during 2004. Southbound trailer and container volume remained relatively stable but vessel
capacity utilization decreased due to a decrease in the auto and other cargo volume
southbound.

The increase in other revenues is
primarily attributable to an increase in fuel surcharges, demurrage, security charges and
charterhire. The Companys fuel surcharge is included in the Companys revenues
and amounted to $11.9 million in 2005 and $7.0 million in 2004. Demurrage, a charge
assessed for failure to return empty freight equipment on time, is also included in the
Companys revenues and amounted to $3.1 million in 2005 in comparison to $2.9 million
in 2004. During 2005 total charterhire revenue amounted to $1.0 million in 2005 and $0.7
million in 2004. Charterhire is rental revenue for vessels not in use in a liner service.
Security charges are charges to cover the Companys expenses beyond the normal
security required to ensure the safety of the shippers cargo. These charges amounted
to $1.8 million in 2005 in comparison to $1.3 million in 2004.

Page 21

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Operating expenses

Operating expenses decreased by $2.6
million, or 2.8% from $90.2 million in 2004 to $87.6 million for 2005. This decrease was
due primarily to the purchase of primarily leased fixed assets in late 2004 resulting in a
lower rent and purchased transportation expense and offset partially by higher
depreciation expense. This change was also offset by higher fuel expenses. Salaries and
benefits increased by $0.8 million or 5.3% primarily due to increases in salary and
incentive based compensation as a result of operating performance combined with increased
health care benefits cost, partially offset by lower workers compensation expenses. The
related party purchased transportation decrease of $6.7 million was the result of the
purchase of the ro/ro barges in December 2004. Rent and purchased transportation decreased
by $1.4 million or 5.8% due to the Company purchasing equipment in December 2004 that was
previously leased and the increased usage of rail transportation instead of truck
transportation. Fuel expense increased $3.6 million or 35.6% as a result of a $3.0 million
increase in tug fuel and a $0.6 million increase in truck fuel expense due to market price
increases. Operating and maintenance expense decreased $0.5 million or 2.3% primarily due a
$0.6 million decrease in tire expenses in 2005 due to a tire replacement program in 2004.
Depreciation and amortization expense increased by $1.3 million or 43.4% due to the
Companys purchase of property, plant and equipment, including the ro/ro barges and
revenue equipment purchased with the proceeds of the senior secured notes issued December
2004. Loss on sale of assets increased by $0.5 million primarily due to the sale of a
portion of the Companys over the road equipment. Other operating expenses decreased
$0.2 million due to lower professional fees in 2005. As a result, the Companys
operating ratio improved to 83% during 2005 from 91% during 2004.

During 2004, the Company had an
appraisal performed on its vessels, containers and chassis, which included a review of the
useful lives. The results of this appraisal indicated an increase in the useful life of
these assets, from the lives originally estimated by the Company. As such, management
revised its estimate of the remaining useful lives of chassis, VTMs, vessels and
containers to extend the useful lives by approximately 6 to 10 years. During 2004, a
change in accounting estimate was recognized to reflect this decision, resulting in a
decrease of depreciation expense for 2004 by approximately $409,000 and as an increase in
net income of approximately $409,000 or $.03 per basic and diluted share.

Interest Expense

Interest expense increased to $10.5
million in 2005 from $4.2 million in 2004 primarily due to the senior secured debt, which
was only outstanding for a portion of the fourth quarter of 2004 compared with the entire
year in 2005.

Income taxes

Income taxes are calculated using the
liability method specified by SFAS No. 109 Accounting for Income Taxes.
Valuation allowances are provided against deferred tax assets if it is considered
more likely than not that some portion or the entire deferred tax asset will
not be realized.

During 2005 the Company realized a
reversal of approximately $10.9 million of its deferred tax asset valuation
allowance as a result of the senior secured notes transaction during 2004. As of December
31, 2005, management has recorded approximately $10.0 million as a valuation allowance on
its deferred tax asset. Management is continuously evaluating the deferred tax valuation
allowance, to determine what portion of the deferred tax asset may be realized in the
future. Managements evaluation includes, among other things, such factors as a
history of profitability, a substantial history of operations upon which to base a
forecast and a history of accurately forecasting future results of operations.

Page 22

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For the year ended December 2005,
while the Company had sufficient net operating loss carry forwards to offset its taxable
income, for Alternative Minimum Tax purposes, a corporation is only allowed to reduce
(through available NOLs) its AMTI (alternative minimum taxable income) by 90%. The
remaining 10% is taxed at a 20% AMT rate. The majority of the current tax expense is
related to AMT tax due for 2005 and 2004. See Note 9 to the financial statements.

As a result of the factors described
above the Company reported net income of $7.8 million for 2005 compared to net income of
$4.4 million in 2004.

Preferred Stock Series
B

Undeclared Cumulative Dividends
 In 2004, the Company recorded undeclared dividends on preferred stock series
B of $1,115,796. These dividends were recorded because they were contractual
obligations, the obligation to pay the dividend was waived in 2004.

Preferred Stock Accretion
. In 2004, the Company recorded Preferred Stock Series B accretion
of $515,845.

Excess Consideration Transferred
to the Holders of the Preferred Stock Over the Carrying Amount In connection
with the acquisition of K-Corp on December 1, 2004, the Company redeemed the Series
B Preferred Stock for $24 million. In connection with the redemption, the
Company recorded the excess of the consideration transferred ($24 million) to the holders
of the preferred stock over the carrying amount of the preferred stock, ($23.5 million),
and reflected as a subtraction of $0.5 million from net earnings available to common
shareholders. This transaction was recorded in accordance with Emerging Issues Task
Force D-42 The Effect on the Calculation of Earnings per Share for the Redemption or
Induced Conversion of Preferred Stock.

As a result of the acquisition of
K-Corp and the redemption of the Series B Preferred Stock, the Company did not
have these transactions in 2005 and will not in subsequent years.

# DIVIDENDS

The Company has not declared or paid
dividends on its common stock during the past five years.

# LIQUIDITY AND CAPITAL
RESOURCES

Net cash provided by operating
activities was $1.2 million in 2006 compared to net cash provided by operating activities
of $13.6 million in 2005. This represented a decrease of $12.4 million from 2005 due
primarily to the large cash outlays related to the dry-dockings. The decrease in net cash
provided by operating activities was also a result of an increase in accounts receivable
related to increased revenue during 2006 offset by an increase in the combination of
accounts payable and accrued liabilities related to higher operating expenses. The
Companys expected cash flows from operating activities and the availability under
the credit facility will provide sufficient cash flows for future operations. Net cash
used in investing activities was $3.6 million in 2006 compared to net cash used in
investing activities in 2005 of $6.1 million. The Company spent $3.2 million on purchases
and upgrades of equipment during 2006. Also, the Company deposited $1.2 million to comply
with its Title XI debt agreement which required the Company to deposit a portion of net
earnings (as defined) into a reserve fund until an amount equal to fifty percent of the
outstanding balance is reached. Net cash used in financing activities was $2.0 million in
2006 compared to net cash used in financing activities of $2.3 million in 2005
representing a change of $0.3 million primarily the result of a decrease in the amount of
loan costs incurred during the period. At December 31, 2006, cash amounted to $6.9
million, working capital was at $15.8 million, and stockholders equity was $0.9
million.

Net cash provided by operations was
$13.6 million in 2005 compared to net cash provided by operations of $3.1 million in 2004.
This represented an increase of $10.5 million from 2004. $9.2 million of the improvement
was attributable to increased net income, an improvement in collection activity and timing
of payments related to accounts payable. The decrease in accounts payable was facilitated
by the Companys improved profitability. Net cash used in investing activities was
$6.1 million in 2005 compared to net cash used in investing activity in 2004 of $23.6
million in 2004. This represented a change of $17.4 million from 2004. $19.8 million of
the decrease is directly related to the purchase of equipment primarily the ro/ro vessels
and revenue equipment from the proceeds of the senior secured notes in December 2004 which
was offset by the $6.3 million of additions added in 2005. Net cash used in financing
activities was $2.3 million in 2005 compared to net cash provided by financing activities
of $26.2 million in 2004 representing a change of $28.5 million. In December 2004, the
Company issued $85 million of Senior Secured notes, using $24 million to redeem the
outstanding preferred shares and $14.3 million to pay down the line of credit. At December
31, 2005, cash amounted to $11.4 million, working capital was a $15.4 million, and
stockholders equity was a $.8 million.

Page 23

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During the fourth quarter of 2006 the
Company extended its terminal operating agreement in San Juan until 2010 with options
extending to 2026.

The Company has outstanding two
series of Ship Financing Bonds designated as its 7.07% Sinking Fund Bonds Due September
30, 2022 and 6.52% Sinking Fund Bonds Due March 30, 2023. These bonds are guaranteed by
the U.S. government under Title XI of the Merchant Marine Act of 1936, as amended. The
aggregate principal amount of the Title XI Bonds outstanding at December 31, 2006 was
$19.7 million. During 2006 the Company has deposited $1.2 million into a reserve fund that
secures the Title XI Bonds. As of December 31, 2006 the balance of this reserve fund was
approximately $3.9 million.

As of December 31, 2006, the Company
was restricted from performing certain financial activities due to it not being in
compliance with Title XI debt covenants relating to certain leverage ratios. The
provisions of the Title XI covenants provide that, in the event of noncompliance with the
covenants, the Company is restricted from conducting certain financial activities without
obtaining the written permission of the Secretary of Transportation of the United States
(the Secretary ). If such permission is not obtained and the Company enters
into any of the following actions it will be considered to be in default of the Title XI
covenants and the lender will have the right to call the debt. These actions are as
follows: (1) acquire any fixed assets other than those required for the normal maintenance
of its existing assets; (2) enter into or become liable under certain charters and leases
(having a term of six months or more); (3) pay any debt subordinated to the Title XI
Bonds; (4) incur any debt, except current liabilities or short term loans incurred in the
ordinary course of business; (5) make investments in any person, other than obligations of
U.S. government, bank deposits or investments in securities of the character permitted for
money in the reserve fund; or (6) create any lien on any of its assets, other than
pursuant to loans guaranteed by the Secretary of Transportation of the United States under
Title XI and liens incurred in ordinary course of business. However, none of the foregoing
covenants will apply at any time if the Company meets certain financial tests provided for
in the agreement and the Company has satisfied its obligation to make deposits into the
reserve fund. As of December 31, 2006, the Company was in compliance with such
restrictions. The debt was not in default, and the lender did not have the right to call
the debt.

The Companys revolving credit
facility with Congress Financial Corporation, as amended, provides for a maximum
availability of $10 million. The facility provides for interest equal to the prime rate
plus 1.5%. The revolving line of credit is subject to a borrowing base formula
(approximately $10,000,000 was available under this formula at December 31, 2006) based on
a percentage of eligible accounts receivable and expires in April 2007. The revolving
credit facility is secured by our accounts receivable. At December 31, 2006, there were no
advances drawn on this credit facility. The Company expects to extend this line on more
favorable terms.

The Company anticipates capital
expenditures of approximately $18.8 million during 2007, primarily consisting of $17.5
million for the purchase of 1,000 new containers and 850 new chassis along with
$1.3 million for the purchase of 20 tractors.

