UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC. 20549







FORM 20-F




(Mark One)







o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)OF THE SECURITIES EXCHANGE ACT OF 1934ORx
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010ORo
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934ORo
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company report _______________________________





For the transition period from _________________ to _________________





Commission file number
000-29106





Knightsbridge Tankers Limited(Exact name of Registrant as specified in its charter)(Translation of Registrant's name into English)Bermuda(Jurisdiction of incorporation or organization)Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda(Address of principal executive offices)Georgina Sousa, Telephone: (1) 441 295 6935, Facsimile: (1) 441 295 3494,

Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
















Securities registered or to be registered pursuant to Section 12(b) of the Act





Title of each class

Name of each exchange on which registeredCommon  Shares, $0.01 Par Value

NASDAQ Global Select Market





Securities registered or to be registered pursuant to Section 12(g) of the Act.





None(Title of Class)





Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.





Common Shares, $0.01 Par Value(Title of Class)





Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.





24,425,699 Common Shares, $0.01 Par Value





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.





Yes o

No x





If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.





Yes o

No x





Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.





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 o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).





Yes  o

No o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):





Large accelerated filer  o

Accelerated filer  x

Non-accelerated filer  o





Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:





U.S. GAAP x

International Financial Reporting Standards as issued by the International Accounting Standards Board o

Other o





If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:





Item 17 o

Item 18 o








If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).





Yes o

No x







2


INDEX TO REPORT ON FORM 20-F








PAGEPART IItem 1.
Identity of Directors, Senior Management and Advisers
5Item 2.
Offer Statistics and Expected Timetable
5Item 3.
Key Information
5Item 4.
Information on the Company
19Item 4A.
Unresolved Staff Comments
25Item 5.
Operating and Financial Review and Prospects
25Item 6.
Directors, Senior Management and Employees
34Item 7.
Major Shareholders and Related Party Transactions
36Item 8.
Financial Information
37Item 9.
The Offer and Listing
38Item 10.
Additional Information
38Item 11.
Quantitative and Qualitative Disclosures about Market Risk
44Item 12.
Description of Securities other than Equity Securities
44PART IIItem 13.
Defaults, Dividend Arrearages and Delinquencies
45Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
45Item 15.
Controls and Procedures
45Item 16.
[Reserved]
46Item 16A.
Audit committee financial expert
46Item 16B.
Code of Ethics
46Item 16C.
Principal Accountant Fees and Services
46Item 16D.
Exemptions from the Listing Standards for Audit Committees
46Item 16E.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
46Item 16F.
Change in Registrant's Certifying Accountant
46Item 16G.
Corporate Governance
47PART IIIItem 17.
Financial Statements
48Item 18.
Financial Statements
48Item 19.
Exhibits
48














3








CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS





Matters discussed in this report and the documents incorporated by reference may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements, which include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.




Knightsbridge Tankers Limited and its subsidiaries, or the Company, desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. This report and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance. The words "believe," "anticipate," "intend," "estimate," "forecast," "project," "plan," "potential," "will," "may," "should," "expect" and similar expressions identify forward-looking statements.




The forward-looking statements in this report are based upon various assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.




In addition to these important factors and matters discussed elsewhere herein and in the documents incorporated by reference herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies, fluctuations in currencies and interest rates, general market conditions, including fluctuations in charterhire rates and vessel values, changes in demand in the tanker and dry bulk markets, changes in world wide oil production and consumption and storage, changes in the Company's operating expenses, including bunker prices, drydocking and insurance costs, the market for the Company's vessels, availability of financing and refinancing, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents, political events or acts by terrorists, and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission or Commission.











4





PART I





ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS





Not applicable.





ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE





Not applicable.





ITEM 3.  KEY INFORMATION





Throughout this report, the "Company," "we," "us" and "our" all refer to Knightsbridge Tankers Limited and its subsidiaries. We use the term deadweight ton, or dwt, in describing the size of vessels. Dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, refers to the maximum weight of cargo and supplies that a vessel can carry. Unless otherwise indicated, all references to "USD," "US$" and "$" in this report are to, and amounts are presented in, U.S. dollars.





A.  SELECTED FINANCIAL DATA





The selected statement of operations data of the Company with respect to the fiscal years ended December 31, 2010, 2009 and 2008, and the selected balance sheet data of the Company with respect to the fiscal years ended December 31, 2010 and 2009, respectively, have been derived from the Company's consolidated financial statements included herein and should be read in conjunction with such statements and the notes thereto. The selected statement of operations data with respect to the fiscal years ended December 31, 2007 and 2006, and the selected balance sheet data with respect to the fiscal years ended December 31, 2008, 2007 and 2006 have been derived from consolidated financial statements of the Company not included herein. The following table should also be read in conjunction with Item 5. "Operating and Financial Review and Prospects" and the Company's consolidated financial statements and notes thereto included herein. The Company's accounts are maintained in U.S. dollars.





Fiscal year ended December 31,2010


2009


2008


2007


2006(in thousands of $, except shares, per share data and ratios)Statement of Operations Data:Total operating revenues


95,897



67,339



82,914



88,160



105,728Total operating expenses


52,730



43,583



33,796



46,913



54,463Net operating income


43,167



23,756



49,118



90,366



51,265Net income


38,557



21,680



48,054



84,836



45,717Earnings per common share- basic and diluted


2.02



1.27



2.81



4.96



2.67Cash dividend declared per share


1.70



0.25



2.75



2.50



3.60Balance Sheet Data (at end of year):Cash and cash equivalents


56,771



7,964



77,998



82,143



8,538Restricted cash


15,000



10,000



10,000



10,000



10,000Newbuildings


-



-



51,305



33,459



-Vessels, net


459,032



344,399



187,360



201,072



267,949Total assets


541,953



374,946



331,685



342,166



301,499CurrCurrent portion of long-term debt


3,600



13,960



42,560



8,960



11,211Long-term debt


153,740



106,520



60,480



103,040



98,000Share capital


244



171



171



171



171Stockholders' equity


375,901



239,710



222,305



221,276



179,190Common shares outstanding


24,425,699



17,100,000



17,100,000



17,100,000



17,100,000Other Financial Data:Equity to assets ratio (percentage) (1)


69.4
%


63.9
%


67.0
%


64.7
%


59.4
%Debt to equity ratio (2)


0.4



0.5



0.5



0.5



0.6Price earnings ratio (3)


11.0



10.4



5.2



4.9



8.9Time charter equivalent revenue (4)


85,430



58,751



78,902



75,288



85,713





(1)
Equity to assets ratio is calculated as total stockholders' equity divided by total assets.(2)
Debt to equity ratio is calculated as total interest bearing current and long-term liabilities divided by stockholders' equity.(3)
Price earnings ratio is calculated using the year end share price divided by basic earnings per share.(4)
A reconciliation of time charter equivalent revenues to total operating revenues as reflected in the consolidated statements of operation is as follows:







5


2010


2009


2008


2007


2006(in thousands of $)Total operating revenues


95,897



67,339



82,914



88,160



105,728Less: Voyage expense


(10,467
)


(8,588
)


(4,012
)


(12,872
)


(20,015
)Time charter equivalent revenue


85,430



58,751



78,902



75,288



85,713





Consistent with general practice in the shipping industry, the Company uses time charter equivalent revenues, which represents operating revenues less voyage expenses, as a measure to compare revenue generated from a voyage charter to revenue generated from a time charter. Time charter equivalent revenues, a non-GAAP measure, provides additional meaningful information in conjunction with operating revenues, the most directly comparable GAAP measure, because it assists Company management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance.





B.  CAPITALIZATION AND INDEBTEDNESS





Not applicable.





C.  REASONS FOR THE OFFER AND USE OF PROCEEDS





Not applicable.





D. RISK FACTORS





We are engaged in the seaborne transportation of crude oil and dry bulk cargoes. We own and operate, through our subsidiaries, a fleet of eight vessels, consisting of four double hull Very Large Crude Carriers, or VLCCs, and four Capesize dry bulk carriers. The following summarizes some of the risks that may materially affect our business, financial condition or results of operations.





Risks Related to Our Industry





Tankers





If the tanker industry, which historically has been cyclical, is depressed in the future, our earnings and available cash flow may be adversely affected





Historically, the tanker industry has been highly cyclical, with volatility in profitability and asset values resulting from changes in the supply of, and demand for, tanker capacity. Charter rates are still low compared to rates achieved in the years preceding the global financial crisis. This may adversely affect the future rates payable and the amounts we receive in respect of our vessels. Our ability to re-charter our vessels on the expiration or termination of their current time and bareboat charters and the charter rates payable under any renewal or replacement charters will depend upon, among other things, economic conditions in the tanker market. Fluctuations in charter rates and tanker values result from changes in the supply and demand for tanker capacity. According to industry sources, in 2010, newbuilding orders for oil tankers increased from their relatively low levels in 2009.





The factors that influence demand for tanker capacity include:





●
supply and demand for oil and oil products;




●
global and regional economic and political conditions, including developments in international trade and fluctuations in industrial and agricultural production;




●
regional availability of refining capacity;





●
environmental and other legal and regulatory developments;




●
the distance oil and oil products are to be moved by sea;




●
changes in seaborne and other transportation patterns, including changes in the distances over which tanker cargoes are transported by sea;
  ●
currency exchange rates;
 ●
weather and acts of God and natural disasters, including hurricanes and typhoons;
 ●
competition from alternative sources of energy and for other shipping companies and other modes of transportation; and
 ●
international sanctions, embargoes, import and export restrictions, nationalizations, piracy and wars.
 6





The factors that influence the supply of tanker capacity include:





●
current and expected purchase orders for tankers;





●
the number of tanker newbuilding deliveries;




●
the scrapping rate of older tankers;




●
the successful implementation of the phase-out of single-hull tankers;




●
technological advances in tanker design and capacity;




●
tanker freight rates, which are affected by factors that may affect the rate of newbuilding, swapping and laying up of tankers;




●
price of steel and vessel equipment;




●
conversion of tankers to other uses or conversion of other vessels to tankers;
 ●
the number of tankers that are out of service; and


●
changes in environmental and other regulations that may limit the useful lives of tankers.
 The factors affecting the supply and demand for tankers have been volatile and are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable, including those discussed above.




The international tanker industry has experienced volatile charter rates and vessel values and there can be no assurance that these charter rates and vessel values will return to their previous high levels





Charter rates in the tanker industry are volatile. We anticipate that future demand for our vessels, and in turn our future charter rates, will be dependent upon economic growth in the world's economy as well as seasonal and regional changes in demand and changes in the capacity of the world's fleet. We believe that these charter rates are the result of economic growth in the world economy that exceeds growth in global vessel capacity. There can be no assurance that economic growth will not stagnate or decline leading to a further decrease in vessel values and charter rates. A further decline in vessel values and charter rates could have an adverse effect on our business, financial condition, results of operation and ability to pay dividends.





Any decrease in shipments of crude oil may adversely affect our financial performance





The demand for our oil tankers derives primarily from demand for Arabian Gulf and West African crude oil, which, in turn, primarily depends on the economies of the world's industrial countries and competition from alternative energy sources. A wide range of economic, social and other factors can significantly affect the strength of the world's industrial economies and their demand for crude oil from the mentioned geographical areas. One such factor is the price of worldwide crude oil. The world's oil markets have experienced high levels of volatility in the last 25 years. In July 2008, oil prices rose to a high of approximately $143 per barrel before decreasing to approximately $38 per barrel by the end of December 2008 and rising to approximately $92 by the end of December 2010.





Any decrease in shipments of crude oil from the above mentioned geographical areas would have a material adverse effect on our financial performance. Among the factors which could lead to such a decrease are:





●
increased crude oil production from other areas;




●
increased refining capacity in the Arabian Gulf or West Africa;




●
increased use of existing and future crude oil pipelines in the Arabian Gulf or West Africa;




●
a decision by Arabian Gulf or West African oil-producing nations to increase their crude oil prices or to further decrease or limit their crude oil production;




●
armed conflict in the Arabian Gulf and West Africa and political or other factors; and





●
the development and the relative costs of nuclear power, natural gas, coal and other alternative sources of energy.





7




An over-supply of tanker capacity may lead to reductions in charter rates, vessel values and profitability


In recent years, shipyards have produced a large number of new tankers. If the capacity of new vessels delivered exceeds the capacity of tankers being scrapped and converted to non-trading tankers, tanker capacity will increase. If the supply of tanker capacity increases and the demand for tanker capacity does not increase correspondingly, charter rates could materially decline. A reduction in charter rates and the value of our vessels may have a material adverse effect on our results of operations, our ability to pay dividends and our compliance with loan covenants.





Dry Bulk





Charter hire rates for dry bulk vessels may decrease in the future, which may adversely affect our earnings





The dry bulk shipping industry is cyclical with attendant volatility in charterhire rates and profitability. The degree of charterhire rate volatility among different types of dry bulk vessels has varied widely, and charterhire rates for dry bulk vessels have declined significantly from historically high levels. Fluctuations in charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand for the major commodities carried by water internationally. Because the factors affecting the supply and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.





Factors that influence demand for vessel capacity include:





●
supply and demand for energy resources, commodities, semi-finished and finished consumer and industrial products;




●
changes in the exploration or production of energy resources, commodities, semi-finished and finished consumer and industrial products;




●
the location of regional and global exploration, production and manufacturing facilities;




●
the location of consuming regions for energy resources, commodities, semi-finished and finished consumer and industrial products;




●
the globalization of production and manufacturing;




●
global and regional economic and political conditions, including armed conflicts and terrorist activities; embargoes and strikes;




●
developments in international trade;




●
changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;




●
environmental and other regulatory developments;




●
currency exchange rates; and




●
weather.




Factors that influence the supply of vessel capacity include:





●
number of newbuilding deliveries;




●
scrapping of older vessels;




●
vessel casualties; and




●
number of vessels that are out of service.





Demand for our dry bulk vessels is dependent upon economic growth in the world's economies, seasonal and regional changes in demand, changes in the capacity of the global dry bulk fleet and the sources and supply of dry bulk cargo transported by sea. Given the large number of new dry bulk carriers currently on order with shipyards, the capacity of the global dry bulk carrier fleet seems likely to increase and economic growth may not resume in areas that have experienced a recession or continue in other areas. Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.





A continued downturn in the dry bulk carrier charter market may have an adverse effect on our earnings and our ability to comply with our loan covenants





The abrupt and dramatic downturn in the dry bulk charter market, from which we will derive the large majority of our revenues, has severely affected the dry bulk shipping industry.  The Baltic Dry Index, an index published by The Baltic Exchange of shipping rates for 20 key dry bulk routes, fell 94% from a peak of 11,793 in May 2008 to a low of 663 in December 2008. During 2009, the BDI remained volatile, reaching a low of 772 on January 5, 2009 and a high of 4,661 on November 19, 2009. The BDI came under pressure in December 2009 and January 2010, reaching a low of 2,571 on February 12, 2010 as stalled iron ore pricing negotiations added uncertainty to the freight markets.  The index then staged a modest recovery based on strong demand for commodities from Asia and a recovering global market, but it has remained somewhat volatile due to increases in vessel supply.  As of the end of December, 2010, the index stood at 1,773.  This downturn in dry bulk charter rates and their volatility, which has resulted from the economic dislocation worldwide and the disruption of the credit markets, have had a number of adverse consequences for dry bulk shipping, including, among other things:






8





·
an absence of financing for vessels;




·
no active second-hand market for the sale of vessels;




·
extremely low charter rates, particularly for vessels employed in the spot market;




·
widespread loan covenant defaults in the dry bulk shipping industry; and




·
declaration of bankruptcy by some operators and shipowners as well as charterers.




The occurrence of one or more of these events could adversely affect our business, results of operations, cash flows, financial condition and ability to pay dividends.  There can be no assurance that the dry bulk charter market will recover over the next several months and the market could continue to decline further.