The $85 million in 9-1⁄4 %
Senior Secured Notes mature on November 15, 2011. Interest on the notes is payable
semi-annually on each May 15 and November 15, beginning on May 15, 2005. Prior to November
15, 2008, the Company may redeem some or all of the notes at a make-whole premium. After
November 15, 2008, the Company may redeem the notes, in whole or in part, at its option at
any time or from time to time at the redemption prices specified in the indenture
governing the notes, plus accrued and unpaid interest thereon, if any, to the redemption
date. In addition, prior to November 15, 2007, the Company may redeem up to 35% of
aggregate principal amount of the notes with the net proceeds of certain equity offerings
at a redemption price of 109-1⁄4% of the principal amount of the notes, plus accrued
and unpaid interest to the date of redemption. Upon the occurrence of certain changes in
control specified in the indenture governing the notes, the holders of the notes will have
the right, subject to certain conditions, to require the Company to repurchase all or any
part of their notes at a repurchase price equal to 101% of the principal amount of the
notes, plus accrued and unpaid interest thereon, if any, to the redemption date. The
agreement among other things, restricts (as defined) the Company to (a) incur or guarantee
additional debt (b) to pay dividends, repurchase common stock or subordinate debt (c)
create liens (d) transact with affiliates and (e) transfer or sell assets.

Page 24

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# INFLATION

Inflation has had a minimal effect
upon the Companys operating results in recent years. Most of the Companys
operating expenses are inflation-sensitive, with inflation generally producing increased
costs of operation. The Company expects that inflation will affect its costs no more than
it affects those of other truckload and marine carriers.

# SEASONALITY

The Companys marine operations
are subject to the seasonality of the Puerto Rico freight market where shipments are
generally reduced during the first calendar quarter and increased during the third and
fourth calendar quarters of each year.

# CONTRACTUAL OBLIGATIONS

The following table summarizes the
Companys contractual obligations and commitments. See Notes 3 and 4 of the Notes to
Financial Statements for additional information regarding transactions with related
parties, long-term debt and operating leases.

|                            | Payments due by period
|--------------------------- | ----------------------
|
|Long-term Debt Obligations  |                       
|Due to affiliates           |                       
|Purchase Commitments        |                       
|Operating Lease Obligations |                       
|                            |                       
|Total                       |                       

Purchase obligations are reflected in
accounts payable and accrued liabilities on the balance sheet and are not reflected in the
above table. In addition, the table above does not include contractual interest
obligations on the Companys debt, the cost of labor associated with the lease of tug
boats and other purchase obligations that are not material.

# TRANSACTIONS WITH
AFFILIATES

The Company leased two
roll-on/roll-off barge vessels and the use of a ramp system in San Juan from an affiliate,
Kadampanattu Corp. (K-Corp), under operating lease agreements until December 2004. Certain
stockholders of the affiliate were controlling stockholders of the Company through August
16, 2004. The lease payments were $10,050 per day for each vessel. The vessels were
purchased with proceeds from the Senior Secured notes. Total lease expense under these
leases from affiliate totaled $6,714,863 in 2004.
During 2004, the affiliate agreed to defer $1.5 million of charter hire to be paid by the
Company.

In April 2004, the $1.5 million
deferred charter hire obligation was combined with the $989,436 of advances into a $2.5
million obligation payable over 36 months with interest at 8.03% a year. In connection
with the K-Corp acquisition, this debt was transferred to another affiliate and remained
an obligation of the Company as of December 31, 2006. At December 31, 2006, the note had
an outstanding balance of $0.9 million.

Page 25

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On August 16, 2004, the Estate of
M.P. McLean distributed 1,641,732 shares of common stock to its beneficiaries. This
distribution resulted in a decrease of the Estates ownership in the Company to
approximately 44.7%. On December 1, 2004, the Company purchased 100% of the stock of K
Corp. for $32.0 million and the assumption of $9.1 million worth of debt, which was paid
off on December 1, 2004 from a portion of the proceeds obtained with the senior secured
notes. Previously K-Corp leased to the Company two roll-on / roll-off barge vessels and
the use of a ramp system in San Juan.

On December 1, 2004, the Company
acquired 100% of the outstanding stock of K Corp. with a portion of the proceeds obtained
from the senior secured notes. As a result of the purchase, the Company was able to
improve its operating results by eliminating the lease payments and replacing them with interest
expense resulting from the notes on the senior secured debt and depreciation expense of
the acquired ro/ro vessels. The Company paid $32.0 million and assumed debt of $9.1
million, which was paid off on December 1, 2004.

As noted above, the Company
purchased the stock of K-Corp for $41.1 million, thereby acquiring K-Corps assets,
which had a historical carrying value of $48.9 million. Since the Company and K-Corp had
similar controlling shareholders, the Company recorded K-Corps assets at the
historical carrying value of $24.9 million and estimated the value of the Companys
redeemed preferred stock to approximate its liquidation value. The excess of the
historical carrying value over the amount paid is recorded as a $7.8 million capital
contribution on the Statement of Changes in (Capital Deficit) Stockholders Equity.

| | The
assets acquired are as follows:
| | -----------------------------------

|                                              
|----------------------------------------------
|Vessels                                       
|Land                                          
|Investment in Company Preferred Stock Series B
|                                              
|Total assets acquired                         
|                                              

| | The
purchase price is as follows:
| | ---------------------------------

|                                                                        
|------------------------------------------------------------------------
|Cash paid by Company                                                    
|Long term debt acquired in connection with the K-Corp Acquisition       
|                                                                        
|Purchase price of assets acquired                                       
|                                                                        
|Capital Contribution received as a result of acquisition of an affiliate
|                                                                        

On December 1, 2004, in connection
with the acquisition of K-Corp the Company redeemed the preferred stock Series B for $24
million. In connection with this redemption the Company recorded the excess of the
consideration transferred to the holders of the preferred stock over the carrying amount
of the preferred stock on the Companys balance sheet as a subtraction from net
earnings to arrive at net earnings available to common shareholders.

Page 26

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The redemption of the preferred
stock is as follows:

|                                                        | 2004
|------------------------------------------------------- | ----
|Purchase price paid to K-Corp                           |     
|Accreted carrying amount of the Company                 |     
|                                                        |     
|Excess consideration given to the shareholders over the |     
|carrying value of the Preferred Class B securities      |     
|                                                        |     

# CRITICAL ACCOUNTING
POLICIES AND ESTIMATES.

The preparation of financial
statements in conformity with accounting principles generally accepted in the United
States of America requires the application of certain accounting policies, many of which
require the Company to make estimates and assumptions about future events and their impact
on amounts reported in these financial statements and related notes. Since future events
and their impact cannot be determined with certainty, the actual results will inevitably
differ from our estimates. Such differences could be material to the financial statements.

Management believes the application
of accounting policies, and the estimates inherently required therein, are reasonable.
These accounting policies and estimates are constantly reevaluated, and adjustments are
made when facts and circumstances dictate a change. Historically, management has found the
application of accounting policies to be appropriate, and actual results have not differed
materially from those determined using necessary estimates.

The Companys accounting
policies are more fully described in Note 1 to the financial statements. Certain critical
accounting policies are described below.

Revenue Recognition. Voyage
revenue is recognized ratably over the duration of a voyage based on the relative transit
time in each reporting period commonly referred to as the percentage of
completion method. Voyage expenses are recognized as incurred. Demurrage and
charterhire revenue are included in our revenues. Demurrage is a charge assessed for
failure to return empty freight equipment on time. Charter hire is rental revenue for
vessels not in use in a liner service. The Company recognizes demurrage and charterhire
revenue based on negotiated fees included in the contracts of our customers. These amounts
are computed daily and included in Operating Revenue.

Useful Life and Salvage Values.The Company reviews the selections of estimated useful lives and salvage values for
purposes of depreciating our property and equipment. Depreciable lives of property and
equipment range from 2 to 40 years. Estimates of salvage value at the expected date of
trade-in or sales are based on the expected values of equipment at the time of disposal.
The accuracy of these estimates affects the amount of depreciation expense recognized in a
period and ultimately, the gain or losses on the disposal of the asset. For instance, the
Company recognized a gain of $105,905 in 2006 and a loss of $508,624 in 2005 on the
disposal of assets.

Repairs and Maintenance. The Company expenses repairs and maintenance as incurred.
Every five years the Companys vessels are required to go
through regulatory drydocking. The Company elected, in a prior year, to account for its
drydocking costs using the expense-as-incurred method as opposed to the defer-and-amortize
method predominantly used by the Companys industry peer group. The Company elected
the expense-as-incurred method for accounting for these required regulatory drydocking
costs as it is the method preferred by the Securities and Exchange Commission. See the tables on page 19
for a discussion and analysis of the effect of using the expense-as-incurred method as compared with the
defer-and-amortize method.

Page 27

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Impairment Of Long-Lived
Assets. The Company evaluates the carrying amounts and periods over which long-lived
assets are depreciated to determine if events have occurred which would require
modification to our carrying values or useful lives. In evaluating useful lives and
carrying values of long-lived assets, the Company reviews certain indicators of potential
impairment, such as undiscounted projected operating cash flows, replacement costs of such
assets, business plans and overall market conditions. The Company determines undiscounted
projected net operating cash flows and compares it to the carrying value. In the event
that impairment occurred, the Company would determine the fair value of the related asset
and record a charge to operations calculated by comparing the assets carrying value
to the estimated fair value. The Company estimates fair value primarily through the use of
third party valuations. The Company recognized no impairments in 2004, 2005 or 2006.

Uncollectible Accounts. The
Company records a monthly provision based on specific known collectibility problems,
historical losses, and current economic information. In addition, the Company performs an
analysis of the total receivables on a quarterly basis, and adjusts the provision account
to the calculated balance. It is our policy to write off receivables once it is determined
that additional efforts of collection will not result in the receipt of the receivable.
During the years-ended December 31, 2006, 2005 and 2004 the Company provided $1,096,763,
$1,202,003 and $1,467,438, respectively for uncollectible accounts. The Company records
this expense in other operating expenses. The trade receivable balances during the
corresponding period were $16.1 million, $15.2 million and $15.6 million for 2006, 2005
and 2004 respectively. The trade receivable balance increase in 2006 of $0.9 million as
well as the allowance account balance increase of $258,158 and $185,618 in 2006 and 2005
respectively was due to increased revenue in 2006 and 2005.

Income taxes. Income taxes are
calculated using the liability method specified by SFAS No. 109 Accounting for
Income Taxes. Valuation allowances are provided against deferred tax assets if it is
considered more likely than not that some portion or the entire deferred tax
asset will not be realized.

Management records a valuation
allowance to reduce the Companys net deferred tax assets to the amount that is
more-likely-than-not to be realized. Management has considered such factors as cumulative
earnings history in addition to projected results in assessing the need for a valuation
allowance, in the event management was to determine that the Company would be able to
realize its deferred tax assets in the future in an amount in excess of the net recorded
amount, an adjustment to the valuation allowance would decrease income tax expense
in the period such determination was made.