Dry bulk carrier values have also declined both as a result of a slowdown in the availability of global credit and the significant deterioration in charter rates. Charter rates and vessel values have been affected in part by the lack of availability of credit to finance both vessel purchases and purchases of commodities carried by sea, resulting in a decline in cargo shipments, and the excess supply of iron ore in China which resulted in falling iron ore prices and increased stockpiles in Chinese ports. There can be no assurance as to how long charter rates and vessel values will remain at their currently low levels. Charter rates may remain at low levels for some time which will adversely affect our revenue and profitability.





In addition, because the market value of our vessels may fluctuate significantly, we may incur losses when we sell vessels, which may adversely affect our earnings. If we sell vessels at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our financial statements, the sale may be at less than the vessel's carrying amount in our financial statements, resulting in a loss and a reduction in earnings.





An oversupply of dry bulk carrier capacity may lead to reductions in charterhire rates and profitability





The market supply of dry bulk carriers has been increasing as a result of the delivery of numerous newbuilding orders over the last few years. Newbuildings were delivered in increasing numbers starting at the beginning of 2006 and continued to be delivered in increasing numbers from 2007 through 2010.





An oversupply of dry bulk carrier capacity may result in a reduction of charterhire rates, as evidenced by historically low rates in December 2008. If such dry bulk carrier capacity increase continues, we may only be able to recharter our vessels at reduced or unprofitable rates or we may not be able to recharter these vessels at all. The occurrence of these events could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.





Shipping Generally





Risks involved with operating ocean-going vessels could affect our business and reputation, which could have a material adverse effect on our results of operations and financial condition





The operation of an ocean-going vessel carries inherent risks. These risks include the possibility of:





●
a marine disaster;




●
terrorism;




●
environmental accidents;




●
cargo and property losses or damage; and




●
business interruptions caused by mechanical failure, human error, war, terrorism, piracy, political action in various countries, labor  strikes, or adverse weather conditions.




Any of these circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in an oil spill or other environmental disaster may harm our reputation as a safe and reliable tanker operator.


9





The current global economic downturn may negatively impact our business





In recent years, operating businesses in the global economy have faced tightening credit, weakening demand for goods and services, deteriorating international liquidity conditions, and declining markets.  At times, lower demand for dry bulk cargoes and crude oil as well as diminished trade credit available for the delivery of such dry bulk cargoes and crude oil have led to decreased demand for dry bulk vessels and tankers, respectively, creating downward pressure on charter rates.  General market volatility has resulted from uncertainty about sovereign debt and fears of countries such as Greece, Portugal and Spain defaulting on their governments' financial obligations.  If the current global economic environment persists or worsens, we may be negatively affected in the following ways:





·
we may not be able to employ our vessels at charter rates as favorable to us as historical rates or operate our vessels profitably; and




·
the market value of our vessels could decrease, which may cause us to recognize losses if any of our vessels are sold or if their values are impaired.




The occurrence of any of the foregoing could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.





Acts of piracy on ocean-going vessels could adversely affect our business





Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia.  Throughout 2009 and 2010, the frequency of piracy incidents increased significantly, particularly in the Gulf of Aden off the coast of Somalia. If these piracy attacks result in regions in which our vessels are deployed being characterized by insurers as "war risk" zones, or Joint War Committee (JWC) "war and strikes" listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain.  In addition, crew costs, including costs which may be incurred to the extent we employ onboard security guards, could increase in such circumstances.  We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us.  In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, results of operations, cash flows, financial condition and ability to pay dividends.





World events could affect our results of operations and financial condition





Terrorist attacks in New York on September 11, 2001, in London on July 7, 2005 and in Mumbai on November 26, 2008 and the continuing response of the United States and others to these attacks, as well as the threat of future terrorist attacks in the United States or elsewhere, continues to cause uncertainty in the world's financial markets and may affect our business, operating results and financial condition. The continuing presence of United States and other armed forces in Iraq and Afghanistan may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.





Terrorist attacks on vessels, such as the October 2002 attack on the M.V. Limburg, a very large crude carrier not related to us, may in the future also negatively affect our operations and financial condition and directly impact our vessels or our customers. Future terrorist attacks could result in increased volatility and turmoil of the financial markets in the United States and globally. Any of these occurrences, or the perception that our vessels are potential terrorist targets, could have a material adverse impact on our revenues and costs.





The recent earthquake and tsunami in Japan may have an adverse affect on our business, results of operations, financial condition and ability to pay dividends





Japan is one of the world's leading importers of oil and dry bulk commodities. The earthquake and tsunami that occurred in Japan on March 11, 2011 have caused an estimated $180 billion of damage and has threatened to send the Japanese economy into a recession. As of the date of this annual report, the extent to which the earthquake and tsunami will affect the international shipping industry is unclear. With the third largest economy in the world, a prolonged recovery period with a relatively stagnant Japanese economy could decrease oil and dry bulk imports to that country. This, in turn, could have a material adverse effect on our business and results of operations.






10





If our vessels call on ports located in countries that are subject to restrictions imposed by the U.S. or other governments, that could adversely affect our reputation and the market for our common stock




From time to time on charterers' instructions, our vessels may call on ports located in countries subject to sanctions and embargoes imposed by the United States government and countries identified by the U.S. government as state sponsors of terrorism. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act ("CISADA"), which expanded the scope of the former Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions to non-U.S. companies, such as our company, and introduces limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. Although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in our company. Additionally, some investors may decide to divest their interest, or not to invest, in our company simply because we do business with companies that do business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. Investor perception of the value of our common stock may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.





Compliance with safety and other vessel requirements imposed by classification societies may be costly and could reduce our net cash flows and net income





The hull and machinery of every commercial vessel must be certified as being "in class" by a classification society authorized by its country of registry.  The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention.





A vessel must undergo annual surveys, intermediate surveys and special surveys.  In lieu of a special survey, a vessel's machinery may be placed on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period.  We expect our vessels to be on special survey cycles for hull inspection and continuous survey cycles for machinery inspection.  Every vessel is also required to be drydocked every two to three years for inspection of its underwater parts.





Compliance with the above requirements may result in significant expense.  If any vessel does not maintain its class or fails any annual, intermediate or special survey, the vessel will be unable to trade between ports and will be unemployable, which could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.





We are subject to complex laws and regulations, including environmental laws and regulations, that can adversely affect our business, results of operations and financial condition





Our operations will be subject to numerous laws and regulations, in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. These requirements include, but are not limited to, the U.S. Oil Pollution Act of 1990, or OPA, the International Maritime Organization, or  IMO, International Convention on Civil Liability for Oil Pollution Damage of 1969 (as from time to time amended), generally referred to as CLC, the IMO International Convention for the Prevention of Pollution from Ships of 1973 (as from time to time amended), generally referred to as MARPOL, the IMO International Convention for the Safety of Life at Sea of 1974 (as from time to time amended), generally referred to as SOLAS, the IMO International Convention on Load Lines of 1966 (as from time to time amended) and the U.S. Maritime Transportation Security Act of 2002.  Compliance with such laws and regulations, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of our vessels.  Compliance with such laws and regulations may require us to obtain certain permits or authorizations prior to commencing operations.  Failure to obtain such permits or authorizations could materially impact our business results of operations, financial conditions and ability to pay dividends by delaying or limiting our ability to accept charterers.  We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions including greenhouse gases, the management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents.  These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition and our available cash.  A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations.  Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability, without regard to whether we were negligent or at fault.  Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil in U.S. waters, including the 200-nautical mile exclusive economic zone around the United States.  An oil spill could also result in significant liability, including fines, penalties, criminal liability and remediation costs for natural resource damages under other international and U.S. Federal, state and local laws, as well as third-party damages, including punitive damages, and could harm our reputation with current or potential charterers of our tankers.  We will be required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents.  Although our technical manager will arrange for insurance to cover our vessels with respect to certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, financial condition, results of operations and cash flows.






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Furthermore, the explosion of the Deepwater Horizon and the subsequent release of oil into the Gulf of Mexico, or other events, may result in further regulation of the tanker industry, and modifications to statutory liability schemes, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.




Maritime claimants could arrest one or more of our vessels, which could interrupt our cash flow


Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by "arresting" or "attaching" a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could result in a significant loss of earnings for the related off-hire period. In addition, in jurisdictions where the "sister ship" theory of liability applies, a claimant may arrest the vessel which is subject to the claimant's maritime lien and any "associated" vessel, which is any vessel owned or controlled by the same owner. In countries with "sister ship" liability laws, claims might be asserted against us or any of our vessels for liabilities of other vessels that we own.





Governments could requisition our vessels during a period of war or emergency resulting in a loss of earnings





A government of a vessel's registry could requisition for title or seize one or more of our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. A government could also requisition one or more of our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.





Risks Related to Our Business





A drop in spot charter rates may provide an incentive for some charterers to default on their charters




When we enter into a time charter or bareboat charter, charter rates under that charter are fixed for the term of the charter. If the spot charter rates or short-term time charter rates in the tanker or dry bulk shipping industry, as applicable, become significantly lower than the time charter equivalent rates that some of our charterers are obligated to pay us under our existing charters, the charterers may have incentive to default under that charter or attempt to renegotiate the charter. If our charterers fail to pay their obligations, we would have to attempt to re-charter our vessels at lower charter rates, which would affect our ability to comply with our loan covenants and operate our vessels profitably. If we are not able to comply with our loan covenants and our lenders choose to accelerate our indebtedness and foreclose their liens, we could be required to sell vessels in our fleet and our ability to continue to conduct our business would be impaired.


The operation of dry bulk carriers and tankers each involve certain unique operational risks




The operation of dry bulk carriers has certain unique operational risks. With a dry bulk carrier, the cargo itself and its interaction with the ship can be a risk factor.  By their nature, dry bulk cargoes are often heavy, dense, easily shifted, and react badly to water exposure. In addition, dry bulk carriers are often subjected to battering treatment during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold), and small bulldozers. This treatment may cause damage to the dry bulk carrier. Dry bulk carriers damaged due to treatment during unloading procedures may be more susceptible to a breach to the sea.  Hull breaches in dry bulk carriers may lead to the flooding of their holds. If a dry bulk carrier suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the dry bulk carrier's bulkheads leading to the loss of the dry bulk carrier.




The operation of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage, and a catastrophic spill could exceed the insurance coverage available. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil transported in tankers.




If we are unable to adequately maintain or safeguard our vessels we may be unable to prevent these events. Any of these circumstances or events could negatively impact our business, financial condition, results of operations. In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.




Purchasing and operating previously owned, or secondhand, vessels may result in increased drydocking costs and vessels off-hire, which could adversely affect our earnings




Our current business strategy includes growth through the acquisition of previously owned vessels. Even following a physical inspection of secondhand vessels prior to purchase, we do not have the same knowledge about their condition and cost of any required (or anticipated) repairs that we would have had if these vessels had been built for and operated exclusively by us.  Accordingly, we may not discover defects or other problems with such vessels prior to purchase. Any such hidden defects or problems, when detected, may be expensive to repair, and if not detected, may result in accidents or other incidents for which we may become liable to third parties. Also, when purchasing previously owned vessels, we do not receive the benefit of any builder warranties if the vessels we buy are older than one year.





In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel.  Older vessels are typically less fuel efficient than more recently constructed vessels due to improvements in engine technology.





Governmental regulations, safety and other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment to some of our vessels and may restrict the type of activities in which these vessels may engage.  We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.


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The volatility in both dry bulk and tanker charter rates, and vessel values, may affect our ability to comply with various covenants in our loan agreements




Our loan agreements for our borrowings, which are secured by liens on our vessels, contain various financial covenants. Among those covenants are requirements that relate to our financial position, operating performance and liquidity.  For example, there are financial covenants that require us to maintain (i) a minimum value adjusted equity that is based, in part, upon the market value of the vessels securing the loans, (ii) minimum levels of free cash, and (iii) a positive working capital.  The market value of dry bulk and tanker vessels is sensitive, among other things, to changes in the dry bulk and tanker charter markets, respectively, with vessel values deteriorating in times when dry bulk and tanker charter rates, as applicable, are falling and improving when charter rates are anticipated to rise. Such conditions may result in our not being in compliance with these loan covenants. In such a situation, unless our lenders were willing to provide waivers of covenant compliance or modifications to our covenants, or would be willing to refinance our indebtedness, we may have to sell vessels in our fleet and/or seek to raise additional capital in the equity markets in order to comply with our loan covenants. Furthermore, if the value of our vessels deteriorates significantly, we may have to record an impairment adjustment in our financial statements, which would adversely affect our financial results and further hinder our ability to raise capital.




If we are not in compliance with our covenants and are not able to obtain covenant waivers or modifications, our lenders could require us to post additional collateral, enhance our equity and liquidity, increase our interest payments or pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, or they could accelerate our indebtedness, which would impair our ability to continue to conduct our business. In such an event, our auditors may give either an unqualified opinion with an explanatory paragraph relating to the disclosure in the notes to our financial statements as to the substantial doubt of our ability to continue as a going concern, or a qualified, adverse or disclaimer of opinion, which could lead to additional defaults under our loan agreements. If our indebtedness is accelerated, we might not be able to refinance our debt or obtain additional financing and could lose our vessels if our lenders foreclose their liens. In addition, if we find it necessary to sell our vessels at a time when vessel prices are low, we will recognize losses and a reduction in our earnings, which could affect our ability to raise additional capital necessary for us to comply with our loan agreements.




Our ability to obtain additional debt financing may be dependent on the performance of our then existing charters and the creditworthiness of our charterers




The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources required to purchase additional vessels or may significantly increase our costs of obtaining such capital.  Our inability to obtain additional financing at anticipated costs or at all may materially affect our results of operation and our ability to implement our business strategy.




Our results of operations are subject to seasonal fluctuations, which may adversely affect our financial condition





We plan to operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, charter rates.  This seasonality may result in quarter-to-quarter volatility in our operating results, as our vessels may trade in the spot market from time to time.  Peaks in tanker demand quite often precede seasonal oil consumption peaks, as refiners and suppliers anticipate consumer demand. Seasonal peaks in oil demand can broadly be classified into two main categories: increased demand prior to Northern Hemisphere winters as heating oil consumption increases and increased demand for gasoline prior to the summer driving season in the United States.





Because the market value of our vessels may fluctuate significantly, we may incur losses when we sell vessels which may adversely affect our earnings





The fair market value of vessels may increase and decrease depending on but not limited to the following factors:





●
general economic and market conditions affecting the shipping  industry;




●
competition from other shipping companies;




●
types and sizes of vessels;




●
other modes of transportation;




●
cost of newbuildings;




●
shipyard capacity;




●
governmental or other regulations;





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●
age of vessels;




●
prevailing level of charter rates; and




●
technological advances.





If we sell a vessel at a time when ship prices have fallen, the sale may be at less than the vessel's carrying amount on our financial statements, with the result that we could incur a loss and a reduction in earnings. In addition, if we determine at any time that a vessel's future limited useful life and earnings require us to impair its value on our financial statements, that could result in a charge against our earnings and a reduction of our shareholders' equity. It is possible that the market value of our vessels will decline in the future and this will also have an adverse effect on some of the financial covenants in our loan agreements.





We may be unable to successfully compete with other vessel operators for charters, which could adversely affect our results of operations and financial position





The operation of tankers and dry bulk vessels and transportation of crude and petroleum products and dry bulk cargoes is extremely competitive. Through our operating subsidiaries we compete with other vessel owners (including major oil companies as well as independent companies), and, to a lesser extent, owners of other size vessels. The tanker and dry bulk markets are highly fragmented. It is possible that we could not obtain suitable employment for our vessels, which could adversely affect our results of operations and financial position.





We receive a portion of our charter hire revenue from a limited number of customers including Frontline Ltd.





We derive a significant portion of our revenues from charters with Frontline Ltd., or Frontline, a publicly-traded shipping company, which is the parent of our General Manager, for two of our eight vessels.  If we were to lose one or both of our charters with Frontline, or any of our other customers, we may be unable to find a suitable replacement charter for the related vessel on terms as favorable to us as under our current charters. The loss of any of our customers could have a material adverse effect on our revenues and results of operations.





Our time and bareboat charters may limit our ability to benefit from any improvement in charter rates, and at the same time, our revenues may be adversely affected if we do not successfully employ our vessels on the expiration of our charters





Currently, all of our vessels are contractually committed to time or bareboat charters, with the remaining terms of these charters expiring on dates between 2011 and 2015. Although our time and bareboat charters generally provide reliable revenues, they also limit the portion of our fleet available for spot market voyages during an upswing in the tanker industry cycle, when spot market voyages might be more profitable. By the same token, we cannot assure you that we will be able to successfully employ our vessels in the future or renew our existing charters at rates sufficient to allow us to operate our business profitably or meet our obligations. A decline in charter or spot rates or a failure to successfully charter our vessels could have a material adverse effect on our business, financial condition, results of operation and ability to pay dividends.





We cannot assure you that we will be able to refinance indebtedness incurred under our current credit facilities





We cannot assure you that we will be able to refinance our indebtedness on terms that are acceptable to us or at all. If we are not able to refinance our indebtedness, we will have to dedicate a greater portion of our cash flow from operations to pay the principal and interest of this indebtedness. We cannot assure you that we will be able to generate cash flow in amounts that are sufficient for these purposes. If we are not able to satisfy these obligations, we may have to undertake alternative financing plans or sell our assets. In addition, debt service payments under our credit facilities may limit funds otherwise available for working capital, capital expenditures, payment of dividends and other purposes. If we are unable to meet our debt obligations, or if we otherwise default under our credit facilities, our lenders could declare the debt, together with accrued interest and fees, to be immediately due and payable and foreclose on our fleet, which could result in the acceleration of other indebtedness that we may have at such time and the commencement of similar foreclosure proceedings by other lenders.





As we expand our fleet, we may not be able to recruit suitable employees and crew for our vessels which may limit our growth and cause our financial performance to suffer





We have recently expanded our fleet from four to eight vessels and diversified from a pure tanker fleet to a fleet that is comprised of four tankers and four dry bulk carriers. We may not be able to continue to hire suitable employees as we expand our fleet and diversify.  If we are unable to recruit suitable employees and crews, we may not be able to provide our services to customers, our growth may be limited and our financial performance may suffer.






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We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to meet their obligations could cause us to suffer losses or otherwise adversely affect our business





We have entered into various contracts, including charterparties with our customers and our credit facilities. Such agreements subject us to counterparty risks. Charterers are sensitive to the commodity markets and may be impacted by market forces affecting commodities.  In addition, in depressed market conditions, there have been reports of charterers renegotiating their charters or defaulting on their obligations under charters.  Our charterers may fail to pay charterhire or attempt to renegotiate charter rates.  Should a charterer fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure on the spot market or on charters may be at lower rates, depending on the then existing charter rate levels, compared to the rates currently being charged for our vessels.  In addition, if the charterer of a vessel in our fleet that is used as collateral under our credit facility or any other loan agreement defaults on its charter obligations to us, such default may constitute an event of default under our credit facility or the relevant loan agreement, which may allow the bank to exercise remedies under our credit facility or the loan agreement.  If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends, if any, in the future, and compliance with covenants in our loan agreements.  Further, if we had to find a replacement technical manager, we may need approval from our lenders to change the technical manager.





The ability of each of the counterparties to perform its obligations under a contract with us or contracts entered into on our behalf will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the shipping sector, the overall financial condition of the counterparty, charter rates received for tanker vessels and the supply and demand for commodities. Should a counterparty fail to honor its obligations under any such contracts, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.





Declines in charter rates and other market deterioration could cause us to incur impairment charges





The carrying values of our vessels are reviewed whenever events or changes in circumstances indicate that the carrying amount of the vessel may no longer be recoverable. We assess recoverability of the carrying value by estimating the future net cash flows expected to result from the vessel, including eventual disposal. If the future net undiscounted cash flows and the estimated fair market value of the vessel are less than the carrying value an impairment loss is recorded equal to the difference between the vessel's carrying value and fair value. Any impairment charges incurred as a result of declines in charter rates and other market deterioration could negatively affect our business, financial condition, operating results or the trading price of our Ordinary Shares.





Fuel or bunker prices, may adversely affect our profits





For vessels on voyage charters, fuel oil, or bunkers, is a significant, if not the largest, expense. Changes in the price of fuel may adversely affect our profitability to the extent we have vessels on voyage charters. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail.





Operational risks and damage to our vessels could adversely impact our performance





If our vessels suffer damage due to inherent operational risks, we may experience unexpected drydocking costs and delays or total loss of our vessels, which may adversely affect our revenues and business and financial condition.




Our vessels and their cargoes will be at risk of being damaged or lost because of events such as marine disasters, bad weather and other acts of God, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circumstances or events. Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts.  These hazards may result in death or injury to persons, loss of revenues or property, the payment of ransoms, environmental damage, higher insurance rates, damage to our customer relationships and market disruptions, delay or rerouting.




If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover at all or in full. The loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located relative to our vessels' positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect our business and financial condition. Further, the total loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.  If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs or loss which could negatively impact our business, financial condition, results of operations and cash flows.







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Increased inspection procedures, tighter import and export controls and new security regulations could increase costs and cause disruption of our business





International shipping is subject to security and customs inspection and related procedures in countries of origin, destination and trans-shipment points. Since the events of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security.  On November 25, 2002, the U.S. Maritime Transportation Security Act of 2002, or MTSA, came into effect.  To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States.  These security procedures can result in delays in the loading, offloading or trans-shipment and the levying of customs duties, fines or other penalties against exporters or importers and, in some cases, carriers.  Future changes to the existing security procedures may be implemented that could affect the tanker sector.  These changes have the potential to impose additional financial and legal obligations on carriers and, in certain cases, to render the shipment of certain types of goods uneconomical or impractical.  These additional costs could reduce the volume of goods shipped, resulting in a decreased demand for vessels and have a negative effect on our business, revenues and customer relations.





Risks Related to Our Company




One of our directors is affiliated with Golden Ocean Group Limited, which could result in conflicts of interest that may not be resolved in our favor




At our 2010 Annual General Meeting of Shareholders, held on September 24, 2010, our shareholders elected Mr. Herman Billung as a member of our board of directors, or Board. Mr. Billung also serves as the Chief Executive Officer of Golden Ocean Management AS, a wholly-owned subsidiary of Golden Ocean Group Limited, or Golden Ocean. Golden Ocean currently holds 10% of our common shares. Another subsidiary of Golden Ocean provides commercial management services for our drybulk carriers. We have also purchased two vessels from Golden Ocean. To the extent that we do business with Golden Ocean or Golden Ocean competes with us for business opportunities, prospects or financial resources, or participates in ventures in which we may participate, Mr. Billung may face actual or apparent conflicts of interest in connection with decisions that could have different implications for us and Golden Ocean. These decisions may relate to corporate opportunities, corporate strategies, potential acquisitions of businesses, intercompany agreements, competition, the issuance or disposition of securities, the election of new or additional directors and other matters. Such potential conflicts may delay or limit the opportunities available to us, and it is possible that conflicts may be resolved in a manner adverse to us.





Incurrence of expenses or liabilities may reduce or eliminate distributions





Our policy is to make distributions to shareholders based on earnings and cash flow. The amount and timing of dividends will depend on our earnings, financial condition, cash position, Bermuda law affecting the payment of distributions and other factors. However, we could incur other expenses or contingent liabilities that would reduce or eliminate the cash available for distribution by us as dividends. In addition, the declaration and payment of dividends is subject at all times to the discretion of our Board.  We cannot assure you that we will pay dividends.





Our financing obligations could affect our ability to incur additional indebtedness or engage in certain transactions





Our financing agreements impose operational and financing restrictions on us and/or on our subsidiaries, which may significantly limit or prohibit, among other things, our and/or our subsidiaries’ ability to, without the consent of our lenders, incur additional indebtedness, create liens, sell capital shares of subsidiaries, make certain investments, engage in mergers and acquisitions, purchase and sell vessels, enter into certain charters or, if an event of default has occurred,  pay dividends.In addition, our lenders may accelerate the maturity of indebtedness under our financing agreements and foreclose on the collateral securing the indebtedness upon the occurrence of certain events of default, including our failure to comply with any of the covenants contained in our financing agreements, not rectified within the permitted time. For instance, declining vessel values could lead to a breach of covenants under our financing agreements. If we are unable to prepay, pledge additional collateral or obtain waivers from our lenders, our lenders could accelerate our debt and foreclose on our vessels. In addition, if the lenders are entitled to accelerate the debt outstanding under one facility in default, it could result in a default on our other facilities.





We may not be able to finance our future capital commitments





We cannot guarantee that we will be able to obtain additional financing at all or on terms acceptable to us. If adequate funds are not available, we may have to reduce expenditures for investments in new and existing projects, which could hinder our growth and prevent us from realizing potential revenues from prior investments which will have a negative impact on our cash flows and results of operations.





If we do not set aside funds and are unable to borrow or raise funds for vessel replacement at the end of a vessel's useful life our revenue will decline, which would adversely affect our business, results of operations, financial condition and ability to pay dividends





If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives. Our cash flows and income are dependent on the revenues earned by the chartering of our vessels. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, results of operations, financial condition and ability to pay dividends would be adversely affected. Any funds set aside for vessel replacement will not be available for dividends.





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We may not have adequate insurance to compensate us if our vessels are damaged or lost





We procure insurance for our fleet against those risks that we believe the shipping industry commonly insures against. These insurances include hull and machinery insurance, protection and indemnity insurance, which include environmental damage and pollution insurance coverage, and war risk insurance. We can give no assurance that we will be adequately insured against all risks. We may not be able to obtain adequate insurance coverage for our fleet in the future. The insurers may not pay particular claims. Our insurance policies may contain deductibles for which we will be responsible and limitations and exclusions which, may increase our costs or lower our revenue.


Although we do not anticipate any difficulty in having our technical manager initially obtain insurance policies for us, we cannot assure you that we will be able to renew such policies on the same or commercially reasonable terms, or at all, in the future.  For example, more stringent environmental regulations have in the past led to increased costs for, and in the future may result in the lack of availability of, protection and indemnity insurance against risks of environmental damage or pollution.  Any uninsured or underinsured loss could harm our business, results of operations, cash flows, financial condition and ability to pay dividends.  In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our vessels failing to maintain certification with applicable maritime self-regulatory organizations.  Further, we cannot assure you that our insurance policies will cover all losses that we incur, or that disputes over insurance claims will not arise with our insurance carriers.  Any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material.  In addition, our insurance policies may be subject to limitations and exclusions, which may increase our costs or lower our revenues, thereby possibly having a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.





Because we are a foreign corporation, you may not have the same rights that a shareholder in a United States corporation may have





We are a Bermuda company. Our memorandum of association and by-laws and the Bermuda Companies Act 1981, as amended, govern our affairs. Investors may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction. Under Bermuda law a director generally owes a fiduciary duty only to the company; not to the company's shareholders. Our shareholders may not have a direct course of action against our directors. In addition, Bermuda law does not provide a mechanism for our shareholders to bring a class action lawsuit under Bermuda law. Further, our bye-laws provide for the indemnification of our directors or officers against any liability arising out of any act or omission except for an act or omission constituting fraud, dishonesty or illegality.





United States tax authorities could treat the Company as a "passive foreign investment company," which could have adverse United States federal income tax consequences to United States shareholders





A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income."  For purposes of these tests, "passive income" includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business.  For purposes of these tests, income derived from the performance of services does not constitute "passive income."  United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.





Based on our current and proposed method of operation, we do not believe that we are, have been or will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time chartering and voyage chartering activities as services income, rather than rental income.  Accordingly, we believe that our income from these activities does not constitute "passive income," and the assets that we own and operate in connection with the production of that income do not constitute assets that produce, or are held for the production of, "passive income."





Although there is no direct legal authority under the PFIC rules addressing our method of operation there is substantial legal authority supporting our position consisting of case law and United States Internal Revenue Service, or the IRS, pronouncements concerning the characterization of income derived from time charters, bareboat charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority which characterizes time charter and bareboat charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC.  Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of our operations.





If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders will face adverse United States federal income tax consequences.  Under the PFIC rules, unless those shareholders make an election available under United States Internal Revenue Code of 1986, as amended, or the Code (which election could itself have adverse consequences for such shareholders, as discussed below under "Taxation "), such shareholders would be liable to pay United States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our Ordinary Shares, as if the excess distribution or gain had been recognized ratably over the shareholder's holding period of our Ordinary Shares.  See "Taxation" for a more comprehensive discussion of the United States federal income tax consequences to United States shareholders if we are treated as a PFIC.






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We may have to pay tax on United States source income, which would reduce our earnings





Under the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as ourselves and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States, may be subject to a 4% United States federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the applicable Treasury Regulations promulgated thereunder.





We expect that we and each of our subsidiaries will qualify for this statutory tax exemption and we will take this position for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source shipping income. For example, we would no longer qualify for exemption under Section 883 of the Code for a particular taxable year if shareholders with a 5% or greater interest in our Ordinary shares owned, in the aggregate, 50% or more of our outstanding Ordinary shares for more than half the days during the taxable year.  Due to the factual nature of the issues involved, there can be no assurances on our tax-exempt status or that of any of our subsidiaries.





If we or our subsidiaries are not entitled to exemption under Section 883 of the Code for any taxable year, we, or our subsidiaries, could be subject during those years to an effective 2% United States federal income tax on gross shipping income derived during such a year that is attributable to the transport of cargoes to or from the United States. The imposition of this tax would have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders.





Our Liberian subsidiaries may not be exempt from Liberian taxation, which would materially reduce our Liberian subsidiaries', and consequently our, net income and cash flow by the amount of the applicable tax





The Republic of Liberia enacted an income tax law generally effective as of January 1, 2001, or the New Act, which repealed, in its entirety, the prior income tax law in effect since 1977, pursuant to which our Liberian subsidiaries, as non-resident domestic corporations, were wholly exempt from Liberian tax.





In 2004, the Liberian Ministry of Finance issued regulations, or the New Regulations, pursuant to which a non-resident domestic corporation engaged in international shipping, such as our Liberian subsidiaries, will not be subject to tax under the New Act retroactive to January 1, 2001. In addition, the Liberian Ministry of Justice issued an opinion that the New Regulations were a valid exercise of the regulatory authority of the Ministry of Finance. Therefore, assuming that the New Regulations are valid, our Liberian subsidiaries will be wholly exempt from tax as under prior law.In 2009, the Liberian Ministry of Finance adopted an Economic Stimulus Act to clarify the tax treatment of non-resident Liberian corporations. Although such Act was signed into law by the President of Liberia it was never formally published, which is a requirement to make it effective. We are still waiting advice from Liberia regarding publication of the 2009 Economic Stimulus Act.





If our Liberian subsidiaries were subject to Liberian income tax under the New Act, our Liberian subsidiaries would be subject to tax at a rate of 35% on their worldwide income. As a result, their, and subsequently our, net income and cash flow would be materially reduced by the amount of the applicable tax. In addition, we, as a shareholder of the Liberian subsidiaries, would be subject to Liberian withholding tax on dividends paid by the Liberian subsidiaries at rates ranging from 15% to 20%.





Because our offices and most of our assets are outside the United States, you may not be able to bring suit against us, or enforce a judgment obtained against us in the United States





Our executive offices, administrative activities and assets are located outside the United States. As a result, it may be more difficult for investors to effect service of process within the United States upon us, or to enforce both in the United States and outside the United States judgments against us in any action, including actions predicated upon the civil liability provisions of the federal securities laws of the United States.





Investor confidence and the market price of our ordinary shares may be adversely impacted if we are unable to comply with Section 404 of the Sarbanes-Oxley Act of 2002





We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, which requires us to include in our Annual Report on Form 20-F our management's report on, and assessment of the effectiveness of, our internal controls over financial reporting. In addition, our independent registered public accounting firm is required to attest to and report on management's assessment of the effectiveness of our internal controls over financial reporting. If we fail to maintain the adequacy of our internal controls over financial reporting, we will not be in compliance with all of the requirements imposed by Section 404. Any failure to comply with Section 404 could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could harm our business and could negatively impact the market price of our common stock.