On October 22, 2004, the President
signed into law the American Jobs Creation Act of 2004 (the "Act").  The Act instituted
an elective tonnage tax regime whereby a corporation may elect to pay a tonnage tax based
upon the net tonnage of its qualifying U.S. flag vessels rather than the regular U.S.
corporate income tax on the taxable income from such vessels. The Company is evaluating
the merits and requirements related to such an election.

The above listing is not intended to
be a comprehensive list of all of our accounting policies. In many cases, the accounting
treatment of a particular transaction is specifically dictated by generally accepted
accounting principles, with less management judgment in their application. There are also
areas in which managements judgment in selecting any available alternative would not
produce a materially different result. See the Companys audited financial statements
and notes thereto which begin on page 32 of this Annual Report on Form 10-K which contain
accounting policies and other disclosures required by generally accepted accounting
principles.

# Recently Issued
Accounting Pronouncements

On February 15, 2007, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 159,  The Fair Value Option for Financial Assets
and Financial Liabilities  Including an Amendment of FASB Statement No. 115
 (FASB 159). This standard permits an entity to measure financial
instruments and certain other items at estimated fair value. Most of the provisions of
SFAS No. 159 are elective; however, the amendment to FASB No. 115,
Accounting for Certain Investments in Debt and Equity Securities, applies to
all entities that own trading and available-for-sale securities. The fair value option
created by SFAS 159 permits an entity to measure eligible items at fair value as of
specified election dates. The fair value option (a) may generally be applied
instrument by instrument, (b) is irrevocable unless a new election date occurs, and
(c) must be applied to the entire instrument and not to only a portion of the
instrument. SFAS 159 is effective as of the beginning of the first fiscal year that begins
after November 15, 2007. Early adoption is permitted as of the beginning of the
previous fiscal year provided that the entity (i) makes that choice in the first
120 days of that year, (ii) has not yet issued financial statements for any
interim period of such year, and (iii) elects to apply the provisions of FASB 157. The Company is
currently evaluating the impact of SFAS 159, if any, on its financial statements.

Page 28

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In September 2006, the FASB
issued Statement of Financial Accounting Standards No. 158, EmployersAccounting for Defined Benefit Pension and Other Postretirement Plans  an amendment
of FASB Statements No. 87, 88 and 132(R) (SFAS 158). This
statement requires an employer to recognize the funded status of a benefit plan as an
asset or liability in its financial statements. The funded status is measured as the
difference between plan assets at fair value and the plans specific benefit
obligation, which would be the projected benefit obligation. Under SFAS 158, the gains or
losses and prior service cost or credits that arise in a period but are not immediately
recognized as components of net periodic benefit expense will now be recognized, net of
tax, as a component of other comprehensive income. SFAS 158 is effective for fiscal years
ending after December 15, 2006. The adoption of SFAS 158 is not expected to have any effect on
the Companys financial position or net earnings.

In September 2006, the
Securities and Exchange Commission (SEC) staff issued Staff Accounting
Bulletin No. 108 (SAB 108), Considering the effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. Traditionally, there have been two widely recognized methods for quantifying the
effects of financial statement misstatements: the roll-over method and the
iron-curtain method. The roll-over method focuses primarily on the impact of a
misstatement on the income statement, including the reversing effect of prior year
misstatements. The iron-curtain method focuses primarily on the effect of correcting the
period-end balance sheet with less emphasis on the reversing effects of prior year errors
on the income statement. In SAB 108, the SEC staff established an approach that is
commonly referred to as a dual approach because it now requires quantification
of errors under both the iron-curtain and the roll-over methods. For the Company, SAB 108
is effective for the fiscal year ending December 31, 2006. The adoption of SAB 108 did not
have any effect on the Companys financial position, net earnings or prior year
financial statements.

In September 2006, the FASB
issued Statement of Financial Accounting Standards No. 157 (SFAS 157),
FairValue Measurements. This statement establishes a single
authoritative definition of fair value, sets out a framework for measuring fair value, and
requires additional disclosures about fair-value measurements. SFAS 157 defines fair value
as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. For
Trailer Bridge, SFAS 157 is effective for the fiscal year beginning January 1, 2008.
The Company is currently evaluating this standard to determine its impact, if any, on the Company's
financial statements.

In July 2006, the Financial
Accounting Standards Board (FASB) issued Financial Interpretation No. 48
(FIN No. 48), Accountingfor Uncertainty in Income Taxes 
An Interpretation of FASB Statement No. 109. This Interpretation prescribes
a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The Company is currently evaluating the
effect, if any, this Interpretation will have on its financial statements.

In February 2006, the FASB
issued Statement of Financial Accounting Standard No. 155, Accountingfor
Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133
and 140. In March 2006, the FASB issued Statement of Financial Accounting
Standard No. 156, Accountingfor Servicing of Financial Assets  an
amendment of FASB Statement No. 140. These statements become effective
January 1, 2007 and are not expected to have a material effect on the Company's financial
statements.

Page 29

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# Item 7A.   Quantitative
and Qualitative Disclosures About Market Risk

The Company has limited its
exposure to market risk from changes in interest rates, because all of the variable debt
previously held by the Company was converted to fixed debt in December 2004. For the
current year, the estimated fair value of the Companys long-term debt was greater
than the carrying values by approximately $3,028,020. This difference in the fair value
and the carrying value is based on the anticipated increase in the Companys
prime-lending rate over the term of the Companys fixed rate debt.

The Company has no interest rate swap
or hedging agreements at December 31, 2006.

(Dollars in Thousands)

Long Term Debt:

|                     
|---------------------
|Fixed Rate           
|Average Interest Rate
|Variable Rate        
|Average Interest Rate
|Total                

Page 30

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# Item 8.   Financial
Statements and Supplementary Data

# TRAILER BRIDGE, INC.

Financial Statements for each of the
Three Years in the Period Ended December 31, 2006 and Report of Independent Registered Public Accounting Firm

# Report of Independent
Registered Public Accounting Firm

Board of Directors and
StockholdersTrailer Bridge, Inc.Jacksonville, Florida

We have audited the accompanying
balance sheets of Trailer Bridge, Inc. as of December 31, 2006 and 2005 and the related
statements of operations, changes in stockholders equity (capital deficit), and cash
flows for each of the three years in the period ended December 31, 2006. We have also
audited the financial statement schedule listed in Item 15(a). These financial statements
and the accompanying schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and schedule based
on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and schedule are free of material misstatement. The
Company is not required to have nor were we engaged to perform an audit of its internal
controls over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Companys internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and schedule, assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements and schedule. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial
position of Trailer Bridge, Inc. at December 31, 2006 and 2005, and the results of its
operations and its cash flows for each of the three years in the period ended December 31,
2006, in conformity with accounting principles generally accepted in the United States of
America.

As discussed in Note 1, in 2006, the
Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R),
Share Based Payments, utilizing the modified prospective transition
method effective January 1, 2006.

Also in our opinion, the schedule
presents fairly, in all material respects, the information set forth therein.

| | BDO Seidman, LLP            
| | ----------------------------
| | Certified Public Accountants

Miami, FloridaMarch 27,
2007

Page 31

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TRAILER BRIDGE, INC.  BALANCE SHEETS DECEMBER 31, 2006 AND
2005

|                                                              
|--------------------------------------------------------------
|ASSETS                                                        
|Current Assets:                                               
|Cash and cash equivalents                                     
|Trade receivables, less  allowance for doubtful               
|accounts of $864,875 and $606,717                             
|Other receivables                                             
|Prepaid expenses                                              
|Deferred income taxes, net                                    
|                                                              
|Total current assets                                          
|Property and equipment, net                                   
|Other assets                                                  
|                                                              
|TOTAL ASSETS                                                  
|                                                              
|LIABILITIES AND STOCKHOLDERS' EQUITY                          
|Current Liabilities:                                          
|Accounts payable                                              
|Accrued liabilities                                           
|Unearned revenue                                              
|Current portion of long-term debt                             
|Current portion of due to affiliate                           
|                                                              
|Total current liabilities                                     
|Due to affiliate                                              
|Long-term debt, less current portion                          
|                                                              
|TOTAL LIABILITIES                                             
|                                                              
|Commitments and Contingencies                                 
|Stockholders' Equity:                                         
|Preferred stock, $.01 par value, 1,000,000, shares authorized;
|no shares issued or outstanding                               
|Common stock, $.01 par value, 20,000,000 shares               
|authorized; 11,787,787 and 11,775,652 shares issued and       
|outstanding                                                   
|Additional paid-in capital                                    
|Deficit                                                       
|                                                              
|TOTAL STOCKHOLDERS' EQUITY                                    
|                                                              
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    
|                                                              

See accompanying summary of
accounting policies and notes to financial statements

Page 32

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TRAILER BRIDGE, INC.  STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

|                                                                                                
|------------------------------------------------------------------------------------------------
|OPERATING REVENUES                                                                              
|OPERATING EXPENSES:                                                                             
|Salaries, wages, and benefits                                                                   
|Rent and purchased transportation:                                                              
|Related party                                                                                   
|Other                                                                                           
|Fuel                                                                                            
|Operating and maintenance (excluding depreciation below)                                        
|Dry-Docking                                                                                     
|Taxes and licenses                                                                              
|Insurance and claims                                                                            
|Communications and utilities                                                                    
|Depreciation and amortization                                                                   
|(Gain) loss on sale of assets                                                                   
|Other operating expenses                                                                        
|                                                                                                
|                                                                                                
|                                                                                                
|OPERATING INCOME                                                                                
|NONOPERATING (EXPENSE) INCOME:                                                                  
|Interest expense                                                                                
|Interest income                                                                                 
|                                                                                                
|(LOSS) INCOME BEFORE BENEFIT (PROVISION) FOR INCOME                                             
|BENEFIT (PROVISION) FOR INCOME TAXES                                                            
|                                                                                                
|NET (LOSS) INCOME                                                                               
|ACCRETION OF PREFERRED STOCK DISCOUNT                                                           
|UNDECLARED CUMULATIVE DIVIDEND                                                                  
|EXCESS OF CONSIDERATION TRANSFERRED TO HOLDERS OF   THE PREFERRED STOCK OVER THE CARRYING AMOUNT
|                                                                                                
|NET (LOSS) INCOME ATTRIBUTABLE TO                                                               
|COMMON SHARES                                                                                   
|                                                                                                
|PER SHARE AMOUNTS:                                                                              
|NET (LOSS) INCOME PER SHARE BASIC                                                               
|                                                                                                
|NET (LOSS) INCOME PER SHARE DILUTED                                                             
|                                                                                                

See
accompanying summary of accounting policies and notes to financial statements

Page 33

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# TRAILER BRIDGE, INC.