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ITEM 4.  INFORMATION ON THE COMPANY





A.  HISTORY AND DEVELOPMENT OF THE COMPANY





Knightsbridge Tankers Limited was incorporated in Bermuda as a Bermuda exempted company under the Bermuda Companies Law of 1981 on September 18, 1996. The Company's registered and principal executive offices are located at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda, and its telephone number is +1 (441) 295-6935. References herein to the Company or to "we" or "us" include the Company and all of its subsidiaries, unless otherwise indicated. The Company was incorporated for the purpose of the acquisition, disposition, ownership, leasing and chartering of, through wholly-owned subsidiaries, five very large crude oil carriers. The Company used the net proceeds of its initial public offering and bank debt to fund the purchase of these vessels. Upon their purchase from their previous owners on February 27, 1997 until March 2004, the Company chartered its vessels to Shell International on long-term bareboat charters. The term of each of these charters was a minimum of seven years, with options for Shell International to extend the period for each vessel's charter. Shell International did not extend the bareboat charters for any of the vessels.  Consequently, the charters expired for all five vessels, in accordance with their terms, during March 2004 and the vessels were redelivered to the Company.


Following the redelivery of its original vessels, we entered into a five year time charter for one of our vessels, which expired in March 2009, while two of our vessels were time chartered for a period of three years, which expired in May 2007. We then entered into four and five year time charter agreements with Frontline Ltd. (NYSE: FRO; OSE: FRO), a Bermuda based publicly listed tanker owner and operator, which is the parent of our General Manager as described below to replace the charters which expired in May 2007. Our remaining two vessels had been trading on the spot market and from April 2005, participated in a pooling arrangement with Frontline. During March 2007, the pooling arrangement with Frontline was terminated, and we commenced a three year time charter for one of the vessels, leaving one vessel trading in the spot market. That vessel was sold in December 2007.





In May 2007, we entered into agreements for the construction of two Capesize dry bulk carriers, each with a cargo-carrying capacity of approximately 170,000 dwt, with Daehan Shipbuilding Co Ltd in the Republic of Korea. Both of the vessels commenced five-year time charters following their delivery to us in August and October 2009. In July 2010, we acquired a 2010-built Capesize dry bulk carrier from Golden Ocean and in October 2010, we acquired a second 2010-built Capesize dry bulk carrier from Golden Ocean, a Bermuda company listed on the Oslo Stock Exchange. Both vessels were acquired with existing time charters.





We currently own and operate four VLCCs, two of which are on time charter and two of which are on bareboat charter, and four Capesize dry bulk carriers all of which are on time charters.





On September 27, 2010, the Company announced an underwritten public offering of 4,250,000 common shares and a 30 day option granted to the underwriters to purchase up to 637,500 additional shares to cover overallotments. The offering was priced at $19.00 per share and the underwriters exercised the over-allotment option in full. As a result, 4,887,500 common shares were issued in October and net proceeds of approximately $87.6 million were received. The proceeds were used to fund a portion of the purchase price of the Golden Zhejiang and the remainder is expected to be used to repay indebtedness, fund future vessel acquisitions, for working capital and for general corporate purposes.





In November 2010, the Company entered into a new $175.0 million senior secured credit facility with Nordea maturing in May 2015 consisting of a term loan in the amount of $100.0 million and a revolving credit facility in the amount of $75.0 million. The Company used $75.0 million available under this facility to refinance $75.0 million of debt under the amended Nordea credit facility and used the remaining $25.0 million under the term loan to partially finance the acquisition of the Golden Zhejiang.





B.  BUSINESS OVERVIEW





Our primary business activity is currently the international seaborne transportation of crude oil and dry bulk cargoes. Our current fleet consists of four double-hull VLCCs, one of which was built in 1996 and three of which were built in 1995, and four Capesize dry bulk carriers two of which were built in 2009 and two of which were built in 2010. Each of our vessels is owned by a subsidiary and has been flagged in the Marshall Islands or Hong Kong. Our total carrying capacity is approximately 1.9 million dwt. The following chart provides information on the deployment of our vessels as of December 31, 2010:




Vessel Name
Type
Employment
Expiration DateTitan Venus (ex-Camden) (1)
VLCC
Bareboat charter
August 2012Mayfair (2)
VLCC
Bareboat charter
July 2015Hampstead
VLCC
Time charter
April 2012Kensington
VLCC
Time charter
May 2011Battersea
Capesize
Time charter
June 2014Belgravia
Capesize
Time charter
August 2014Golden Future (3)
Capesize
Time charter
January 2013Golden Zhejiang (4)
Capesize
Time charter
September 2014





(1)  This vessel commenced a 30-month bareboat charter late March 2010.


(2)  This vessel commenced a five year bareboat charter in October 2010.


(3)  This vessel was purchased in July 2010.


(4) This vessel was purchased in October 2010.






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The Company has been operating in two markets since 2009. We operate in the tanker and drybulk carrier markets as an international provider of seaborne transportation of crude oil and drybulk cargoes. An analysis of revenues from these services is as follows:





(in thousands of $)
2010
2009
2008Total operating revenues – tanker market
55,072
58,860
82,914Total operating revenues – drybulk carrier market
40,825
8,479
-





The Company's vessels operate worldwide and therefore management does not evaluate performance by geographical region as this information is not meaningful.




Our principal executive offices are located at Par-la-Ville Place, 14 Par-la-Ville Road in Hamilton, Bermuda.


Strategy





Our business strategy is to operate a diversified fleet of VLCCs and Capesize dry bulk carriers with flexibility to adjust our exposure to the tanker and dry bulk markets depending on existing factors such as charter rates, newbuilding costs, vessel resale and scrap values and vessel operating expenses resulting from, among other things, changes in the supply of and demand for tanker and dry bulk capacity. We may adjust our exposure through time charters, bareboat charters, sale and leasebacks, sales and purchases of vessels, newbuilding contracts and acquisitions.







Our goal is to generate competitive returns for our shareholders. Our dividend policy is to declare quarterly dividends to shareholders, substantially equal to net cash flow in the reporting quarter less reserves that our Board may from time to time determine are necessary, such as reserves for drydocking and other possible cash needs. We intend to finance our future vessel acquisitions not from our cash flow from operations, but from external sources, such as by undertaking equity offerings, incurring additional indebtedness in line with our current low-leverage capital structure and utilizing the proceeds from the sale of our vessels.




There is no guarantee that our shareholders will receive quarterly dividends from us. Our dividend policy may be changed at any time at the sole discretion of our Board, who will take into account, among other things, our contingent liabilities, financial condition and future prospects, the terms of our credit facilities, and the requirements of Bermuda law in determining the timing and amount of dividends, if any, that we may pay.





Management Structure





Our Board decided, at the incorporation of the Company, to contract for the day-to-day management services of the Company and its subsidiaries, rather than to establish a proprietary management organization. This policy was based on the availability of such services in the market on terms which we consider more cost efficient to us than the alternative. The Board has not seen any reason to change this policy since it was formulated. All of the management services contracted for by the Company and its subsidiaries are subject to the Board's or, as the case may be, the board of the relevant subsidiary's, sole right to determine the overall objectives and policies of the Company and its subsidiaries. Further, all matters of material importance to or of an extraordinary nature in respect of our business are decided by the Board.





General Management Agreement





We are provided with general administrative services by ICB Shipping (Bermuda) Limited, or the General Manager. The General Manager is a wholly owned subsidiary of Frontline. The General Manager subcontracts all the services delivered to the Company and its subsidiaries to Frontline Management (Bermuda) Limited, another wholly owned subsidiary of Frontline. Up to March 31, 2010, on the terms set forth in a management agreement dated February 12, 1997, as subsequently amended by an amendment no. 1 thereto dated March 1, 2004, or the Management Agreement, the fee payable to the General Manager pursuant to the terms of the Management Agreement was $1.15 million per annum plus a commission of 1.25% on gross freight revenues and 1% of proceeds on the sale of vessels. We were responsible for paying all administrative expenses incurred from third parties such as audit, legal and other professional fees, registration fees and directors' and officers' fees and expenses. In August 2010, we amended the Management Agreement with effect from April 1, 2010, which we refer to as our Amended General Management Agreement. Pursuant to the terms of the Amended General Management Agreement, the General Manager is entitled to a management fee of $2.3 million per annum from January 1, 2010, which is subject to annual adjustments, plus a commission of 1.25% on gross freight revenues from our tanker vessels, 1% of proceeds on the sale of any of our vessels, and 1% of the cost of the purchase of vessels. In addition, we, in our discretion, may award equity incentives to the General Manager based upon its performance. Such awards are subject to the approval of our Board. We are responsible for paying all out-of-pocket expenses incurred by the General Manager from third parties in connection with the services provided under the Amended General Management Agreement, such as audit, legal and other professional fees, registration fees and directors' and officers' fees and expenses. Our Board believes that the terms of the Amended General Management Agreement are substantially similar to those that we might have obtained in arm's-length negotiations in the market. We may terminate the Amended General Management Agreement subject to five business days' prior written notice to the General Manager in the event:


●
the General Manager commits a material breach under the Amended General Management Agreement, and such breach remains unremedied for 30 days;
 ●
any material consent, authorization, license, approval or similar requirement for the General Manager's activities as such is modified, terminated, revoked or expires;
 ●
it becomes unlawful for the General Manager to perform the services to be provided under the terms of the Amended General Management Agreement; or
 ●
the General Manager ceases to be a wholly-owned subsidiary of Frontline.
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 The General Manager may terminate the Amended General Management Agreement upon five business days' notice in the event we commit a material breach of the terms thereof and the breach remains unremedied for 30 days. Either party may terminate the Amended General Management Agreement upon immediate written notice to the other party in the event such other party becomes subject to an insolvency event. Either party may terminate the Amended General Management Agreement upon 12 months' prior written notice to the other party, provided that such termination by us must be approved by a resolution duly adopted by the affirmative vote of shareholders holding at least 66 2/3% of our issued and outstanding common shares. Our Board believes that if the Amended General Management Agreement is terminated, we will be able to obtain appropriate alternative arrangements for our management requirements. However, there can be no assurance that such alternative arrangement would not cause us to incur additional expenses.





Technical Management of Vessels





Technical management of our vessels is provided by ship mangers subcontracted by the General Manager to oversee the technical elements of running the vessels.





Commercial Management of Capesize Vessels




Golden Ocean Management AS, a wholly-owned subsidiary of Golden Ocean, managed our drybulk carriers the Belgravia and the Battersea pursuant to a commercial management agreement from the delivery of the dry bulk carriers in 2009. The remuneration was 1.25 % of all gross freights earned by the vessels. In June 2010, we entered into a new commercial management agreement, which we refer to as the Drybulk Commercial Management Agreement, with Golden Ocean Management (Bermuda) Ltd., which is a wholly-owned subsidiary of Golden Ocean, and whom we refer to as the Drybulk Commercial Manager. This agreement replaces our previous commercial management agreement with a different wholly-owned subsidiary of Golden Ocean. The Drybulk Commercial Manager may subcontract some or all of the services delivered to us and our subsidiaries to its affiliates or third parties. Pursuant to the Drybulk Commercial Management Agreement, the Drybulk Commercial Manager is entitled to receive a commission of 1.25% of all gross freight earned by our drybulk carriers. In addition, we, in our discretion, may award equity incentives to the Drybulk Commercial Manager based on its performance. Such awards are subject to the approval of our Board. We or the Drybulk Commercial Manager may terminate the Drybulk Commercial Management Agreement subject to three months' prior written notice to the other party.




Furthermore, we may terminate the Drybulk Commercial Management Agreement with immediate effect in the event the Drybulk Commercial Manager commits a material breach of the terms thereof and the breach remains unremedied for 14 days after written notice thereof has been provided by us to the Drybulk Commercial Manager. In addition, either party may terminate the Drybulk Commercial Management Agreement upon immediate written notice to the other party in the event that such other party becomes subject to an insolvency event. Our Board believes that, in the case of any termination of the Drybulk Commercial Management Agreement, we can obtain an appropriate alternative arrangements for our commercial management requirements. However, there can be no assurance that such alternative arrangements would not cause us to incur additional expenses.





Seasonality




Historically, oil trade and therefore charter rates increased in the winter months and eased in the summer months as demand for oil in the Northern Hemisphere rose in colder weather and fell in warmer weather. The tanker industry in general has become less dependent on the seasonal transport of heating oil than a decade ago as new uses for oil and oil products have developed, spreading consumption more evenly over the year. Most apparent is a higher seasonal demand during the summer months due to energy requirements for air conditioning and motor vehicles.




The dry bulk trade also has a history of tracking seasonal demand fluctuations, but like the oil trade, appears to have become less dependent on such fluctuations as a result of the increased transportation of certain dry bulk commodities. Grain has traditionally had the greatest impact on the dry bulk market, particularly during the peak demand seasons, which occur during the second quarter in the Southern Hemisphere and at the end of the third quarter and throughout the fourth quarter in the Northern Hemisphere. The growth of iron ore and coal transportation over the last decade, however, has diminished the relative importance of grain to the dry bulk transportation industry. With the quarterly pricing of iron ore affecting its demand and factors such as weather and port congestion impacting the dry bulk industry as a whole, the volatility of dry bulk earnings in recent years appears to be the result of factors other than seasonality.





Customers




Our customers include major oil companies, tanker companies, dry bulk companies, petroleum products traders, government agencies and various other entities. During the year ended December 31, 2010, three customers accounted for 64% of our consolidated operating revenues.


Competition


The market for international seaborne crude oil and dry bulk transportation services is highly fragmented and competitive. Seaborne crude oil transportation services generally are provided by two main types of operators: major oil company captive fleets (both private and state-owned) and independent ship-owner fleets. In addition, many owners and operators in each of the tanker and dry bulk industries pool their vessels together on an ongoing basis, and such pools are available to customers to the same extent as independently owned and operated fleets. Many major oil companies and other oil trading companies, the primary charterers of the tankers owned or controlled by us, also operate their own vessels and use those vessels not only to transport their own crude oil but also to transport crude oil for third party end-users in direct competition with independent owners and operators in the tanker charter market. Competition for charters in the tanker and dry bulk markets is intense and is based upon price, location, size, age, condition and acceptability of the vessel and its manager. Competition is also affected by the availability of other size vessels to compete in the trades in which we engage. Charters are to a large extent brokered through international independent brokerage houses that specialize in finding the optimal ship for any particular cargo based on the aforementioned criteria. Brokers may be appointed by the cargo shipper or the ship owner.







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Environmental and Other Regulations





Government regulations and laws significantly affect the ownership and operation of our vessels. We are subject to international conventions, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered and compliance with such laws, regulations and other requirements may entail significant expense.





Our vessels are subject to both scheduled and unscheduled inspections by a variety of government, quasi-governmental and private organizations including the local port authorities, national authorities, harbor masters or equivalent, classification societies, flag state administrations (countries of registry) and charterers. Our failure to maintain permits, licenses, certificates or other approvals required by some of these entities could require us to incur substantial costs or temporarily suspend operation of one or more of our vessels.





We believe that the heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards.  We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations; however, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, additional legislation or regulation applicable to the operation of our vessels that may be implemented in the future for example, as a result of the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, could negatively affect our profitability.





International Maritime Organization





The International Maritime Organization, or the IMO, the United Nations agency for maritime safety and the prevention of pollution by ships, has adopted several international conventions that regulate the international shipping industry, including the International Convention on Civil Liability for Oil Pollution Damage, the International Convention on Civil Liability for Bunker Oil Pollution Damage, and the International Convention for the Prevention of Pollution from Ships, or the MARPOL Convention. The MARPOL Convention establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged form.




In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from ships. Annex VI came into force on May 19, 2005. It sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. Annex VI has been ratified by some, but not all IMO member states. In October 2008, the Marine Environment Protection Committee, or MEPC, of the IMO approved amendments to Annex VI regarding particulate matter, nitrogen oxide and sulfur oxide emissions standards. These amendments entered into force in July 2010. They seek to reduce air pollution from vessels by establishing a series of progressive standards to further limit the sulfur content in fuel oil, which would be phased in by 2020, and by establishing new tiers of nitrogen oxide emission standards for new marine diesel engines, depending on their date of installation. Additionally, more stringent emission standards could apply in coastal areas designated as Emission Control Areas, or ECAs. Please see "United States—the U.S. Clean Air Act" below for information on the ECA designated in North America and the Hawaiian Islands. We have obtained International Air Pollution Prevention certificates evidencing compliance with Annex VI requirements for all of our vessels.





Although the United States is not a party, many countries have ratified the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended in 2000, or the CLC. Under this convention and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel's registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject under certain circumstances to certain defenses and limitations. Vessels trading to states that are parties to these conventions must provide evidence of insurance covering the liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to the CLC.




The IMO also has adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention, which imposes strict liability on ship owners for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel and requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime.





The operation of our vessels is also affected by the requirements contained in the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, promulgated by the IMO under the International Convention for the Safety of Life at Sea, or SOLAS. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We intend to rely upon the safety management system that our appointed ship managers have developed.


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Noncompliance with the ISM Code or with other IMO regulations may subject a shipowner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports including United States and European Union ports.





United States





The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act





The U.S. Oil Pollution Act of 1990, or OPA, is an extensive regulatory and liability regime for environmental protection and cleanup of oil spills. OPA affects all owners and operators whose vessels trade with the United States or its territories or possessions, or whose vessels operate in the waters of the United States, which include the U.S. territorial sea and the 200 nautical mile exclusive economic zone around the United States. The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, imposes liability for cleanup and natural resource damage from the release of hazardous substances (other than oil) whether on land or at sea. Both OPA and CERCLA impact our operations.





Under OPA, vessel owners, operators and bareboat charterers are responsible parties who are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from oil spills from their vessels. OPA limits the liability of responsible parties with respect to tankers over 3,000 gross tons to the greater of $3,200 per gross tons or $23,496,000 per single hull tanker, and $2,000 per gross ton or $17,088,000 per double hull tanker, respectively, and permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries. Some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, however, in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners' responsibilities under these laws. CERCLA, which applies to owners and operators of vessels, contains a similar liability regime and provides for cleanup, removal and natural resource damages. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $0.5 million for any other vessel.





These limits of liability do not apply, however, where the incident is caused by violation of applicable U.S. federal safety, construction or operating regulations, or by the responsible party's gross negligence or willful misconduct. These limits also do not apply if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the substance removal activities. OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. We believe that we are in substantial compliance with OPA, CERCLA and all applicable state regulations in the ports where our vessels call.





OPA also requires owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential strict liability under the act. Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA regulations, an owner or operator of more than one tanker is required to demonstrate evidence of financial responsibility for the entire fleet in an amount equal only to the financial responsibility requirement of the tanker having the greatest maximum strict liability under OPA and CERCLA. We have provided such evidence and received certificates of financial responsibility from the U.S. Coast Guard for each of our vessels required to have one.




OPA specifically permits individual U.S. coastal states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills.





The U.S. Clean Water Act





The U.S. Clean Water Act of 1972, or CWA, prohibits the discharge of oil, hazardous substances, and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. Furthermore, most U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.





The United States Environmental Protection Agency, or EPA, has enacted rules requiring a permit regulating ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters under the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or VGP. To be covered by the VGP, owners of certain vessels must submit a Notice of Intent, or NOI, at least 30 days before the vessel operates in United States waters. Compliance with the VGP could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other disposal arrangements, and/or otherwise restrict our vessels from entering United States waters. In addition, certain states have enacted more stringent discharge standards as conditions to their required certification of the VGP. We have submitted NOIs for our vessels where required and do not believe that the costs associated with obtaining and complying with the VGP will have a material impact on our operations.






23





The U.S. Clean Air Act





The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas and emission standards for so-called "Category 3" marine diesel engines operating in U.S. waters. The marine diesel engine emission standards are currently limited to new engines beginning with the 2004 model year. On December 22, 2009, the EPA announced final emission standards for Category 3 marine diesel engines equivalent to those adopted in the amendments to Annex VI to MARPOL. The emission standards apply in two stages: near-term standards for newly-built engines will apply from 2011, and long-term standards requiring an 80% reduction in nitrogen dioxides (NOx) will apply from 2016. Compliance with these standards may cause us to incur costs to install control equipment on our vessels.




The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial areas. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. As indicated above, our vessels operating in covered port areas are already equipped with vapor recovery systems that satisfy these existing requirements. Vessels sailing within 24 miles of the California coastline whose itineraries call for them to enter any California ports, terminal facilities, or internal or estuarine waters must use marine gas oil at or below 1.5% sulfur and marine diesel oil at or below 0.5% sulfur and, effective January 1, 2012, marine fuels with a sulfur content at or below 0.1% (1,000 ppm) sulfur.




The MEPC has designated the area extending 200 miles from the territorial sea baseline adjacent to the Atlantic/Gulf and Pacific coasts and the eight main Hawaiian Islands as an ECA under the Annex VI amendments. The new ECA will enter into force in August 2012, whereupon fuel used by all vessels operating in the ECA cannot exceed 1.0% sulfur, dropping to 0.1% sulfur in 2015. From 2016, NOx after-treatment requirements will also apply. If other ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the EPA or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.





European Union





The European Union has adopted legislation that would: (1) ban manifestly sub-standard vessels (defined as those over 15 years old that have been detained by port authorities at least twice in a six month period) from European waters and create an obligation of port states to inspect vessels posing a high risk to maritime safety or the marine environment; and (2) provide the European Union with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies. In addition, European Union regulations enacted in 2003 now prohibit all single hull tankers from entering into its ports or offshore terminals.




The sinking of the oil tanker Prestige in 2002 has led to the adoption of other environmental regulations by certain European Union Member States. It is difficult to predict what legislation or additional regulations, if any, may be promulgated by the European Union in the future.




Other Environmental Initiatives




U.S. Coast Guard regulations adopted and proposed for adoption under the U.S. National Invasive Species Act, or NISA, impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering U.S. waters, which could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures, and/or otherwise restrict our vessels from entering U.S. waters.





At the international level, the IMO adopted an International Convention for the Control and Management of Ships' Ballast Water and Sediments in February 2004, or the BWM Convention. The Convention's implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention will not enter into force until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world's merchant shipping. The Convention has not yet entered into force because a sufficient number of states have failed to adopt it.  However, the IMO's Marine Environment Protection Committee passed a resolution in March 2010 encouraging the ratification of the Convention and calling upon those countries that have already ratified to encourage the installation of ballast water management systems. If mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of compliance could increase for ocean carriers. Although we do not believe that the costs of compliance with a mandatory mid-ocean ballast exchange would be material, it is difficult to predict the overall impact of such a requirement on our operations.





Greenhouse Gas Regulation





The IMO is evaluating mandatory measures to reduce greenhouse gas emissions from international shipping, which may include market-based instruments or a carbon tax. The European Union has indicated that it intends to propose an expansion of the existing European Union emissions trading scheme to include emissions of greenhouse gases from marine vessel. In the United States, the EPA has issued a proposed finding that greenhouse gases threaten the public health and safety. In addition, climate change initiatives are being considered in the U.S. Congress. Any passage of climate control legislation or other regulatory initiatives by the IMO, EU, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol, that restrict emissions of greenhouse gases could require us to make significant financial expenditures that we cannot predict with certainty at this time.






24





Risk of loss and insurance


Our business is affected by a number of risks, including mechanical failure of the vessels, collisions, property loss to the vessels, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, the operation of any ocean-going vessel is subject to the inherent possibility of catastrophic marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade.  OPA, which imposes virtually unlimited liability upon owners, operators and demise charterers of any vessel trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for ship owners and operators trading in the United States market.





Our General Manager is responsible for arranging the insurance of our vessels in line with standard industry practice. In accordance with that practice, we maintain marine hull and machinery and war risks insurance, which include the risk of actual or constructive total loss, and protection and indemnity insurance with mutual assurance associations. We carry insurance covering the loss of hire resulting from marine casualties or hull and marine particular damages on our vessels. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through protection and indemnity associations and providers of excess coverage is $1.0 billion per vessel per occurrence. Protection and indemnity associations are mutual marine indemnity associations formed by shipowners to provide protection from large financial loss to one member by contribution towards that loss by all members.





We believe that our current insurance coverage is adequate to protect us against the accident-related risks involved  in the conduct of our business and that we maintain appropriate levels of environmental damage and pollution insurance coverage, consistent with standard industry practice. However, there is no assurance that all risks are adequately insured against, that any particular claims will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future.





C.  ORGANIZATIONAL STRUCTURE





See Exhibit 8.1 for a list of our significant subsidiaries.





D.  PROPERTY, PLANT AND EQUIPMENT





We operate a modern fleet of four tankers and four Capesize dry bulk carriers. The name, dwt, flag and date of original delivery from the Builder's yard are set forth below.





Vessel name
Type
Approx. dwt
Flag
Year BuiltTitan Venus (ex-Camden)
VLCC
298,000
Marshall Islands
1995Mayfair
VLCC
298,000
Marshall Islands
1995Kensington
VLCC
298,000
Marshall Islands
1995Hampstead
VLCC
298,000
Marshall Islands
1996Belgravia
Capesize
170,500
Marshall Islands
2009Battersea
Capesize
170,500
Marshall Islands
2009Golden Future
Capesize
176,000
Hong Kong
2010Golden Zhejiang
Capesize
176,000
Hong Kong
2010





Our VLCCs are of double hull construction designed for enhanced safety and reliability. Please see the discussion in Item 3B. above for a description of environmental regulations that may affect the Company's utilization of the vessels.





Other than its interests in the vessels, the Company has no interest in any other property.





ITEM 4A. UNRESOLVED STAFF COMMENTS





None.





ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS





Overview





The following discussion should be read in conjunction with Item 3 "Selected Financial Data" and the Company's audited Consolidated Financial Statements and Notes thereto included herein.





In February 1997, the Company's five wholly-owned subsidiaries each purchased one VLCC. From their purchase in February 1997 until March 2004, the Company chartered the VLCCs to Shell International on long-term bareboat charters. The charters expired for all five VLCCs, in accordance with their terms, in March 2004 and the VLCCs were redelivered to the Company and subsequently chartered out on time and spot markets. One VLCC was sold in December 2007.







25


In May 2007, the Company entered into agreements for the construction of two Capesize dry bulk carriers, each with a cargo-carrying capacity of approximately 170,000 dwt, with Daehan Shipbuilding Co Ltd in the Republic of Korea. Both of the vessels commenced five-year time charters following their delivery to us in August and October 2009. In July 2010, we acquired a 2010-built Capesize dry bulk carrier from Golden Ocean and in October 2010, we acquired a second 2010-built Capesize dry bulk carrier from Golden Ocean. Both vessels were acquired with existing time charters.





We currently own and operate four VLCCs and four Capesize dry bulk carriers operating under the following time and bareboat charter agreements:





Time Charter Terms
Length of Charter
Expiration dateHampstead
$37,750 per day plus profit share (1)
5 year
April 2012Kensington
$37,750 per day plus profit share (1)
4 year
May 2011Battersea
$40,000 per day
5 year
June 2014Belgravia
$52,670 per day
5 year
August 2014Golden Future
$31,500 per day
35 month
January 2013Golden Zhejiang
$29,900 per day
4 year
September 2014





Bareboat Charter Terms
Length of Charter
Expiration dateTitan Venus (ex-Camden)
$32,000 per day (2)
30 month (3)
August 2012Mayfair
$32,000 per day (2)
5 year
July 2015





(1) Profit share is calculated and settled on a quarterly basis for earnings in excess of $37,750 per vessel per day calculated by reference to the Baltic International Trading Route (BITR) Index.


(2) This rate is deemed to be the daily time charter equivalent, or TCE, rate and is calculated by adding the estimated drydocking costs and operating expenses to the bareboat charter rate.


(3) The charterer has an option to extend by 30 months.





Market Overview and Trend Information





Tanker Market





According to industry sources, the average TCE rate for a modern VLCC was $42,500 per day in 2010. The tanker market in 2010 was characterized by a strong first half and a weak second half. Storage activities and delays in the newbuilding delivery schedule contributed positively to the first half of the year and the year started rather strongly with average earnings of $60,000 per day in the first quarter and $58,000 per day in the second quarter. The second half of the year returned lower earnings per day mostly due to the lack of vessels being used as floating storage and the high availability of tonnage. Consequently the average TCE for the second and the third quarter was $26,000 and $27,500 per day respectively.





The removal of single hulled vessels throughout the year was modest and below most expectations. However, due to their trading restrictions interference with the more modern tonnage was rather limited. Furthermore, the seaborne oil trade continued to grow through the year parallel to a large increase in world oil demand. Industry sources indicate a 4% growth in the volume of seaborne oil trade and a 3% increase in transport distances. China maintained its imports from West Africa, and thus continues to be one of the most important participants to the large tanker market and a main contributor to what industry sources estimate was a 7% ton-mile increase in 2010.





The VLCC fleet increased by approximately 7.5% in 2010 to 548 vessels. Throughout the year, a total of 55 new vessels were delivered to owners and 51 new orders were placed. The total order book consisted of 185 vessels at the end of the year, representing 34% of the existing fleet.





Throughout 2011, it is estimated that 79 new VLCCs will enter the market, including 25 in the first quarter. In 2010 industry sources expected that 67 VLCCs would be delivered, however only 55 were actually delivered. This resulted in 19% slippage for the year and the trend is expected to continue throughout 2011. Furthermore, there are still single hull vessels trading actively. The phase out program has not yet been completed and the fleet counted 43 non-double hull VLCCs at the end of 2010. Not all of these vessles are trading actively and it is likely that the majority will be either sold for scrap, demolished or converted by the end of 2011.





According to the February 2011 report from the International Energy Agency, or "IEA", average OPEC production is estimated at 29.2 million barrels per day in 2010. The expected 2011 OPEC production output figure has not yet been published by the IEA.  However, the IEA estimates a production figure of about 29.9 million barrels per day for January 2011, which is approximately 800.000 barrels per day more compared to the production output in January 2010.





The IEA further estimates that the average world oil demand was 87.8 million barrels per day in 2010, which represents an increase of 3.3% or 2.85 million barrels per day from 2009. For 2011, the world oil demand is estimated at 89.3 million barrels per day, representing an increase of 1.7% or 1.46 million barrels per day from 2010.





The bunker (vessel fuel oil) market followed movements in the oil market closely in 2010. The average bunker price in Fujairah was approximately $465/mt in 2010, which represents an increase of $95/mt from 2009. The prices ranged from a low of $422/mt at the beginning of July to a high of $512/mt at the end of December.


26


According to the 'World Economic Outlook - Update' published by The International Monetary Fund, or "IMF", in January 2011, World Output, or GDP, increased 5 % in 2010, which was a substantial upward shift compared to the 2009 -0.6% growth. For 2011 and 2012 the IMF forecasts World GDP growth of 4.4% and 4.5%, respectively.





Drybulk Market





In spite of a net fleet growth of 76 million dwt or 14% of the existing fleet and slightly lower iron ore imports to China, average earnings for the entire fleet were generally at the same level as for 2009. But there were big differences in earnings between the sizes which reflect the influx of newbuildings. As many as 205 Capesize vessels were delivered in 2010 or a net fleet growth of 23%, while the Handysize segment in comparison had a net fleet growth of 8%. In combination with lower volumes of long haul shipments of iron ore from Brazil to Asia, the charter rates for Capesize vessels declined and from time to time they earned less than the smaller sizes.





Outside the normal supply and demand balance there are a few reasons why the utilization of the dry bulk fleet was well supported.





·
Chinese coastal trade is growing fast and may account for as much as 6% of total dry bulk trade





·
Waiting time at load and discharge ports was tying up between 5 and 9% of the total fleet during 2010.




·
There was inefficient utilization of the fleet due to the fact that a continuously larger portion of the dry bulk fleet discharges in Asia and must sail without cargo back to loading areas in the Western hemisphere. In addition piracy in Gulf of Aden and Indian Ocean is adding waiting time for military convoys, slower steaming during convoy passages and deviations in general.