STATEMENT OF CHANGES IN
STOCKHOLDERS EQUITY (CAPITAL DEFICIT) FOR THE YEARS ENDED December 31, 2006, 2005
and 2004

|                                     
|-------------------------------------
|Shares                               
|Balance, January 1, 2004             
|Accretion of preferred stock discount
|Options exercised                    
|Conversion of preferred stock        
|Series A into common shares          
|Redemption of preferred stock        
|Excess of carrying value over the    
|purchase assets (Note 5)             
|Capital contribution as a result of  
|acquistion of affiliate              
|Net Income                           
|                                     
|Balance, December 31, 2004           
|Options exercised                    
|Net Income                           
|                                     
|Balance, December 31, 2005           
|                                     
|Compensation - Stock Options         
|Options Exercised                    
|Net Loss                             
|                                     
|Balance, December 31, 2006           
|                                     

See accompanying
summary of accounting policies and notes to financial statements

Page 34

---

STATEMENT OF CHANGES IN
STOCKHOLDERS EQUITY (CAPITAL DEFICIT) FOR THE YEARS ENDED December 31, 2006, 2005
and 2004

|                                                               
|---------------------------------------------------------------
|Balance, January 1, 2004                                       
|Accretion of preferred stock discount                          
|Options exercised                                              
|Conversion of preferred stock       Series A into common shares
|Redemption of preferred stock Series B                         
|Excess of carrying value over the                              
|purchase assets (Note 5)                                       
|Capital contribution as a result of                            
|acquistion of affiliate                                        
|Net Income                                                     
|                                                               
|Balance, December 31, 2004                                     
|Options exercised                                              
|Net Income                                                     
|                                                               
|Balance, December 31, 2005                                     
|                                                               
|Compensation - Stock Options                                   
|Options Exercised                                              
|Net (Loss)                                                     
|                                                               
|Balance, December 31, 2006                                     
|                                                               

See accompanying
summary of accounting policies and notes to financial statements

Page 35

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TRAILER BRIDGE, INC. STATEMENTS OF CASH FLOWS YEARS ENDED December 31, 2006, 2005 and 2004

|                                                      
|------------------------------------------------------
|Operating activities:                                 
|Net (loss) income                                     
|Adjustments to reconcile net (loss) income to net cash
|provided by operating activities:                     
|Depreciation and amortization                         
|Provision for doubtful accounts                       
|Deferred tax benefit                                  
|Noncash compensation                                  
|(Gain) loss on sale of fixed assets                   
|Decrease (increase) in:                               
|Trade receivables                                     
|Other receivables                                     
|Prepaid expenses                                      
|Increase (decrease) in:                               
|Accounts payable                                      
|Accrued liabilities and related party charterhire     
|Unearned revenue                                      
|                                                      
|Net cash provided by operating activities             
|                                                      
|Investing activities:                                 
|Purchase of property and equipment                    
|Proceeds from sale of property and equipment          
|Additions to other assets                             
|Acquistion of K-Corp Assets                           
|Exercise of equipment purchase options                
|                                                      
|Net cash used in investing activities                 
|                                                      
|Financing activities:                                 
|Payments on borrowing on revolving line of credit     
|Payments on borrowing from affiliate                  
|Exercise of stock options                             
|Principal payments on notes payable                   
|Loan costs                                            
|Redemption of Preferred Stock Series B                
|Proceeds from Senior Secured Debt                     
|                                                      
|Net cash (used in) provided by financing activities   
|                                                      
|Net (decrease) increase in cash and cash equivalents  
|Cash and cash equivalents, beginning of the period    
|                                                      
|Cash and cash equivalents, end of period              
|                                                      

See accompanying
summary of accounting policies and notes to financial statements

Page 36

---

TRAILER BRIDGE, INC.  STATEMENTS OF CASH FLOWS
CONTINUEDYEARS ENDED December 31, 2006, 2005 and 2004

Supplemental cash flow information
and non-cash investing and financing activities:

|                                                         
|---------------------------------------------------------
|Cash paid for interest                                   
|                                                         
|Cash paid for income taxes                               
|                                                         
|Debt assumed on purchased assets purchased from affiliate
|                                                         
|Capital Contribution resulting from acquisition of K-Corp
|                                                         

See accompanying summary of
accounting policies and notes to financial statements

Page 37

---

# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31,
2006, 2005 AND 2004

NOTE 1.    DESCRIPTION OF
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization  Trailer Bridge,
Inc. (the Company) is a domestic trucking and marine transportation company
with contract and common carrier authority. Highway transportation services are offered in
the continental United States, while marine transportation is offered between
Jacksonville, Florida and San Juan, Puerto Rico.

Cash and Cash Equivalents  The
Company considers cash on hand and amounts on deposit with financial institutions with
original maturities of three months or less to be cash equivalents.

Allowance for Doubtful Accounts
 The Company records a monthly provision based on specific known collectibility
problems, historical losses, and current economic information. In addition, the Company
performs an analysis of the total receivables on a quarterly basis, and adjusts the
provision account to the calculated balance. It is the Companys policy to write off
receivables once it is determined that additional efforts of collection will not result in
the receipt of the receivable.

Property and Equipment 
Property and equipment are carried at cost. Property and equipment are depreciated to
their estimated salvage values on a straight-line method based on the following estimated
useful lives:

|                              
|------------------------------
|Buildings and structures      
|Office furniture and equipment
|Leasehold improvements        
|Freight equipment:            
|Vessels                       
|Tractors                      
|Containers, Chassis and VTM's 
|Trailers                      

During 2004, the Company had an
appraisal performed on its vessels, containers and chassis, which included a review of the
useful lives. The results of this appraisal indicated an increase in the useful life of
these assets, from the lives originally estimated by the Company. As such, management
revised its estimate of the remaining useful lives of chassis, VTMs (Specialized
containers for carrying vehicles), vessels and containers to extend the useful lives by
approximately 6 to 10 years.

The Company expenses maintenance and
repair expenses, including regulatory drydocking of its vessels as incurred.

Tires on revenue equipment purchased are
capitalized as part of the equipment cost and depreciated over the life of the vehicle.
Replacement tires are expensed when placed in service.

Leasehold improvements and equipment
under capital leases are amortized over the lesser of the estimated lives of the asset or
the lease terms.

Page 38

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TRAILER BRIDGE, INC.

NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005
AND 2004 (continued)

Property and equipment are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is
measured by net undiscounted cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying value exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less cost to
sell.

Revenue Recognition and
Classification  Voyage revenue is recognized ratably over the duration of a voyage
based on the relative transit time in each reporting period; commonly referred to as the
percentage of completion method. Voyage expenses are recognized as incurred.
Demurrage and charterhire revenue are included in our revenues. Demurrage is a charge
assessed for failure to return empty freight equipment on time. Charterhire is rental
revenue for vessels not in use in a liner service. The Company recognizes demurrage and
charterhire revenue based on negotiated fees included in the contracts of our customers.
These amounts are computed daily and included in Operating Revenue.

Income Taxes  Income taxes are
calculated using the liability method specified by SFAS No. 109 Accounting for
Income Taxes. Valuation allowances are provided against deferred tax assets if it is
considered more likely than not that some portion or the entire deferred tax
asset will not be realized.

Management records a valuation
allowance to reduce the Companys net deferred tax assets to the amount that is
more-likely-than-not to be realized. Management has considered such factors as cumulative
earnings history, especially the most recent six months, in addition to projected results
in assessing the need for a valuation allowance.

Earnings Per Share  Basic
earnings per share (EPS) is computed by dividing earnings applicable to common
shareholders by the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share in the
earnings.

Stock-Based Compensation  In
the first quarter of 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment(SFAS
123R). This Statement requires companies to expense the estimated fair value of
stock options and similar equity instruments issued to employees over the vesting period
in their statement of operations. SFAS 123R eliminates the alternative to use the
intrinsic method of accounting provided for in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees(APB
25), which generally resulted in no compensation expense recorded in the financial
statements related to the grant of stock options to employees if certain conditions were
met.

The Company adopted SFAS 123R using
the modified prospective method effective January 1, 2006, which requires the Company
to record compensation expense over the vesting period for all awards granted after the
date of adoption, and for the unvested portion of previously granted awards that remain
outstanding at the date of adoption. Accordingly, amounts for periods prior to
January 1, 2006 presented herein have not been restated to reflect the adoption of
SFAS 123R. The pro forma effect of the 2005 and 2004 prior periods is as follows and has
been disclosed to be consistent with prior accounting:

Page 39

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TRAILER BRIDGE, INC.

NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005
AND 2004 (continued)

|                                                         
|---------------------------------------------------------
|Net income attributable to common shares, as reported    
|Total stock-based employee compensation cost included in 
|the determination of net loss, net of related tax effects
|Total stock-based employee compensation                  
|cost determined under fair value method                  
|for all awards, net of related tax effects               
|                                                         
|Net income, pro forma                                    
|                                                         
|Income per common share:                                 
|Basic, as reported                                       
|Diluted, as reported                                     
|Basic, pro forma                                         
|Diluted, pro forma                                       

Use of Estimates  The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.

# Recently Issued
Accounting Pronouncements

On February 15, 2007, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 159,  The Fair Value Option for Financial Assets
and Financial Liabilities  Including an Amendment of FASB Statement No. 115
 (FASB 159). This standard permits an entity to measure financial
instruments and certain other items at estimated fair value. Most of the provisions of
SFAS No. 159 are elective; however, the amendment to FASB No. 115,
Accounting for Certain Investments in Debt and Equity Securities, applies to
all entities that own trading and available-for-sale securities. The fair value option
created by SFAS 159 permits an entity to measure eligible items at fair value as of
specified election dates. The fair value option (a) may generally be applied
instrument by instrument, (b) is irrevocable unless a new election date occurs, and
(c) must be applied to the entire instrument and not to only a portion of the
instrument. SFAS 159 is effective as of the beginning of the first fiscal year that begins
after November 15, 2007. Early adoption is permitted as of the beginning of the
previous fiscal year provided that the entity (i) makes that choice in the first
120 days of that year, (ii) has not yet issued financial statements for any
interim period of such year, and (iii) elects to apply the provisions of FASB 157.
The Company is currently evaluating the impact of SFAS 159, if any, on its financial
statements.

In September 2006, the FASB
issued Statement of Financial Accounting Standards No. 158, EmployersAccounting for Defined Benefit Pension and Other Postretirement Plans  an amendment
of FASB Statements No. 87, 88 and 132(R) (SFAS 158). This
statement requires an employer to recognize the funded status of a benefit plan as an
asset or liability in its financial statements. The funded status is measured as the
difference between plan assets at fair value and the plans specific benefit
obligation, which would be the projected benefit obligation. Under SFAS 158, the gains or
losses and prior service cost or credits that arise in a period but are not immediately
recognized as components of net periodic benefit expense will now be recognized, net of
tax, as a component of other comprehensive income. SFAS 158 is effective for fiscal years
ending after December 15, 2006. The adoption of SFAS 158 is not expected to have a significant effect on the Company's
financial position or earnings.

Page 40

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TRAILER BRIDGE, INC.

NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005
AND 2004 (continued)

In September 2006, the
Securities and Exchange Commission (SEC) staff issued Staff Accounting
Bulletin No. 108 (SAB 108),  Considering the effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
.. Traditionally, there have been two widely recognized methods for quantifying the
effects of financial statement misstatements: the roll-over method and the
iron-curtain method. The roll-over method focuses primarily on the impact of a
misstatement on the income statement, including the reversing effect of prior year
misstatements. The iron-curtain method focuses primarily on the effect of correcting the
period-end balance sheet with less emphasis on the reversing effects of prior year errors
on the income statement. In SAB 108, the SEC staff established an approach that is
commonly referred to as a dual approach because it now requires quantification
of errors under both the iron-curtain and the roll-over methods. For the Company, SAB 108
is effective for the fiscal year ended December 31, 2006. The adoption of SAB 108 did not
have any effect on the Companys financial position, net earnings or prior year
financial statements.

In September 2006, the FASB
issued Statement of Financial Accounting Standards No. 157 (SFAS 157),
FairValue Measurements. This statement establishes a single
authoritative definition of fair value, sets out a framework for measuring fair value, and
requires additional disclosures about fair-value measurements. SFAS 157 defines fair value
as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. For
Trailer Bridge, SFAS 157 is effective for the fiscal year beginning January 1, 2008.
The Company is currently evaluating this standard to determine its impact, if any, on the
Companys financial statements.

In July 2006, the Financial
Accounting Standards Board (FASB) issued Financial Interpretation No. 48
(FIN No. 48), Accountingfor Uncertainty in Income Taxes 
An Interpretation of FASB Statement No. 109. This Interpretation prescribes
a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The Company is currently
evaluating the effect, if any, this Interpretation will have on its financial statements.

In February 2006, the FASB
issued Statement of Financial Accounting Standard No. 155, Accountingfor
Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133
and 140. In March 2006, the FASB issued Statement of Financial Accounting
Standard No. 156, Accountingfor Servicing of Financial Assets  an
amendment of FASB Statement No. 140. These statements become effective
January 1, 2007 and are not expected to have a material effect on the Companys
financial statements.

Page 41

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TRAILER BRIDGE, INC.

NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005
AND 2004 (continued)

2.  PROPERTY AND EQUIPMENT

Property and equipment at December
31, 2006 and 2005 consist of the following:

|                                              
|----------------------------------------------
|Freight equipment                             
|Office furniture and equipment                
|Buildings and structures                      
|Land                                          
|Leasehold improvements                        
|                                              
|                                              
|less accumulated depreciation and amortization
|                                              
|                                              
|                                              

Depreciation and amortization expense
on property and equipment was $5,278,337, $4,419,694, and $3,081,916 in 2006, 2005 and
2004, respectively.

The Company anticipates capital
expenditures of approximately $18.8 million during 2007, primarily consisting of $17.5
million for the purchase of 1,000 new containers and 850 new chassis along with $1.3 million
for the purchase of 20 tractors.

3.  TRANSACTIONS WITH RELATED PARTIES

The Company leased two
roll-on/roll-off barge vessels and the use of a ramp system in San Juan from an affiliate,
Kadampanattu Corp. (K-Corp), under operating lease agreements until December 2004. Certain
stockholders of the affiliate were controlling stockholders of the Company through August
16, 2004. The lease payments were $10,050 per day for each vessel. Total lease expense
under these leases from affiliate totaled $6,714,863 and $7,336,500 in 2004 and 2003,
respectively. During 2004 the affiliate, agreed to defer $1.5 million of charter hire to
be paid by the Company, in 2004. During 2002, the Company issued to this affiliate $24
million before discount of non-convertible preferred stock Series B as payment for
indebtedness, amounts deferred under the long-term charters of the Company and an advance
portion of the 2003 charterhire. The Series B Preferred Stock was redeemed in December
2004.

During the quarter ended June 30, 2002 the Company borrowed $5 million from an affiliate,
with interest at the rate of 8.03% a year. Certain stockholders of the affiliate were also
principal stockholders of the Company. The proceeds of this borrowing were used to repay
the $3 million borrowed under the revolving credit agreement, and to provide $2 million in
working capital. Amounts outstanding were $4,933,205 at December 31, 2004. In April 2004,
the $4,933,205 related party obligation was rescheduled from October 2004 to May 2007. In
connection with the Senior Secured debt offering, a portion of the proceeds was used to
payoff this obligation in December 2004. In addition during 2002, the same affiliate
purchased preferred convertible stock Series A for $2 million. The preferred stock Series
A had a liquidation preference of $2 million. The preferred stock Series A, pursuant to
its terms was converted into 1,955,000 common shares in July of 2004. In April 2004, the
$1.5 million deferred charter hire obligation was combined with the $989,436 of advances
into a $2.5 million obligation payable over 36 months with interest at 8.03% a year. In
connection with the K-Corp acquisition, this debt was transferred to another affiliate and
remained an obligation of the Company as of December 31, 2006.

Page 42

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TRAILER BRIDGE, INC.

NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005
AND 2004 (continued)

On December 1, 2004 the Company
acquired 100% of the outstanding stock of K-Corp (See Note 5).

4.  LONG-TERM DEBT AND DUE TO AFFILIATES

Following is a summary of long-term
debt at December 31, 2006 and 2005:

|                                                                                    
|------------------------------------------------------------------------------------
|Senior secured notes maturing on November 15, 2011; Interest on the notes is payable
|semi-annually on each May 15 and November 15 beginning on May 15, 2006. The notes   
|accrue interest at 9 1/4% per year on the principal amount. The notes are           
|collateralized by a first priority lien on two roll-on/roll-off barges, certain     
|equipment and the Jacksonville, Florida office and terminal, including associated   
|real estate, with a carrying value of $52.1 million                                 
|Ship-financing bonds and notes (Title XI) maturing on March 30, 2023;               
|payable in semi-annual installments of principal and interest;                      
|interest is fixed at 6.52%; collateralized by vessels with a carrying value of      
|$14,337,022 at December 31,2006; amount is  guaranteed by                           
|The United States of America under the Title XI Federal Ship Financing Program      
|Ship-financing bonds and notes (Title XI) maturing on September 30, 2022;           
|payable in semi-annual installments of principal and interest; interest is fixed    
|at 7.07%; collateralized by vessels with a carrying value of $9,245,525 at          
|December 31, 2006; amount is guaranteed by The United States of America under       
|the Title XI Federal Ship Financing Program                                         
|Unsecured related party debt maturing December 2007; payable in monthly             
|installments of principal and interest; interest at a rate of 8.03%;                
|                                                                                    
|                                                                                    
|Less current portion                                                                
|                                                                                    
|                                                                                    
|                                                                                    

(A)   SENIOR SECURED NOTESThe $85 million in 9-1⁄4 %
Senior Secured Notes mature on November 15, 2011. Interest on the notes is payable
semi-annually on each May 15 and November 15, beginning on May 15, 2005. Prior to November
15, 2008, the Company may redeem some or all of the notes at a make-whole premium. After
November 15, 2008, the Company may redeem the notes, in whole or in part, at its option at
any time or from time to time at the redemption prices specified in the indenture
governing the notes, plus accrued and unpaid interest thereon, if any, to the redemption
date. In addition, prior to November 15, 2007, the Company may redeem up to 35% of
aggregate principal amount of the notes with the net proceeds of certain equity offerings
at a redemption price of 109 1⁄4 % of the principal amount of the notes, plus accrued
and unpaid interest to the date of redemption. Upon the occurrence of certain changes in
control specified in the indenture governing the notes, the holders of the notes will have
the right, subject to certain conditions, to require the Company to repurchase all or any
part of their notes at a repurchase price equal to 101% of the principal amount of the
notes, plus accrued and unpaid interest thereon, if any, to the redemption date. The
agreement among other things, restricts (as defined) the Company to (a) incur or guarantee
additional debt (b) to pay dividends, repurchase common stock or subordinate debt (c)
create liens (d) transact with affiliates and (e) transfer or sell assets. The notes are
secured by a first priority lien for the benefit of the holders of the notes on our two
roll-on/roll-off barges, certain equipment and our Jacksonville, Florida office and
terminal, including associated real estate. The notes are subordinated to the Title XI
debt collateralized by the TBC (Triplestack Box Carriers) barges.

Page 43

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TRAILER BRIDGE, INC.

NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005
AND 2004 (continued)

(B)   SHIP FINANCING BONDS
AND NOTESIn the first quarter of 2004, the
Company received approval to reschedule principal payments over the remaining life of each
Title XI issue. As rescheduled, the Companys semi-annual principal payments
increased to $232,022 and $372,429 respectively. In addition, in connection with obtaining
the consent of the Secretary of Transportation of the United States of America (the
Secretary) to offer and sell senior secured the notes, in December 2004 the
Company deposited approximately $2.0 million into a reserve fund that secures the Title XI
Bonds and during 2006 the Company deposited an additional $1.1 million. As of December 31,
2006 and 2005, the Company did not comply with the financial covenants relating to certain
leverage ratios contained in the Title XI debt agreements. The default provisions of the
Title XI covenants provide that, in the event of default, the Company is restricted from
conducting certain financial activities without obtaining the written permission of the
Secretary. The Company may not take, without prior written approval, any of the following
actions: (1) acquire any fixed assets other than those required for the normal maintenance
of our existing assets; (2) enter into or become liable under certain charters and leases
(having a term of six months or more); (3) pay any debt subordinated to the Title XI
Bonds; (4) incur any debt, except current liabilities or short term loans incurred in the
ordinary course of business; (5) make investments in any person, other than obligations of
U.S. government, bank deposits or investments in securities of the character permitted for
money in the reserve fund; or (6) create any lien on any of our assets, other than
pursuant to loans guaranteed by the Secretary under Title XI and liens incurred in
ordinary course of business. However, none of the foregoing restrictions will apply at any
time if the Company meets certain financial tests provided for in the agreement and the
Company has satisfied our obligation to make deposits into the reserve fund. In November
2004, the Company received permission from the Secretary to issue $85 million in Senior
Secured Notes and to use the proceeds of this transaction to fund the acquisition of K
Corp., repay K Corp.s indebtedness, repay our existing debts, and exercise certain
equipment purchase options on equipment previously leased. As of December 31, 2006 and
2005, the Company has not performed any such restricted financial activities and
therefore, its in compliance with such restrictions. As such, the debt was not in
default, and the lender did not have the right to call the debt. The United States of
America under the Title XI Federal Ship Financing Program guarantees the bonds.

According to the Title XI debt
agreement based on adjusted earnings as defined by the agreement, the Company is required
to make a deposit into a reserve fund that secures the Title XI Bonds. As of December 31,
2006 and 2005, the total amount held in deposit was $3.9 million and $2.7 million, which
are included within other assets on the balance sheet. The Company does not have a deposit
requirement based on adjusted earnings as defined by the agreement through December 2006.
Under certain circumstances, the Title XI debt agreement requires an annual deposit until
an amount equal to fifty percent of the outstanding balance is reached which is
approximately $9.9 million as of December 31, 2006.

(C)  
REVOLVING LINE OF CREDITThe Companys revolving credit
facility with Congress Financial Corporation as amended provides for a maximum
availability of $10 million. The agreement provides for interest equal to the prime rate
plus 1.5%. The revolving line of credit is subject to a borrowing base formula
(approximately $10,000,000 was available under this formula at December 31, 2006) based on
a percentage of eligible accounts receivable and expires in April 2007. The revolving
credit facility is secured by our accounts receivable. At December 31, 2006, there were no
advances drawn on this credit facility. The Company expects to extend this line on more
favorable terms.

Page 44

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TRAILER BRIDGE, INC.

NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005
AND 2004 (continued)

# 

(D)   UNSECURED RELATED
PARTY DEBTAs of December 31, 2006, $0.9 million
of related party debt is outstanding. This debt arose in a prior year from deferred
charterhire payments to K Corp., has an interest rate of 8.03% and is payable in 36 equal
monthly installments beginning in January 2005. This debt is scheduled to be fully repaid
during 2007.

Following are maturities of long-term
debt at December 31, 2006:

|2007       |  |  | $ | 2,097,035   | 
|---------- |  |  | - | ----------- | 
|2008       |  |  |   | 1,208,902   | 
|2009       |  |  |   | 1,208,902   | 
|2010       |  |  |   | 1,208,902   | 
|2011       |  |  |   | 86,208,902  | 
|Thereafter |  |  |   | 13,670,333  | 
|           | 
|           |  |  | $ | 105,602,976 | 
|           | 

5.  ACQUISTION OF K-CORP.

On December 1, 2004, the Company
acquired 100% of the outstanding stock of K Corp. with a portion of the proceeds obtained
from the senior secured notes. Previously K-Corp leased to the Company two
roll-on/roll-off barge vessels and the use of a ramp system in San Juan. As a result of
the purchase, the Company was able to improve its operating results by eliminating the lease
agreements and replacing them with interest expense resulting from the notes on the senior
secured debt and depreciation expense of the acquired ro/ro vessels. The Company paid
$32.0 million and assumed debt of $9.1 million, which was paid off on December 1, 2004.
These obligations were paid with a portion of proceeds of the senior secured debt. Certain
pro-forma adjustments were made to eliminate lease expense previously paid to K-Corp
related to the ro/ro vessels, cumulative undeclared dividends and accretion related to the
Preferred Series B Stock and additionally include increased depreciation on the ro/ro
vessels and interest on the senior secured notes issued by the Company on December 1, 2004.

The following tables highlight on
a pro forma basis the results of 2004 as if these transactions took place in the
beginning of the year:

|                                           
|-------------------------------------------
|2004 (unaudited)                           
|Revenues                                   
|Income (loss) attributable to common shares
|Earnings (loss) per share, basic           
|Earnings (loss) per share, diluted         

Page 45

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# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005 AND 2004 (continued)

The Company purchased the stock of
K-Corp for $41.1 million. In this connection, the Company acquired K-Corps assets,
which had a historical carrying value of $48.9 million. Since the Company and K-Corp had
similar controlling shareholders, the Company recorded K-Corps assets at the
historical carrying value of $24.9 million and estimated the value of the preferred stock
to approximate its liquidation value. The excess of the historical carrying value over the
amount paid is recorded as a $7.8 million capital contribution on the Statement of Changes
in Stockholders Equity (Capital Deficit).

The assets acquired are as follows:

|                                      
|--------------------------------------
|Vessels                               
|Land                                  
|Investment in Preferred Stock Series B
|                                      
|Total assets acquired                 
|                                      

The purchase price is as follows:

|                                                                 
|-----------------------------------------------------------------
|Cash paid by Company                                             
|Long term debt acquired in connection with the K-Corp Acquisition
|                                                                 
|Purchase price of assets acquired                                
|                                                                 
|Capital contribution as a result of acquisition of affiliate     
|                                                                 

On December 1, 2004, in connection
with the acquisition of K-Corp the Company redeemed the preferred stock Series B for $24
million. In connection with this redemption the Company recorded the excess of the
consideration transferred to the holders of the preferred stock over the carrying amount
of the preferred stock on the Companys balance sheet as a subtraction from net
earnings to arrive at net earnings available to common shareholders.

Page 46

---

# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005 AND 2004 (continued)

The redemption of the preferred
stock is as follows:

|                                                       
|-------------------------------------------------------
|Purchase price paid to K-Corp                          
|Accreted book value of the Company                     
|                                                       
|Excess consideration given to the shareholders over the
|carrying value of the Preferred Class B securities     
|                                                       

6.  OPERATING LEASES

The Company has various operating
lease agreements principally for land leases, office facilities, charterhire, tug charter
and equipment. The Company also has a lease agreement with the Port Authority of
Jacksonville, whereas, monthly rent is calculated based on the total tonnage shipped, with
an annual minimum guarantee of approximately $1.7 million. During the periods ended
December 31, 2006, 2005 and 2004, the Company did not exceed the minimum tonnage under
this lease agreement to require additional rent. During the fourth quarter of 2006 the
Company extended its terminal operating agreement in San Juan, Puerto Rico until 2010 with
options extending to 2026. In addition, the Company is responsible for all fuel cost for
its tug charter hire agreements.

Future minimum rental payments
required under operating leases that have initial or remaining noncancellable lease terms
in excess of one year as of December 31, 2006 are as follows:

|2007       |  |  | $ | 4,668,692  | 
|---------- |  |  | - | ---------- | 
|2008       |  |  |   | 3,750,502  | 
|2009       |  |  |   | 2,855,787  | 
|2010       |  |  |   | 2,528,813  | 
|2011       |  |  |   | 1,757,644  | 
|Thereafter |  |  |   | 4,579,079  | 
|           | 
|           |  |  | $ | 20,140,517 | 
|           | 

Rent expense for all operating
leases, including leases with terms of less than one year, was $13,073,117,
$12,012,990 and $21,851,549 for 2006, 2005 and 2004, respectively.

Page 47

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# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005 AND 2004 (continued)

7.  OTHER ASSETS

Other assets consist of the following
at December 31, 2006 and 2005:

|                                                    
|----------------------------------------------------
|Debt Issuance Costs, net of accumulated amortization
|Title XI Restricted Deposit                         
|Other                                               
|                                                    
|                                                    
|                                                    

Amortization expense related to loan
costs for the years ended December 31, 2006, 2005 and 2004 was $912,060, $852,920 and
$734,124, respectively.

8.  ACCRUED LIABILITIES

Accrued liabilities consist of the
following at December 31, 2006 and 2005:

|                  
|------------------
|Marine expense    
|Interest          
|Other             
|Salaries and wages
|Rent              
|Fringe benefits   
|Taxes             
|                  
|                  
|                  

Page 48

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# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005 AND 2004 (continued)

9.  INCOME TAXES

The benefit (provision) for income
taxes is comprised of the following for the years ended December 31, 2006, 2005 and 2004:

|                                    
|------------------------------------
|Current:                            
|Federal                             
|State                               
|                                    
|                                    
|                                    
|Deferred                            
|Federal                             
|State                               
|                                    
|                                    
|Valuation allowance reduction       
|                                    
|Total income tax benefit (provision)
|                                    

Income tax benefit (provision) for the
years ended December 31, 2006, 2005 and 2004 differs from the amounts computed by applying
the statutory Federal corporate rate to income (loss) before benefit (provision) for
income taxes. The differences are reconciled as follows:

|                                                 
|-------------------------------------------------
|Tax benefit (provision) at statutory Federal rate
|Decrease in deferred tax asset                   
|valuation allowance                              
|Nondeductible expenses                           
|State income taxes, net of Federal benefit       
|                                                 
|Total income tax benefit (provision)             
|                                                 

Deferred income taxes reflect the
net tax effect of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income taxes.

Page 49

---

# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005 AND 2004 (continued)

The components of the Companys
net deferred tax asset at December 31, 2006 and 2005 are as follows:

|                                      
|--------------------------------------
|Deferred tax assets:                  
|Net operating loss carry forwards     
|Employee stock option                 
|Intangible Asset                      
|Allowance for doubtful accounts       
|Accrued vacation                      
|Other                                 
|                                      
|Gross deferred assets                 
|Deferred tax liabilities:             
|Fixed asset basis                     
|                                      
|Gross deferred tax liabilities        
|Deferred tax asset valuation allowance
|                                      
|Net deferred tax asset                
|                                      

The Company has recorded various deferred
tax assets as reflected above. In assessing the ability to realize the deferred tax
assets, management considers, whether it is more likely than not, that some portion, or
the entire deferred tax asset will be realized. The ultimate realization is dependent on
generating sufficient taxable income in future years. Management
considered such factors as cumulative earnings history in addition to projected results in
assessing the need for a valuation allowance. Management concluded that it was more likely
than not that a portion of the deferred tax asset would be realized and adjusted the
valuation allowance accordingly. The most weight is given to near term budgets and this
tax benefit was calculated by applying a 38% tax rate to the 2007 business plan. As a result of this
analysis, the Company recorded a tax benefit of approximately $5.0 million, including a
$3.1 million decrease in the valuation allowance during the year ended December 31, 2006.

At December 31, 2006, the Company
had available net operating loss (NOL) carryforwards for federal income tax
purposes of $79,378,608, of which $61,163 begin to expire in 2007 with the remaining
beginning to expire in 2018.

10.  STOCKHOLDERS EQUITY

# Earnings Per Share:

The Company has adopted the consensus
reached in EITF 03-06, Participating Securities and Two-Class Method under FASB
128" which provides further guidance on the definition of participating securities
and requires the use of the two-class method in calculating earnings per share for
enterprises with participating securities under SFAS Statement 128, Earnings per
Share.

Pursuant to EITF 03-06, the
Companys Series A convertible preferred shares (prior to their conversion to common
shares) were considered participating securities. EITF 03-06 requires that each
periods income be allocated to participating securities, if there is no conversion.
Accordingly, for the reporting periods in which there is income attributable to common
shareholders, the Company allocated a portion of such income to the Series A convertible
shareholders based upon the pro-rata share of income, weighted for the period prior to
redemption. During reporting periods in which there was a net loss attributable to common
shareholders, such loss is allocated entirely to the common shares.

Page 50

---

# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005 AND 2004 (continued)

The following reconciles Basic and
Diluted Earnings Per Share:

|                                                                 
|-----------------------------------------------------------------
|2006                                                             
|Basic Earnings Per Share:                                        
|Net (loss) income attributable to common shareholders            
|Net (loss) income allocated to preferred                         
|Series A Shareholders prior to conversion (1)                    
|                                                                 
|Net (loss) income allocated  to common shareholders              
|Weighted average common shares outstanding-basic                 
|                                                                 
|(Loss) income per common share- basic                            
|Diluted Earnings Per Share                                       
|Add:  Dilutive effect of assumed conversion of Preferred Series A
|Add:  Dilutive effect of options                                 
|                                                                 
|Weighted average shares outstanding -diluted                     
|                                                                 
|(Loss) income per common share- diluted                          

(1)  
           Weighted for days outstanding prior to conversion on July 23, 2004

Options to purchase 483,472, 484,550
and 489,200 shares of the Companys common stock were excluded from the calculation
of diluted earnings per share as their effect would be anti-dilutive during the years
ended December 31, 2006, 2005 and 2004, respectively.

Preferred Stock Series A:

The preferred stock Series A, had a
liquidation preference of $2 million. Except where class voting is required by law, the
preferred stock Series A voted together with the common stock as a single class, with each
share of preferred Series A entitled to 35.42 votes per share. The preferred stock Series
A, pursuant to its terms was converted into 1,955,000 common shares in July of 2004.