As reported by the Baltic Exchange, the average time charter earnings for a Panamax vessel was $18,203 per day during the fourth quarter of 2010and average time charter earnings for a Capesize vessel was $34,424 per day for the same period.





The total dry bulk fleet grew by 15.7% year on year during fourth quarter 2010 and 3.8% compared to the previous quarter. There is a substantial gap between the official order book and what is actually being delivered. About 67% of the official order book was delivered during 2010.





Furthermore, the IMF reported a U.S. GDP increase of 2.8% for 2010, which was an upward shift from the 2009 decrease of 2.6%. For 2011 and 2012 the IMF forecasts a U.S. GDP increase of 3% and 2.7% respectively.





Germany, France, Italy and Spain in Europe and Japan experienced an increase in GDP for 2010 of 1.8% and 4.3%, respectively, and these countries are also forecast to report GDP growth for both 2011 and 2012.





The emerging and developing economies increased their GDP by 7.1% for 2010, compared with a growth of 2.6% for 2009. For 2011 and 2012 the IMF forecasts a continued increase in GDP of 6.5% for both years.





China yet again surpassed massive growth in GDP experienced in past years and according to the IMF, GDP increased by 10.3% in 2010, which was 1.1% higher as compared with 2009. For 2011 and 2012, the forecast is slightly lower with expected growth of 9.6% and 9.5%, respectively.





Critical Accounting Policies and Estimates





The preparation of our financial statements in accordance with accounting principles generally accepted in the United States requires that management make estimates and assumptions affecting 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.




Management believes that the following accounting policies are the most critical in fully understanding and evaluating our reported financial results as they require a higher degree of judgment in their application resulting from the need to make estimates about the effect of matters that are inherently uncertain. See Note 2 to our audited Consolidated Financial Statements included herein for details of all of our material accounting policies.




Revenue and expense recognition




Revenues and expenses are recognized on the accruals basis. Revenues are generated from freight billings, time charter and bareboat charter hires. Voyage revenues and expenses are recognized ratably over the estimated length of each voyage and, therefore, are allocated between reporting periods based on the relative transit time in each period. The impact of recognizing voyage expenses ratably over the length of each voyage is not materially different on a quarterly and annual basis from a method of recognizing such costs as incurred. Probable losses on voyages are provided for in full at the time such losses can be estimated. Time charter and bareboat charter revenues are recorded over the term of the charter as a service is provided. The Company uses a discharge-to-discharge basis in determining percentage of completion for all spot voyages and voyages servicing contracts of affreightment whereby it recognizes revenue ratably from when product is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage. However, the Company does not recognize revenue if a charter has not been contractually committed to by a customer and the Company, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.






27





Amounts receivable from profit sharing arrangements are accrued based on the time charter equivalent rates achieved through vessel deployment over the preceding quarter in the market for certain key routes and are not contingent on the performance of the Company. This amount is calculated and accounted for on a quarterly basis and is received on a quarterly basis. Each quarterly settlement is final and does not get carried forward to the next quarter. There is no consideration of future performance in the recording of profit sharing revenue.





Vessels and depreciation




Vessels are stated at cost less accumulated deprecation. Depreciation is calculated based on cost less estimated residual value, using the straight-line method, over the useful life of each vessel. The useful life of each vessel is deemed to be 25 years.





The carrying value of each of the Company's vessels represents its original cost at the time it was delivered or purchased less depreciation calculated using an estimated useful life of 25 years from the date such vessel was originally delivered from the shipyard. Effective July 1, 2009, the Company effected a change in estimate related to the estimated scrap rate for its four VLCCs from $149 per lightweight ton to $281 per lightweight ton. The resulting increase in salvage value reduced depreciation by approximately $1.0 million for the year ended December 31, 2009. The Company's assumptions used in the determination of estimated salvage value took into account then current scrap prices, the historic pattern of scrap rates over the ten years ended December 31, 2008, estimated changes in future market demand for scrap steel and estimated future demand for vessels. Management believes that $281 per lightweight ton is a reasonable estimate of future scrap prices, taking into consideration the cyclicality of the nature of future demand for scrap steel. Although management believes that the assumptions used to determine the scrap rate are reasonable and appropriate, such assumptions are highly subjective, in part, because of the cyclicality of the nature of future demand for scrap steel.





Impairment of long-lived assets





Long-lived assets that are held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such a review indicates impairment, an impairment charge is recognized based on the difference between carrying value and fair value. Fair value is typically established using an average of three independent valuations. In addition, long-lived assets to be disposed of by sale are reported at the lower of their carrying amount or fair value less estimated costs to sell.





Factors Affecting Our Results





The principal factors which affect our results of operations and financial position include:





●
the earnings of our vessels in the charter market;




●
the earnings from the sale of assets;




●
vessel operating expenses;




●
administrative expenses;




●
depreciation; and




●
interest expense.




Operating costs are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, drydockings, lubricating oils and insurance. We bear the operating costs for our vessels which operate under time charter.





Administrative expenses are composed of general corporate overhead expenses, including audit fees, directors' fees and expenses, registrar fees, investor relations and publication expenses, legal and professional fees and other general administrative expenses.





Depreciation, or the periodic cost charged to our income for the reduction in usefulness and long-term value of our vessels, is also related to the number of vessels we own. We depreciate the cost of our vessels, less their estimated residual value, over their estimated useful life on a straight-line basis.





Interest expense depends on our overall borrowing levels and will change with prevailing interest rates, although the effect of these changes may be reduced by interest rate swaps or other derivative instruments. At December 31, 2010, all of our debt was floating rate debt. We may enter into interest rate swap arrangements if we believe it is advantageous to do so.






28




Lack of Historical Operating Data for Vessels before their Acquisition


Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification society records, there is no historical financial due diligence process when we acquire vessels. Accordingly, we do not obtain the historical operating data for the vessels from the sellers because that information is not material to our decision to make acquisitions, nor do we believe it would be helpful to potential investors in our common shares in assessing our business or profitability. Most vessels are sold under a standardized agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessel's classification society records. The standard agreement does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to the delivery of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related to the vessel. In addition, the technical management agreement between the seller's technical manager and the seller is automatically terminated and the vessel's trading certificates are revoked by its flag state following a change in ownership.




Consistent with shipping industry practice, we treat the acquisition of a vessel (whether acquired with or without charter) as the acquisition of an asset rather than a business. Although vessels are generally acquired free of charter, we have agreed to acquire (and may in the future acquire) some vessels with time charters. Where a vessel has been under a voyage charter, the vessel is delivered to the buyer free of charter. It is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer's consent and the buyer's entering into a separate direct agreement with the charterer to assume the charter. The purchase of a vessel itself does not transfer the charter, because it is a separate service agreement between the vessel owner and the charterer. When we purchase a vessel and assume a related time charter, we must take the following steps before the vessel will be ready to commence operations:





●
obtain the charterer's consent to us as the new owner;
 ●
obtain the charterer's consent to a new technical manager;
 ●
in some cases, obtain the charterer's consent to a new flag for the vessel;
 ●
arrange for a new crew for the vessel;
 ●
replace all hired equipment on board, such as gas cylinders and communication equipment;
 ●
negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;
 ●
register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state;
 ●
implement a new planned maintenance program for the vessel; and
 ●
ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state.
 Inflation




Although inflation has had a moderate impact on our vessel operating expenses and corporate overheads, management does not consider inflation to be a significant risk to direct costs in the current and foreseeable economic environment. It is anticipated that insurance costs, which have risen over the last three years, may well continue to rise moderately over the next few years. Oil transportation is a specialized area and the number of vessels is increasing. There will therefore be an increased demand for qualified crew and this has and will continue to put inflationary pressure on crew costs. However, in a shipping downturn, costs subject to inflation can usually be controlled because shipping companies typically monitor costs to preserve liquidity and encourage suppliers and service providers to lower rates and prices in the event of a downturn.




Year ended December 31, 2010 compared with year ended December 31, 2009





Operating revenues





(in thousands of $)


2010



2009



ChangeTime charter revenues


74,232



54,892



35.2
%Voyage charter revenues


15,268



12,447



22.7
%Bareboat charter revenues


6,397



-



-Total operating revenues


95,897



67,339



42.4
%





Time charter revenues increased in the year ended December 31, 2010 compared to the year ended December 31, 2009 primarily due to increased earnings from Battersea and Belgravia of $9.5 million and $15.7 million, respectively, which were operational for a full year in 2010, earnings of $5.3 million from Golden Future, which was purchased in July 2010 and earnings of $1.8 million from Golden Zhejiang, which was purchased in October 2010 partially offset by reduced earnings from the Mayfair of $10.9 million due to the termination of a time charter in April 2010 and reduced earnings from the Titan Venus (ex-Camden) of $1.9 million due to the termination of a time charter in January 2010.


29


Voyage charter revenues increased in the year ended December 31, 2010 compared to the year ended December 31, 2009 primarily due to two vessels, Mayfair and Titan Venus (ex-Camden), operating in the spot market for periods in 2010 compared to one vessel, Titan Venus (ex-Camden), operating in the spot market for part of 2009.





Bareboat charter revenues in the year ended December 31, 2010 are attributable due to Titan Venus (ex-Camden) commencing a two and half year bareboat charter in April 2010 and Mayfair commencing a five year time charter in October 2010.





Operating expenses





(in thousands of $)

2010


2009


ChangeVoyage expenses and commission


10,467



8,588



21.9
%Ship operating expenses


19,678



18,829



4.5
%Administrative expenses


3,018



1,823



65.6
%Depreciation


19,567



14,343



36.4
%Total operating expenses


52,730



43,583



21.0
%





The increase in voyage expenses in the year ended December 31, 2010 compared to the year ended December 31, 2009 is primarily due to two vessels, Mayfair and Titan Venus (ex-Camden), operating in the spot market for periods in 2010 compared to one vessel, Titan Venus (ex-Camden), operating in the spot market for part of 2009.





Ship operating expenses increased in the year ended December 31, 2010 compared to the year ended December 31, 2009 primarily due to $1.4 million for Golden Future and Golden Zhejiang, an increase of $2.3 million for Battersea and Belgravia and drydocking costs for the Kensington of $2.1 million, partially offset by a decrease in operating costs for the Titan Venus (ex-Camden) and Mayfair, which were on bareboat charters from April 2010 and October 2010, respectively.





Administrative expenses increased in the year ended December 31, 2010 compared to the year ended December 31, 2009 primarily due to an increase in management fees for general administrative services provided by the General Manager.





Depreciation increased in the year ended December 31, 2010 compared to the year ended December 31, 2009 primarily due to an increase of $4.6 million for the Battersea and Belgravia due to a full year's charge in 2010 and $1.6 million for the Golden Future and Golden Zhejiang following their purchase during 2010 partially offset by a decrease in the depreciation charge for the VLCCs following a change in their residual values on July 1, 2009.





Other income (expenses)





(in thousands of $)

2010


2009


ChangeInterest income


54



123



(56.1
%)Interest expense


(3,940
)


(1,895
)


107.9
%Other financial items


(724
)


(304
)


138.2
%Net other expenses


(4,610
)


(2,076
)


122.1
%





Interest income decreased in the year ended December 31, 2010 compared to the year ended December 31, 2009 primarily due to a decrease in interest rates.





Interest expense increased in the year ended December 31, 2010 compared to the year ended December 31, 2009 primarily due to the increased borrowings following the acquisition of the four Capesize vessels.





The increase in other financial items in the year ended December 31, 2010 compared to the year ended December 31, 2009 is primarily due to an increase in the amortization of deferred charges resulting from charges capitalized in the third and fourth quarter of 2010 relating to new loans for $58.24 million and $175 million.





Year ended December 31, 2009 compared with year ended December 31, 2008





Operating revenues




(in thousands of $)


2009



2008



ChangeTime charter revenues


54,892



74,837



(26.7
%)Voyage charter revenues


12,447



8,077



54.1
%Total operating revenues


67,339



82,914



(18.8
%)





Time charter revenues decreased in the year ended December 31, 2009 compared to the year ended December 31, 2008 primarily due to a decrease in profit share payments of $18.9 million received from the time charters for the Hampstead and Kensington due to the weaker spot market and a decrease in time charter earnings from the Titan Venus (ex-Camden) of $9.1 million, which was operated in the spot market after its five year time charter ended March 2009, offset by time charter earnings from the Battersea and Belgravia, which commenced five year time charters upon delivery to the Company in August and October 2009, respectively.









30


Voyage charter revenues in the year ended December 31, 2009 relate to the Titan Venus (ex-Camden), which operated in the spot market from March 2009 whereas voyage charter revenues in the year ended December 31, 2008 relate to the Chelsea, which was sold in December 2007 and delivered in February 2008.





Operating expenses





(in thousands of $)

2009


2008


ChangeVoyage expenses and commission


8,588



4,012



114.1
%Ship operating expenses


18,829



14,535



29.5
%Administrative expenses


1,823



1,538



18.5
%Depreciation


14,343



13,711



4.6
%Total operating expenses


43,583



33,796



29.0
%





The increase in voyage expenses in the year ended December 31, 2009 compared to the year ended December 31, 2008 is primarily due to the Titan Venus (ex-Camden), which traded in the spot market from March 2009 compared to the Chelsea, which traded in the spot market for six weeks at the beginning of 2008 before delivery to its new owners.





Ship operating expenses increased in the year ended December 31, 2009 compared to the year ended December 31, 2008 primarily due to an increase in crew expenses, repairs and maintenance and spares on our VLCCs and operating costs for the Battersea and Belgravia. There were no drydocking costs during 2009 (2008: nil).





Depreciation increased in the year ended December 31, 2009 compared to the year ended December 31, 2008 primarily due to the Battersea and Belgravia offset by the effect of an increase in estimated residual values of our four VLCCs, effective July 1, 2009, which reduced depreciation on those vessels by $1.0 million in the final two quarters of 2009.





Other income (expenses)





(in thousands of $)

2009


2008


ChangeInterest income


123



2,336



(94.7
%)Interest expense


(1,895
)


(3,216
)


(41.1
%)Other financial items


(304
)


(184
)


65.2
%Net other expenses


(2,076
)


(1,064
)


95.1
%





Interest income decreased in the year ended December 31, 2009 compared to the year ended December 31, 2008 primarily due to a decrease in interest rates and a decrease in cash due to the funding of our newbuilding program.





Interest expense decreased in the year ended December 31, 2009 compared to the year ended December 31, 2008 primarily due to a decrease in interest rates.





The increase in other financial items in the year ended December 31, 2009 compared to the year ended December 31, 2008 is primarily due to fees paid on the repayment of predelivery loans for the Battersea and Belgravia and an increase in the amortization of deferred charges resulting from charges capitalized in the third quarter of 2009 relating to a new $60 million loan.





Recently Issued Accounting Standards





In January 2010, the FASB issued authoritative guidance that changes the disclosure requirements for fair value measurements.  Specifically, the changes require a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. The changes also clarify existing disclosure requirements related to how assets and liabilities should be grouped by class and valuation techniques used for recurring and nonrecurring fair value measurements. We adopted the guidance in the first quarter 2010, which did not have an impact on our consolidated financial statements.




In January 2010 the FASB issued authoritative guidance in order to eliminate diversity in the way different companies reflect new shares issued as part of a distribution in their calculation of earnings per share. The provisions of this new guidance are effective on a retrospective basis and their adoption had no impact on the Company's reported earnings per share.





In February 2010, the FASB amended guidance on subsequent events to alleviate potential conflicts between FASB guidance and SEC requirements. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and we adopted these new requirements in the first quarter 2010. The adoption of this guidance did not have an impact on our financial statements


31


In July 2010, the FASB issued authoritative guidance which requires expanded disclosures about the credit quality of an entity's financing receivables and its allowance for credit losses on a disaggregated basis. The adoption of this guidance by the Company with effect from 1 January 2010 did not have any effect on its consolidated financial statements.




Liquidity and Capital Resources





The Company operates in a capital intensive industry and has historically financed its purchase of vessels through a combination of equity capital and borrowings from commercial banks. Our ability to generate adequate cash flows on a short and medium term basis depends substantially on the trading performance of our vessels in the market.  Periodic adjustments to the supply of and demand for oil tankers and dry bulk carriers cause the industry to be cyclical in nature.





The Company's funding and treasury activities are conducted within corporate policies to maximize investment returns while maintaining appropriate liquidity for the Company's requirements. Cash and cash equivalents are held primarily in United States dollars.





Short-term liquidity requirements of the Company relate to servicing our debt, payment of operating costs, funding working capital requirements and maintaining cash reserves against fluctuations in operating cash flows. Sources of short-term liquidity include cash balances, restricted cash balances, short-term investments and receipts from our customers. Revenues from time and bareboat charters are generally received monthly or bi-weekly in advance while revenues from voyage charters are received upon completion of the voyage.





In February 2011, the Company estimates it has an average cash breakeven rate for its VLCCs, which are on time charter, and Capesize vessels of $18,700 and $8,500, respectively, per vessel per day. The VLCCs which are on bareboat contract have a cash break even rate of $4,300 per vessel per day. These represent the daily rates our vessels must earn to cover payment of budgeted operating costs (including corporate overheads), estimated interest and scheduled loan principal repayments. These rates do not take into account loan balloon repayments at maturity, which we expect to refinance with new loans.





The liquidity requirements of the Company include funding the replacement of vessels through the acquisition of second hand vessels or newbuilding vessels and the repayment of long-term debt balances. The Company's sources of capital have been the proceeds of its initial public offering, September 2010 public offering, bank loans, proceeds from the sale of vessels and charterhire income. The Company expects that charterhire paid from time charters, bareboat charters and voyage charters will be sufficient sources of income for the Company to continue to pay ordinary recurring expenses including installments due on outstanding borrowings. We believe our working capital is sufficient for the Company's present requirements.





As of December 31, 2010, 2009, and 2008, the Company had cash and cash equivalents of $56.8 million, $8.0 million and $78.0 million, respectively. As of December 31, 2010, 2009, and 2008, the Company had restricted cash of $15.0 million, $10.0 million and $10.0 million, respectively.  The restricted cash balance is a result of a minimum liquidity balance which we are required to maintain at all times in conjunction with the Company's loan facilities. The cash position at the end of 2010 is significantly higher than 2009 due to the unused proceeds from the equity offering in September 2010.





During the year ended December 31, 2010, we paid total cash dividends of $33.5 million.





Borrowing activities





In March 2004, the Company refinanced a prior debt facility with a $140.0 million credit facility in the form of five tranches of $28.0 million, each in respect to a VLCC in the fleet at the time. One tranche was repaid upon the sale of the related vessel in 2007. The credit facility was secured by, among other things, a mortgage on each VLCC and an assignment of any charter in respect to that VLCC. The repayment terms of the facility were seven years. The credit facility bore interest at LIBOR plus a margin. During 2007, we obtained an extension of the $140 million loan with two tranches of $16.8 million each (the "Pre-delivery Loan"), subject to the same covenants as the $140 million loan, in order to fund the first installments on the two Capesize newbuildings. These tranches were repaid upon delivery of the Capesize vessels, which took place in August and October 2009. The outstanding balance on the $140 million loan was repaid in full in July 2010.





In August 2009, the Company entered into a four year term loan facility agreement consisting of two tranches of $30.0 million each (the "$60 Million Loan"). In August 2009, the Company drew down $30.0 million to fund the final instalment due on delivery of the first Capesize newbuilding and the repayment of the first tranche of the Pre-delivery Loan. In October 2009, the Company drew down the second tranche of $30.0 million under the term loan to fund the final instalment due on delivery of the second Capesize newbuilding and the repayment of the second tranche of the Pre-delivery Loan. The loans were secured by, among other things, a mortgage on the Capesize vessels and an assignment of any charters in respect to those vessels. The $60 Million Loan bore interest at LIBOR plus a margin. In July 2010, the Company amended the $60 Million Loan and increased the total amount under the credit facility to $105 million at which time, the Company drew down $47.5 million. The terms of the loan were amended in order to finance the purchase of a Capesize vessel and cover fees and expenses related to the acquisition. The August 2009 loan was refinanced with the senior secured term loan facility entered into in December 2010.





In July 2010, the Company entered into a $58.24 million credit facility consisting of four tranches of $14.56 million each in respect of the VLCC vessels in the fleet in order to refinance the outstanding balance of $56 million of debt under our $140 million loan facility taken out in March 2004. The loan is repayable in June 2015. As of December 31, 2010, the outstanding balance was $57.34 million. The loan bears interest at LIBOR plus a margin.


32


In December 2010, the Company refinanced the $105 million loan facility and entered into a $175 million credit facility consisting of four tranches of $25.0 million each in respect of the Capesize vessels and a revolving debt facility of $75 million. The loan is repayable in May 2015. As of December 31, 2010, the outstanding balance was $100.0 million. The loan bears interest at LIBOR plus a margin.





Certain of the Company's loan agreements contain loan-to-value clauses, which could require the Company to post collateral or prepay a portion of the outstanding borrowings should the value of the vessels securing borrowings under each of such agreements decrease below required levels. In addition, the loan agreements contain certain financial covenants including the requirement to maintain a certain level of free cash. Failure to comply with any of the covenants in the loan agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing that debt. Under those circumstances, the Company might not have sufficient funds or other resources to satisfy its obligations. The Company was in compliance with all of the financial covenants contained in the Company's loan agreements as of December 31, 2010.





Equity offering





On September 27, 2010, the Company announced an underwritten public offering of 4,250,000 common shares and a 30 day option granted to the underwriters to purchase up to 637,500 additional shares to cover overallotments. The offering was priced at $19.00 per share and the underwriters exercised the over-allotment option in full. As a result, 4,887,500 common shares were issued in October and net proceeds of approximately $87.6 million were received. The proceeds have been used to fund a portion of the purchase price of the Golden Zhejiang and the remainder is expected to be used to repay indebtedness, fund future vessel acquisitions, for working capital and for general corporate purposes.





In July and October 2010, the Company purchased two 2010-built Capesize dry bulk carriers, Golden Future and Golden Zhejiang, from Golden Ocean. Golden Future was purchased for $47.0 million in cash and 1,464,515 shares with a value of $25.0 million. Golden Zhejiang was purchased for $47.0 million in cash and 973,684 shares with a value of $18.5 million.





Although the Company's activities are conducted worldwide, the international shipping industry's functional currency is the United States Dollar and virtually all of the Company's operating revenues and most of its anticipated cash expenses are expected to be denominated in United States Dollars. Accordingly, the Company's operating revenues are not expected to be adversely affected by movements in currency exchange rates or the imposition of currency controls in the jurisdictions in which the vessels operate.





Off-balance sheet arrangements





None.





Tabular disclosure of contractual obligations





At December 31, 2010, the Company had the following contractual obligations:





Payment due by periodLess than


More than(In thousands of $)

Total
one year
1-3 years
3-5 years
5 yearsDebt (1)


157,340

3,600

10,800

142,940

-Total contractual cash obligations


157,340

3,600

10,800

142,940

-





(1) All of the Company's loan facilities are at floating interest rates based on LIBOR plus a margin and the Company has not entered into any interest rate swaps. The amounts included above do not include interest payments.





Safe harbor




Forward-looking information discussed in this Item 5 includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as "forward-looking statements." We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. Please see "Cautionary Statement Regarding Forward-Looking Statements" in this report.






33




ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES





A.  DIRECTORS AND SENIOR MANAGEMENT





Set forth below are the names and positions of the directors and executive officers of the Company.





The Company


Name

Age

PositionOla Lorentzon

61

Director and ChairmanDouglas C. Wolcott

79

Director and Audit Committee memberDavid M. White

70

Director and Audit Committee ChairmanHans Petter Aas

65

DirectorHerman Billung

53

DirectorInger M. Klemp

48

Chief Financial OfficerGeorgina Sousa

61

Company Secretary





Pursuant to the Amended General Management Agreement with the Company, the General Manager provides management and advisory services to the Company.  Set forth below are the names and positions of the directors, executive officers and officers of the General Manager.





Name

Age

PositionInger M. Klemp

48

Director and PresidentKate Blankenship

46

DirectorGraham Baker

51

Director





Directors of both the Company and the General Manager are elected annually, and each director elected holds office until a successor is elected.  Officers of both the Company and the General Manager are elected from time to time by vote of the respective board of directors and hold office until a successor is elected.  Certain biographical information with respect to each director and executive officer of the Company and the General Manager is set forth below.





Ola Lorentzon has been a director of the Company since September 18, 1996, Chairman since May 26, 2000 and Chief Executive Officer since May 5, 2010.  Mr. Lorentzon is also a director of Erik Thun AB, Crew Chart Ship Management AB and Sea Bird Exploration Ltd.  Mr. Lorentzon was the Managing Director of Frontline Management AS, a subsidiary of Frontline, from April 2000 until September 2003.





Douglas C. Wolcotthas been a director of the Company since September 18, 1996.  Mr. Wolcott has also served as President of Chevron Shipping Corporation until 1994.  Mr. Wolcott previously served as Deputy Chairman and director of the United Kingdom Protection and Indemnity Club and as a director of London & Overseas Freighters Limited.  He is currently a director of the American Bureau of Shipping.





David M. White has been a director of the Company since September 18, 1996.  Mr. White was Chairman of Dan White Investment Limited which is now closed.  Mr. White has also served as a director of NatWest Equity Primary Markets Limited from January 1992 to March 1996, and was previously a director of both NatWest Markets Corporate Finance Limited and NatWest Markets Securities Limited until December 1991.




Herman Billunghas been a director since September 2010. Mr. Billung has served as Chief Executive Officer of Golden Ocean Management AS since April 1, 2005. Mr. Billung's previous position was as Managing Director of Maritime Services in The Torvald Klaveness Group, responsible for the commercial management of the group's dry bulk pools, Bulkhandling and Baumarine. Mr. Billung was Managing Director of the dry bulk operating company, Frapaco Shipping Ltd. between 1994 and 1998. Mr. Billung graduated from the Royal Norwegian Naval Academy in 1984.




Hans Petter Aas has been a Director of the Company since September 2008. Mr. Aas has been a Director of Ship Finance International Limited since August 2008 and Chairman since January 2009. Mr. Aas has been a director of Golar LNG Limited since September 2008 and is also a director of Knutsen NYK Offshore Tankers AS, Gearbulk Holding Limited and the Norwegian Export Credit Guaranty Institute. Mr. Aas has a long career as banker in the international shipping and offshore market, and retired from his position as Global Head of the Shipping, Offshore and Logistics Division of DnB NOR Bank ASA ("DnB NOR") in August 2008. He joined DnB NOR (then Bergen Bank) in 1989, and has previously worked for the Petroleum Division of the Norwegian Ministry of Industry and the Ministry of Energy, as well as for VestaInsurance and Nevi Finance.





Inger M. Klemp has served as Chief Financial Officer of the Company since September 2007. Mrs. Klemp has served as Chief Financial Officer of Frontline Management AS and has been a director of the General Manager since June 1, 2006. Mrs. Klemp has served as a director of Independent Tankers Corporation Limited since February 2008. Mrs. Klemp served as Vice President Finance of Frontline Management AS from August 2001 until she was promoted in May 2006. Mrs. Klemp graduated as MSc in Business and Economics from the Norwegian School of Management (BI) in 1986. Mrs. Klemp served as Assistant Director Finance in Color Group ASA from 1998 to 2001 and as Group Financial Manager in Color Line ASA from 1992 to 1998, a Norwegian based cruise operator which was stock exchange listed until October 1999. From 1989 to 1992 Mrs. Klemp served as Assistant Vice President in Nordea Bank Norge ASA handling structuring and syndication of loan facilities in the international banking market. From 1986 to 1989, Mrs. Klemp served as a lending officer of Fokus Bank ASA.






34





Kate Blankenship was Chief Financial Officer of the Company from April 2000 to September 2007 and served as Secretary of the Company from December 2000 to March 2007. Mrs. Blankenship has been a director of the General Manager since March 2000. Mrs. Blankenship served as the Chief Accounting Officer and Secretary of Frontline between 1994 and October 2005. Mrs. Blankenship also serves as a director of Golar LNG Limited, Golar LNG Energy Limited, Ship Finance International Limited, Seadrill Limited, Seawell Limited, Golden Ocean Group Limited and Independent Tankers Corporation Limited. She is a member of the Institute of Chartered Accountants in England and Wales.


Graham Bakerhas been a director of the General Manager since December 6, 2006. Mr. Baker is Chief Accounting Officer of Frontline having joined the company in July 2006. Mr. Baker has worked in various senior financial roles and most recently was the Head of Group Reporting at NTL Inc., a large NASDAQ listed company and before that the European Chief Financial Officer of DVI Inc., a NYSE listed group. He is a member of the Institute of Chartered Accountants in England and Wales and the Association of Corporate Treasurers.





Georgina E. Sousa has served as Secretary of the Company since March 15, 2007 and has been employed by Frontline since February 2007.  Prior to joining Frontline, Mrs. Sousa was Vice-President-Corporate Services of Consolidated Services Limited, a Bermuda management company having joined that firm in 1993 as Manager of Corporate Administration.  From 1976 to 1982 she was employed by the Bermuda law firm of Appleby, Spurling & Kempe as a Company Secretary and from 1982 to 1993 she was employed by the Bermuda law firm of Cox & Wilkinson as Senior Company Secretary.





B.  COMPENSATION





The Company incurred directors' fees of $378,842 in 2010. On December 29, 2010, a total of 29,571 restricted stock units were issued to directors of the Company. The share price on the date of issue was $22.23 per share. No separate compensation was paid to the Company's officers.





Employment Agreement





On May 19, 2010, the Company entered into an employment agreement with our Chief Executive Officer, Mr. Ola Lorentzon. The employment agreement has a term of three years unless terminated earlier in accordance with its terms. Under the employment agreement, Mr. Lorentzon receives an annual base salary of $130,000 and is entitled to receive a discretionary bonus and additional incentive compensation as determined by the Board.





Under the employment agreement, Mr. Lorentzon is prohibited from participating in marine transportation business activities in direct competition with us or our operating subsidiaries during the term of the employment agreement and for 12 months following its termination. Upon termination of the employment agreement by us without cause (as defined in the employment agreement), Mr. Lorentzon will be entitled to (i) his base salary through the date of termination, (ii) a lump sum payment equal to the aggregate of his base salary plus a discretionary bonus, based on the average of his two prior years' total compensation, or a lump sum of $130,000 if no average is available, and (iii) any amounts Mr. Lorentzon may be entitled to under the terms of the equity incentive plan.





2010 Equity Incentive Plan





The Company adopted an equity incentive plan, which we refer to as the plan, under which directors, officers, employees, consultants and service providers to the Company and its subsidiaries and affiliates are eligible to receive options to acquire common stock, stock appreciation rights, restricted stock, restricted stock units and unrestricted common stock. A total of 800,000 common shares have been reserved for issuance under the plan, subject to adjustment for changes in capitalization as provided in the plan. The plan is administered by the Board or such committee of the Board as may be appointed by the Board to serve as plan administrator.





C.  BOARD PRACTICES





As provided in the Company's bye-laws, each director shall hold office until the next Annual General Meeting following his election or until his successor is elected.  The officers of the Company are elected by the Board as soon as possible following each Annual General Meeting and shall hold office for such period and on such terms as the Board may determine.





The Company has established an audit committee comprised of Messrs. White and Wolcott, independent directors of the Company. The audit committee is responsible for assisting the Board with its oversight responsibilities regarding the integrity of our financial statements, our compliance with legal and regulatory requirements, our independent registered public accounting firm's qualifications and independence, and the performance of our internal audit functions.





There are no service contracts between us and any of our directors providing for benefits upon termination of their employment.





35


Board practices and exemptions from the NASDAQ corporate governance rules





We have certified to NASDAQ that our corporate governance practices are in compliance with, and are not prohibited by, the laws of Bermuda. Therefore, we are exempt from many of NASDAQ's corporate governance practices other than the requirements regarding the disclosure of a going concern audit opinion, submission of a listing agreement, notification of material non-compliance with NASDAQ corporate governance practices and the establishment and composition of an audit committee and a formal written audit committee charter. The practices that we follow in lieu of NASDAQ's corporate governance rules are as follows:





●
Our Board is currently comprised by a majority of independent directors.  Under Bermuda law, we are not required to have a majority of independent directors and cannot assure you that we will continue to do so.