Preferred Stock Series B:

During 2002, the Company issued
24,000 shares of preferred stock Series B to an affiliate as payment for indebtedness,
amounts deferred under the long-term charters of the Company and an advance portion of the
2003 charterhire. The total issued value of preferred stock Series B was $24 million. As
an increasing rate preferred stock, Series B was recorded at fair-value resulting in an
initial discount of approximately $2.6 million. Accretion for the year ended December 31,
2004 was $515,845. Beginning on April 1, 2003 cumulative dividends began to accrue at a
rate equal to the 90-day LIBOR rate plus 350 basis points. Beginning in 2004, the dividend
rate increased 25 basis points a quarter up to a maximum dividend rate of the 90-day LIBOR
rate plus 650 points. Such dividends have not been declared, accrued or paid. On October
31, 2004, the contractual undeclared cumulative dividend of $1,115,795 was permanently
waived by the holder. The preferred stock Series B was redeemed by the Company in
conjunction with the acquisition of K-Corp. In accordance with EITF D-42 the $0.5 million
excess of (1) fair value of the consideration transferred to the holders of the preferred
stock over (2) the carrying amount of the preferred stock in the Companys balance
sheet was subtracted from net earnings to arrive at net earnings available to common
shareholders in the calculation of earnings per share.

Page 51

---

# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005 AND 2004 (continued)

In the event the Company issues
Preferred Stock the Board of Directors will determine conversion rights, dividends,
voting rights and liquidation preference.

# Stock Options:

In 1997, the Companys Board of
Directors and stockholders authorized the establishment of an Incentive Stock Plan (the
Plan). The purpose of the Plan is to promote the interests of the Company and
its shareholders by retaining the services of outstanding key management members and
employees and encouraging them to have a greater financial investment in the Company and
increase their personal interest in its continued success. The Company initially reserved
785,000 shares of common stock for issuance pursuant to the Plan to eligible employees
under the Plan. In July 2000, the Board of Directors authorized an increase of 515,000
shares of common stock reserved under the Plan. In May 2006, the Board of directors
authorized an increase of 500,000 shares of common stock reserved under the Plan. All such
reservations were made pursuant to shareholder approval. Awarded options that expire
unexercised or are forfeited become available again for issuance under the Plan. The
options vest equally over a period of five years and the maximum term for a grant is ten
years.

In July 2000, the Companys
Board of Directors and its stockholders authorized the establishment of the Non-Employee
Director Stock Incentive Plan (the Director Plan). The purpose of the Director
Plan is to assist the Company in attracting and retaining highly competent individuals to
serve as non-employee directors. The Company has reserved 50,000 shares of common stock
for issuance pursuant to the Director Plan. Awarded options that expire unexercised or are
forfeited become available again for issuance under the Director Plan. The exercise price
per share of options granted under the Director Plan shall not be less than 100% of the
fair market value of the common stock on the date of grant. Such options become
exercisable at the rate of 20% per year beginning on the first anniversary date of the
grant and the maximum term for a grant is ten years. As of December 31, 2006, there were
246,274 options available for grant.

On December 20, 2006 the Company
granted options to purchase 300,000 shares of the Companys common stock under the
Companys Incentive Stock Plan. The assumptions used to calculate the fair value of
those options, using the Black-Scholes method, granted during the year ended December 31,
2006 are as follows:

|Expected Term           |  |  | 6.5 years |  | 
|----------------------- |  |  | --------- |  | 
|Volatility              |  |  | 86.00%    |  | 
|Risk-free interest rate |  |  | 4.57%     |  | 
|Dividends               |  |  | None      |  | 

In the first quarter of 2006, the
Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment(SFAS 123R). This Statement requires
companies to expense the estimated fair value of stock options and similar equity
instruments issued to employees over the vesting period in their statement of operations.
SFAS 123R eliminates the alternative to use the intrinsic method of accounting provided
for in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees(APB 25), which generally resulted in no
compensation expense recorded in the financial statements related to the grant of stock
options to employees if certain conditions were met.

Page 52

---

# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005 AND 2004 (continued)

The Company adopted SFAS 123R using the
modified prospective method effective January 1, 2006, which requires the Company to
record compensation expense over the vesting period for all awards granted after the date
of adoption, and for the unvested portion of previously granted awards that remain
outstanding at the date of adoption. Accordingly, amounts for periods prior to
January 1, 2006 presented herein have not been restated to reflect the adoption of
SFAS 123R.

A summary of the status of options
under the Companys stock-based compensation plan at December 31, 2006 is presented
below:

|                              
|------------------------------
|Options                       
|Outstanding at                
|beginning of year             
|Granted                       
|Exercised                     
|Forfeited                     
|                              
|Outstanding at end of year    
|                              
|Grants exercisable at year-end
|                              
|Fair value of options         
|granted during the year       

The intrinsic value of the options
exercised during 2006, 2005 and 2004 was $57,912, $73,016 and $80,062, respectively.

The following table summarizes
information about the outstanding options at December 31, 2006:

|Exercise Price | Options
Outstanding | Weighted-
Average
Remaining
Contractual Life | Options
Exercisable
|-------------- | ------------------- | -------------------------------------------- | -------------------
|$              | 10                  | .00                                          |                    
|               | 2                   | .25                                          |                    
|               | 2                   | .84                                          |                    
|               | 2                   | .88                                          |                    
|               | 8                   | .61                                          |                    
|               |                     |                                              |                    
|               |                     |                                              |                    
|               |                     |                                              |                    

Page 53

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# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005 AND 2004 (continued)

Remaining non-exercisable options as
of December 31, 2006 become exercisable as follows:

|2007 |  |  |  | 115,493 | 
|---- |  |  |  | ------- | 
|2008 |  |  |  | 60,000  | 
|2009 |  |  |  | 60,000  | 
|2010 |  |  |  | 60,000  | 
|2011 |  |  |  | 60,000  | 
|     | 
|     |  |  |  | 355,493 | 
|     | 

The total unamortized fair value
of outstanding options at December 31, 2006 is $2,014,519.

11.  
          EMPLOYEE BENEFIT PLANS

The Company has a 401(k) Plan, which
covers substantially all employees in the United States. Participants are permitted to
make contributions of up to 15% of their compensation not to exceed certain limits. The
Company makes matching contributions to the Plan at a rate not to exceed 3% of
compensation as defined. The Company contributed approximately $0.2 million to the Plan
during 2006, 2005 and 2004.

In addition, the Company has a 165(e)
Plan that covers substantially all employees in Puerto Rico. The Company made
contributions of approximately $26,000, $25,000 and $20,000 to the Plan during 2006, 2005,
and 2004, respectively.

The Company has an Incentive Bonus
Program and made contributions of $513,834, $949,189 and $493,971 during 2006, 2005 and
2004, respectively. Contributions are based on the Companys pre-tax income (as
defined).

12.  
          CONTINGENCIES

The Company is involved in litigation
on a number of matters and is subject to certain claims which arise in the normal course
of business, none of which, in the opinion of management, are expected to have a material
adverse effect on the Companys financial positions or cash flows.

13.  
          FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions
were used to estimate the fair value of each class of financial instruments for which it
is practicable to estimate that value:

Cash and Cash Equivalents  For
those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Accounts Receivable and Accounts
Payable  The carrying amounts of accounts receivable and accounts payable approximate fair
value due to the relatively short maturities.

Long Term Debt  Interest rates
that are currently available to the Company for issuance of debt with similar terms and
remaining maturities are used to estimate fair value for debt instruments. For the year
ended December 31, 2006 the estimated fair value of the Companys long-term debt were
greater than the carrying values by approximately $3,028,020. This difference in
the fair value and the carrying value is based on the anticipated increase in the
Companys prime-lending rate over the life of the Companys fixed rate debt.

Page 54

---

# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005 AND 2004 (continued)

14.   SEGMENTS

The Companys primary business is
to transport freight from its origination point in the continental United States to San
Juan, Puerto Rico and from San Juan, Puerto Rico to its destination point in the
continental United States. The Company provides a domestic trucking system and a barge
vessel system, which work in conjunction with each other to service its customers.

While each of the services that the
Company performs related to the transportation of goods may be considered to be separate
business activities, the Company does not capture or report these activities separately
because all activities are considered part of the Companys Intermodal
Model for providing customer service. (Intermodal is a term used to represent the
variety of transportation services the Company provides to move products from one location
to another, including but not limited to air, water, land and rail.) The Company provides
intermodal services to its customers from the continental United States to San Juan,
Puerto Rico. Customers are billed for the transportation of goods from the point of origin
to the final destination, and are not billed separately for inland or marine
transportation.

While the Company is able to track
the expenses for these services separately, the Company does not capture the revenues
based on inland or marine transportation because the results of revenues are not
considered relevant to the model currently employed by the Company. Instead the management
and directors of the Company make operating and reporting decisions based on the total
results of operations.

15.  
          CONCENTRATION OF GEOGRAPHIC AND MARKET RISK

The Company transports freight
between the Continental United States and Puerto Rico for companies in diversified
industries who have operations located there. There is no one customer that comprises over
10% of the Company total revenues. The Company performs periodic credit evaluations of the
customers financial condition and as a condition of the extension of credit the
customer agrees that the Company shall have the right to exercise a lien against any
shipment tendered. At December 31, 2006 and 2005, accounts receivable was approximately
$16.1 million and $15.2 million respectively. Receivables are generally due within 45
days. Credit losses have been within managements expectations. The Company leases
its tug charter from a single vendor, however the Company believes this risk is mitigated
by the availability of tugboat providers currently in the market.

Page 55

---

# TRAILER BRIDGE, INC.

# NOTES TO FINANCIAL
STATEMENTS YEARS ENDED December 31, 2006, 2005 AND 2004 (continued)

16.  
          QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

|Quarter Ended                 | March 31,
2006 | June 30,
2006 | September 30,
2006 | December 31,
2006
|----------------------------- | -------------- | ------------- | ------------------ | -----------------
|Operating revenues            |                |               | $                  | 25,275,197       
|Operating income (loss)       |                |               |                    | 490,838          
|Net (loss) income             |                |               |                    | (1,824,091       
|Net (loss) income per share - |                |              
|basic                         |                |               |                    | (0.15            
|diluted                       |                |               |                    | (0.15            

|Quarter Ended          | March 31,
2005 | June 30,
2005 | September 30,
2005 | December 31,
2005
|---------------------- | -------------- | ------------- | ------------------ | -----------------
|Operating revenues     |                |               | $                  | 24,365,534       
|Operating income       |                |               |                    | 3,529,791        
|Net income             |                |               |                    | 975,801          
|Net income per share - |                |              
|basic                  |                |               |                    | 0.08             
|diluted                |                |               |                    | 0.08             

(a)  
          As discussed in Note 9, during the fourth quarter of 2006, the Company adjusted
          its valuation allowance for its deferred tax asset by approximately $5.0 million
          or $.42 per share.

Page 56

---

# SCHEDULE II 
VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED
December 31, 2006

Allowance for Doubtful
Accounts

|Year | Balance at
Beginning of the
Year | Charged to Costs
and Expenses | Deductions
(Chargeoffs) | Balance at end of
Year
|---- | -------------------------------- | ----------------------------- | ----------------------- | ----------------------
|2006 |                                  |                               | $                       | 606,717               
|2005 |                                  |                               |                         | 421,099               
|2004 |                                  |                               |                         | 683,914               

It is the policy of the Company to
write off receivables once it is determined that additional efforts of collection will not
result in the receipt of the receivable.

|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|------- | -------------------------------------------------------------------------------------

| | None
| | ----

|Item 9A. | Controls And Procedures
|-------- | -----------------------

|(a) | Under
the supervision and with the participation of our management, including           our
principal executive officer and principal financial officer, we conducted an
          evaluation of our disclosure controls and procedures, as such term is defined
          under Rule 13a-15(e) promulgated under the Securities Exchange Act of
1934,           as amended (the Exchange Act), as of the end of the period
covered           by this report. Based on their evaluation, our principal executive
officer and           principal accounting officer concluded that Trailer Bridge, Inc.s
          disclosure controls and procedures are effective.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | There
has been no change in our internal control over financial reporting           identified
in connection with the evaluation referred to in paragraph (a) above           that
occurred during the most recent fiscal quarter that has materially           affected, or
is reasonably likely to materially affect, our internal control           over financial
reporting.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 9B. | Other Information
|-------- | -----------------

| | None
| | ----

Page 57

---

# PART III

| | Incorporated
by Reference
| | -------------------------

The
information called for by Item 10  Directors, Executive Officers and Corporate
Governance of the Registrant, Item 11  Executive Compensation,
Item 12  Security Ownership of Certain Beneficial Owners and Management,
Item 13  Certain Relationships, Related Transactions and Director Independence
 and Item 14 Principal Accountant Fees and Services is incorporated
herein by this reference to the Companys definitive proxy statement for its annual
meeting of stockholders scheduled to be held in June 2007 which definitive proxy statement
is expected to be filed with the Commission not later than 120 days after the end of the
fiscal year to which this report relates.

Page 58

---

# PART IV

|Item 15. | Exhibits, Financial Statement Schedules, and Reports on Form 8-K
|-------- | ----------------------------------------------------------------

|(a) | Documents
Filed as Part of this Report
|--- | --------------------------------------

| | 1. | Financial
Statement Schedules:
| | -- | ------------------------------

| | Schedule
 II - Valuation  and  Qualifying  Accounts  and  Reserves,  for each of the three years
ended                            December 31, 2006, 2005 and 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
other  schedules are omitted as the required  information is not applicable or the
 information is                            presented in the Financial Statements and
notes thereto in Item 8.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Exhibits.
| | -- | ---------

# EXHIBIT INDEX

# (Exhibits being filed
with this Form 10-K)

|EXHIBIT
NUMBER | DESCRIPTION OF EXHIBITS                                                                    
|-------------- | -------------------------------------------------------------------------------------------
|3.1.1(5)       | Amended and Restated Certificate of Incorporation of Trailer Bridge, Inc.                  
|3.2(1)         | Form of Amended and Restated Bylaws of the Registrant                                      
|4.1            | See Exhibits 3.1.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws of
|               | the Registrant defining the rights of holders of the Registrant's Common Stock             
|10.1(1)#       | Form of Indemnification Agreement with Directors and Executive Officers                    
|10.8.13(5)     | United States Government Guaranteed Ship Financing Bond, 1997 Series, Amended and          
|               | Restated September 30, 2003, in the amount of $10,515,000                                  
|10.8.14(5)     | Trust Indenture, Second Supplement to Special Provisions                                   
|10.8.15(5)     | United States Government Guaranteed Ship Financing Bond, 1997 Series II,                   
|               | Amended and Restated September 30, 2003, in the amount of $16,918,000                      
|10.8.16(6)     | Trust Indenture, Third Supplement to Special Provisions                                    
|10.8.17(6)     | United States Government Guaranteed Ship Financing Bond, 1997 Series, Amended and          
|               | Restated April 29, 2004, in the amount of $10,515,000                                      
|10.8.18(6)     | Trust Indenture, Third Supplement to Special Provisions                                    
|10.8.19(6)     | United States Government Guaranteed Ship Financing Bond, 1997 Series II, Amended and       
|               | Restated April 29, 2004, in the amount of $16,918,000                                      
|10.8.20(7)     | Trust Indenture, Fourth Supplement to Special Provisions                                   

Page 59

---

|EXHIBIT
NUMBER | DESCRIPTION OF EXHIBITS                                                                      
|-------------- | ---------------------------------------------------------------------------------------------
|10.8.21(7)     | Trust Indenture, Fourth Supplement to Special Provisions                                     
|10.8.22        | Third Amendment to Amended and Restated Title XI Reserve Fund and Financial Agreement dated  
|               | as of December 1, 2004 by and between Trailer Bridge, Inc. and the United States of America, 
|               | represented by the Secretary of Transportation, acting by and through the Maritime           
|               | Administrator.                                                                               
|10.9(1)        | Agreement and Lease dated as of August 1, 1991 between the Registrant and the Jacksonville   
|               | Port Authority                                                                               
|10.9.1(1)      | Amendment #5 to Exhibit B, Schedule of Fees and Charges                                      
|10.11(1)#      | Incentive Stock Plan                                                                         
|10.11.1(1)#    | Form of Stock Option Award Agreement                                                         
|10.11.2(4)#    | Amendment No. 1 to Trailer Bridge, Inc. Stock Incentive Plan                                 
|10.11.3(4)#    | Trailer Bridge, Inc. Non-Employee Director Stock Incentive Plan                              
|10.11.4(4)#    | Form of Non-Employee Director Stock Option Award Agreement                                   
|10.24(6)#      | Employment Agreement dated as of April 5, 2003 between Trailer Bridge, Inc. and William G.   
|               | Gotimer, Jr.                                                                                 
|10.25(8)#      | Employment Agreement dated as of August 5, 2004 between Trailer Bridge, Inc. and John D.     
|               | McCown                                                                                       
|10.25.4(10)    | Amendment No. 2 to Loan and Security Agreement dated as of December 1, 2004, by and between  
|               | Trailer Bridge, Inc., as Borrower, and Congress Financial Corporation (Florida), as Agent and
|               | the Lenders from time to time party thereto, as Lenders.                                     
|10.28.1(10)    | Indenture dated as of December 1, 2004 between Trailer Bridge, Inc. and Wells Fargo Bank,    
|               | National Association, as Trustee.                                                            
|10.28.2(10)    | Form of 9 1 / 4 % Senior Secured Note due 2011 (incorporated by reference to Exhibit A to    
|               | Exhibit 10.28.1 hereof).                                                                     
|10.28.3(10)    | Security Agreement dated as of December 1, 2004 between Trailer Bridge, Inc. and Wells Fargo 
|               | Bank, National Association, as Trustee.                                                      
|10.28.4(10)    | Assignment of Earnings dated as of December 1, 2004 between Trailer Bridge, Inc. and Wells   
|               | Fargo Bank, National Association, as Trustee.                                                
|10.28.5(10)    | Assignment of Insurances dated as of December 1, 2004 between Trailer Bridge, Inc. and Wells 
|               | Fargo Bank, National Association, as Trustee.                                                
|10.28.6(10)    | First Preferred Vessel Mortgage dated as of December 1, 2004 between Trailer Bridge, Inc. and
|               | Wells Fargo Bank, National Association, as Trustee.                                          

Page 60

---

|EXHIBIT
NUMBER | DESCRIPTION OF EXHIBITS                                                                      
|-------------- | ---------------------------------------------------------------------------------------------
|10.28.7(10)    | Mortgage and Security Agreement dated as of December 1, 2004 between Trailer Bridge, Inc.    
|               | and Wells Fargo Bank, National Association, as Trustee                                       
|10.29.1(10)    | Purchase Agreement dated as of November 16, 2004 among Trailer Bridge, Inc. and the Initial  
|               | Purchasers named therein                                                                     
|10.29.2(10)    | Registration Rights Agreement dated as of December 1, 2004 between Trailer Bridge, Inc. and  
|               | Wells Fargo Bank, National Association, Trustee                                              
|23.2(11)       | Consent of BDO Seidman, LLP, independent registered public accounting firm                   
|31.1(11)       | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act   
|               | and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934                    
|31.2(11)       | Certification of Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule
|               | 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934                             
|32.1(11)       | Certification of Trailer Bridge, Inc.'s Chief Executive Officer and Chief Financial Officer  
|               | Pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of   
|               | 2003                                                                                         
|99.1(9)        | Shares Acquisition Agreement dated as of July 23, 2004 by and between the Estate of Malcom   
|               | P. McLean, Kadampanttu Corp., and Trailer Bridge, Inc.                                       

|# | Management
contract or compensatory plan or arrangement.
|- | --------------------------------------------------------

|(1) | Incorporated
by reference to the indicated exhibit to the Companys
                    Registration Statement on Form S-1 (File No. 333-28221) that became
effective on                     July 23, 1997.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated
by reference to the indicated exhibit to the Companys Form                     10-Q
for the quarter ended September 30, 1997.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated
by reference to the indicated exhibit to the Companys Form                     10-K
for the year ended December 31, 1997.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated
by reference to the indicated exhibit to the Companys Form                     10-K
for the year ended December 31, 2000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated
by reference to the indicated exhibit to the Companys Form                     10-Q
for the quarter ended September 30, 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated
by reference to the indicated exhibit to the Companys Form                     10-K
for the year ended December 31, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated
by reference to the indicated exhibit to the Companys Form                     10-Q
for the quarter ended June 30, 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated
by reference to the indicated exhibit to the Companys Form                     10-Q
for the quarter ended September 30, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

Page 61

---

|(9) | Incorporated
by reference to the indicated exhibit to the Companys Form                     8-K
dated July 28, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated
by reference to the indicated exhibit to the Companys
                    Registration Statement on Form S-4 (File No. 333-122783) which was
filed on                     February 15, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Filed
herewith.
|---- | ---------------

Page 62

---

| | SIGNATURES
| | ----------

Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, and State of New York, on this twenty-seventh day of March 2006.

| | TRAILER BRIDGE, INC.     
| | -------------------------
| | By: /s/ John D. McCown   
| | John D. McCown           
| | Chairman of the Board and
| | Chief Executive Officer  

Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the following
persons in the capacities and on the dates indicated

|SIGNATURE                  | TITLE                                                | DATE          
|-------------------------- | ---------------------------------------------------- | --------------
|/s/ John D. McCown         | Chairman of the Board and Chief Executive Officer    | March 27, 2007
|John D. McCown             | and Director (Principal Executive Officer)          
|/s/ Mark A. Tanner         | Vice President -- Administration and Chief Financial | March 27, 2007
|Mark A. Tanner             | Officer (Principal Financial and Accounting Officer)
|                           |                                                      |               
|Nickel Van Reesema         | Director                                             | March 27, 2007
|/s/ Allen L. Stevens       | Director                                             | March 27, 2007
|Allen L. Stevens          
|/s/ Peter Shaerf           | Director                                             | March 27, 2007
|Peter Shaerf              
|/s/ Malcom P. McLean, Jr.  | Director                                             | March 27, 2007
|Malcom P. McLean, Jr.     
|/s/ Greggory B. Mendenhall | Director                                             | March 27, 2007
|Greggory B. Mendenhall    
|                           |                                                      |               
|Robert P. Burke            | Director                                             | March 27, 2007

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