●
In lieu of holding regular meetings at which only independent directors are present, our entire Board may hold regular meetings as is consistent with Bermuda law.




●
In lieu of an audit committee comprised of three independent directors, our audit committee has two members, which is consistent with Bermuda law.  Both members of the audit committee currently meet NASDAQ's requirement of independence.




●
In lieu of a nomination committee comprised of independent directors, our Board is responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees. Shareholders are permitted to identify and recommend potential candidates to become board members, but pursuant to the bye-laws, directors are elected by the shareholders in duly convened annual or special general meetings.




●
In lieu of a compensation committee comprised of independent directors, our Board is responsible for establishing the executive officers' compensation and benefits. Under Bermuda law, compensation of the executive officers is not required to be determined by an independent committee.




●
In lieu of obtaining an independent review of related party transactions for conflicts of interests, consistent with Bermuda law requirements, our bye-laws do not prohibit any director from being a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise interested, provided that the director makes proper disclosure of same as required by the bye-laws and Bermuda law.




●
Prior to the issuance of securities, we are required to obtain the consent of the Bermuda Monetary Authority as required by law. We have obtained blanket consent from the Bermuda Monetary Authority for the issue and transfer of the Company's securities provided that such securities remain listed on a recognized stock exchange.




●
Pursuant to NASDAQ corporate governance rules and as a foreign private issuer, we are not required to solicit proxies or provide proxy statements to NASDAQ. Bermuda law does not require that we solicit proxies or provide proxy statements to NASDAQ. Consistent with Bermuda law and as provided in our bye-laws, we are also required to notify our shareholders of meetings no less than five days before the meeting.  Our bye-laws also provide that shareholders may designate a proxy to act on their behalf.




Other than as noted above, we are in full compliance with all other applicable NASDAQ corporate governance standards.





D.  EMPLOYEES





We have not had any employees since inception as the General Manager is responsible for the management and administration of the Company with the exception of Ola Lorentzon who was appointed Chief Executive Officer in May, 2010.





E.  SHARE OWNERSHIP





As of March 18, 2010, none of the directors or officers of the Company owned any common shares of the Company and four directors owned a total of 29,571 restricted stock units of the Company.





ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS





A.  MAJOR SHAREHOLDERS





The following table presents certain information as of March 18, 2011 regarding the ownership of our shares of common stock with respect to each shareholder, who we know to beneficially own more than 5% of our outstanding shares of common stock.





Beneficial Owner
Amount of Common Shares
Percentage OwnershipKayne Anderson Capital Advisors, L.P. (1)
1,817,901
7.68%Golden Ocean Group Limited (2)
2,438,199
10.0%





(1) Information derived from the Schedule 13G/A of Kayne Anderson Capital Advisors, L.P. , which wasfiled with the Commission on February 9, 2011.


(2) Information derived from the Schedule 13D of Golden Ocean Group Limited, which wasfiled with the Commission on February 7, 2011.





The Company is not directly or indirectly controlled by another corporation, by a foreign government or by any other natural or legal person. We are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of the Company.






36





B.  RELATED PARTY TRANSACTIONS





In July and October 2010, the Company purchased two 2010-built Capesize dry bulk carriers, Golden Future and Golden Zhejiang, from Golden Ocean. Golden Future was purchased for $47.0 million in cash and 1,464,515 shares with a value of $25.0 million. Golden Zhejiang was purchased for $47.0 million in cash and 973,684 shares with a value of $18.5 million. Both vessels were acquired with an existing time charter and $3.3 million of the purchase price for the Golden Zhejiang has been attributed to the value of the time charter.





Management fees of $0.5 million, which represents a commission of 1.25% of gross freight earned by the drybulk carriers, were invoiced by Golden Ocean, and paid by the Company, during 2010. At December 31, 2010, $69,000 was due from Golden Ocean. On December 29, 2010, 14,786 restricted stock units were issued to Golden Ocean Management (Bermuda) Limited, a wholly-owned subsidiary of Golden Ocean.





C.  INTERESTS OF EXPERTS AND COUNSEL





Not applicable.





ITEM 8. FINANCIAL INFORMATION





A.  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION





See Item 18.





Legal Proceedings





To the best of our knowledge, there are no legal or arbitration proceedings existing or pending which have had or may have significant effects on our financial position or profitability and no such proceedings are pending or known to be contemplated.





Dividend Policy




Our dividend policy is to declare quarterly dividends to shareholders, substantially equal to net cash flow in the reporting quarter less reserves that our Board may from time to time determine are necessary, such as reserves for drydocking and other possible cash needs. We intend to finance our future vessel acquisitions not from our cash flow from operations, but from external sources, such as by undertaking equity offerings, incurring additional indebtedness in line with our current low-leverage capital structure and utilizing the proceeds from the sale of our vessels.




There is no guarantee that our shareholders will receive quarterly dividends from us. Our dividend policy may be changed at any time at the sole discretion of our Board, who will take into account, among other things, our contingent liabilities, financial condition and future prospects, the terms of our credit facilities, and the requirements of Bermuda law in determining the timing and amount of dividends, if any, that we may pay.





In 2010, 2009 and 2008, the Company paid the following distributions to shareholders.





Record Date
Payment Date
Amount per share2010February 19, 2010
March 4, 2010

$
0.30May 21, 2010
June 7, 2010

$
0.40August 24, 2010
September 7, 2010

$
0.50November 19, 2010
December 6, 2010

$
0.502009February 18, 2009
March 2, 2009

$
0.252008February 26, 2008
March 7, 2008

$
0.75May 27, 2008
June 9, 2008

$
0.75August 22, 2008
September 9, 2008

$
0.75November 17, 2008
December 1, 2008

$
0.50





On February 7, 2011, the Board declared a cash dividend of $0.50 per share for the fourth quarter of 2010 that was paid on March 3, 2011.





B.  SIGNIFICANT CHANGES





Not applicable.






37





ITEM 9.  THE OFFER AND LISTING





The following table sets forth, for the five most recent fiscal years during which the Company's Common Shares were traded on the NASDAQ Global Select Market, the annual high and low prices for the Common Shares as reported by the NASDAQ Global Select Market.





Fiscal year ended December 31,

High


Low2010

$
24.49


$
13.362009

$
17.16


$
11.002008

$
35.00


$
10.012007

$
34.00


$
23.012006

$
30.78


$
20.42





The following table sets forth, for the two most recent fiscal years, the high and low prices for the Common Shares as reported by the NASDAQ Global Select Market.





Fiscal year ended December 31, 2010

High


LowFirst quarter

$
17.45


$
13.36Second quarter

$
19.86


$
15.34Third quarter

$
22.18


$
16.82Fourth quarter

$
24.49


$
18.35Fiscal year ended December 31, 2009

High


LowFirst quarter

$
17.16


$
11.00Second quarter

$
16.95


$
12.34Third quarter

$
16.20


$
12.70Fourth quarter

$
13.72


$
12.06





The following table sets forth, for the most recent six months, the high and low prices for the Common Shares as reported by the NASDAQ Global Select Market.





Month

High


LowFebruary 2011

$
25.49


$
23.41January 2011

$
24.42


$
22.41December 2010

$
23.55


$
20.53November 2010

$
24.49


$
21.62October 2010

$
22.10


$
18.35September 2010

$
22.18


$
17.63





The Company's shares of common stock have been quoted on the NASDAQ Global Select Market under the symbol "VLCCF" since its initial public offering in February 1997.




ITEM 10.  ADDITIONAL INFORMATION





A.  SHARE CAPITAL





Not applicable.





B.  MEMORANDUM AND ARTICLES OF ASSOCIATION





Incorporated by reference to "Description of Capital Stock" in the prospectus contained in the Company's Registration Statement on Form F-1, filed December 13, 1996 (File No. 333-6170).





At the 2005 Annual General Meeting of the Company the shareholders voted to amend the Company's bye-laws 83 and 85 by removing the restrictions that limited the Company's business activities.  The changes to the bye-laws removed restrictions on the Company's activities such as rechartering the VLCCs, refinancing or replacing the credit facility, acting in connection with the management agreement, offering Common Shares and listing them, enforcing its rights in connection with the Charters, the Credit Facility, the UK Finance Leases, the management agreement and other agreements into which the Company and its subsidiaries entered at the time of its initial public offering, and leasing, selling or otherwise disposing of a VLCC (or VLCC owning subsidiaries) on termination of the Charters or subsequent charters. The amended bye-laws of the Company as adopted on June 27, 2005, have been filed as Exhibit 4.2 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2005, filed with Securities and Exchange Commission on June 15, 2006, and are hereby incorporated by reference into this Annual Report.





On September 25, 2009, at the 2009 Annual General Meeting of the Company the shareholders approved an increase of the Company's authorized common shares, par value $0.01, from 20,000,000 to 35,000,000. The Company currently has issued and outstanding 24,425,699 common shares.





38


C.  MATERIAL CONTRACTS





None.


D.  EXCHANGE CONTROLS





The Bermuda Monetary Authority (the "BMA") must give permission for all issuances and transfers of securities of a Bermuda exempted company like ours. We have received general permission from the BMA to issue any unissued common shares and for the free transferability of our common shares as long as our common shares are listed on an "appointed stock exchange". Our common shares are listed on the NASDAQ Global Select Market, which is an "appointed stock exchange". Our common shares may therefore be freely transferred among persons who are residents and non-residents of Bermuda.





Although we are incorporated in Bermuda, we are classified as a non-resident of Bermuda for exchange control purposes by the BMA. Other than transferring Bermuda Dollars out of Bermuda, there are no restrictions on our ability to transfer funds into and out of Bermuda or to pay dividends to U.S. residents who are holders of common shares or other nonresidents of Bermuda who are holders of our common shares in currency other than Bermuda Dollars.





In accordance with Bermuda law, share certificates may be issued only in the names of corporations, individuals or legal persons. In the case of an applicant acting in a special capacity (for example, as an executor or trustee), certificates may, at the request of the applicant, record the capacity in which the applicant is acting. Notwithstanding the recording of any such special capacity, we are not bound to investigate or incur any responsibility in respect of the proper administration of any such estate or trust.





We will take no notice of any trust applicable to any of our shares or other securities whether or not we had notice of such trust.





As an "exempted company", we are exempt from Bermuda laws which restrict the percentage of share capital that may be held by non-Bermudians, but as an exempted company, we may not participate in certain business transactions including: (i) the acquisition or holding of land in Bermuda (except that required for its business and held by way of lease or tenancy for terms of not more than 21 years) without the express authorization of the Bermuda legislature; (ii) the taking of mortgages on land in Bermuda to secure an amount in excess of $50,000 without the consent of the Minister of Business Development and Tourism of Bermuda; (iii) the acquisition of any bonds or debentures secured on any land in Bermuda except bonds or debentures issued by the Government of Bermuda or by a public authority in Bermuda; or (iv) the carrying on of business of any kind in Bermuda, except in so far as may be necessary for the carrying on of its business outside Bermuda or under a license granted by the Minister of Business Development and Tourism of Bermuda.





The Bermuda government actively encourages foreign investment in "exempted" entities like us that are based in Bermuda but do not operate in competition with local business. In addition to having no restrictions on the degree of foreign ownership, we are subject neither to taxes on our income or dividends nor to any exchange controls in Bermuda. In addition, there is no capital gains tax in Bermuda, and profits can be accumulated by us, as required, without limitation. There is no income tax treaty between the United States and Bermuda pertaining to the taxation of income other than applicable to insurance enterprises.





E.  TAXATION





United States Taxation





The following discussion is based upon the provisions of the United States Internal Revenue Code of 1986, as amended or the "Code", existing and proposed United States Treasury Department regulations, administrative rulings and pronouncements and judicial decisions, all as of the date of this Annual Report.  Unless otherwise noted, references to the "Company" include the Company's Subsidiaries.  This discussion assumes that the Company does not have an office or other fixed place of business in the United States.





Taxation of the Company's Shipping Income: In General





The Company anticipates that it will derive substantially all of its gross income from the use and operation of vessels in international commerce and that this income will principally consist of freights from the transportation of cargoes, charterhire or lease from time or voyage charters and the performance of services directly related thereto, which the Company refers to as "shipping income."





Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States will be considered to be 50% derived from sources within the United States. Shipping income attributable to transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the United States. The Company is not permitted by law to engage in transportation that gives rise to 100% United States source income.





Shipping income attributable to transportation exclusively between non-United States ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to United States federal income tax.





Based upon the Company's current and anticipated shipping operations, the Company's vessels will operate in various parts of the world, including to or from United States ports. Unless exempt from United States federal income taxation under Section 883 of the Code, or Section 883, the Company will be subject to United States federal income taxation, in the manner discussed below, to the extent its shipping income is considered derived from sources within the United States.


39


Application of Section 883





Under the relevant provisions of Section 883, the Company will be exempt from United States federal income taxation on its United States source shipping income if:





(i)
It is organized in a "qualified foreign country", which is one that grants an equivalent exemption from taxation to corporations organized in the United States in respect of the shipping income for which exemption is being claimed under Section 883, and which the Company refers to as the "country of organization requirement"; and





(ii)
It can satisfy any one of the following two stock ownership requirements for more than half the days during the taxable year:





●
the Company's stock is "primarily and regularly" traded on an established securities market located in the United States or a qualified foreign country, which the Company refers to as the "Publicly-Traded Test"; or




●
more than 50% of the Company's stock, in terms of value, is beneficially owned by any combination of one or more individuals who are residents of a qualified foreign country or foreign corporations that satisfy the country of organization requirement and the Publicly-Traded Test, which the Company refers to as the "50% Ownership Test."




The United States Treasury Department has recognized Bermuda, the country of incorporation of the Company, as a qualified foreign country. In addition, the U.S. Treasury Department has recognized Liberia, the country of incorporation of certain of the Company's vessel-owning subsidiaries, as a qualified foreign country.  Accordingly, the Company and its vessel owning subsidiaries satisfy the country of organization requirement.





Therefore, the Company's eligibility for exemption under Section 883 is wholly dependent upon being able to satisfy one of the stock ownership requirements.





For the 2010 taxable year, the Company satisfied the Publicly-Traded Test since, on more than half the days of the taxable year, the Company's Ordinary Shares were primarily and regularly traded on the NASDAQ.





Taxation in Absence of Section 883 Exemption





To the extent the benefits of Section 883 are unavailable with respect to any item of United States source income, the Company's United States source shipping income, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which the Company refers to as the "4% gross basis tax regime". Since under the sourcing rules described above, no more than 50% of the Company's shipping income would be treated as being derived from United States sources, the maximum effective rate of United States federal income tax on the Company's shipping income would never exceed 2% under the 4% gross basis tax regime.





Gain on Sale of Vessels





Regardless of whether the Company qualifies for exemption under Section 883, the Company will not be subject to United States federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under United States federal income tax principles.  In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States.  It is expected that any sale of a vessel by the Company will be considered to occur outside of the United States.





Taxation of United States Holders





The following is a discussion of the material United States federal income tax considerations relevant to an investment decision by a United States Holder, as defined below, with respect to the Ordinary Shares.  This discussion does not purport to deal with the tax consequences of owning Ordinary Shares to all categories of investors, some of which, such as dealers in securities, tax-exempt organizations, investors whose functional currency is not the United States dollar and investors that own, actually or under applicable constructive ownership rules, 10% or more of the Company's Ordinary Shares may be subject to special rules.  You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under United States federal, state, local or foreign law of the ownership of Ordinary Shares.





As used herein, the term "United States Holder" means a beneficial owner of Ordinary Shares that (i) is a United States citizen or resident, a United States corporation or other United States entity taxable as a corporation, an estate, the income of which is subject to United States federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust and (ii) owns the Ordinary Shares as a capital asset, generally, for investment purposes.





If a partnership holds Ordinary Shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership.  If you are a partner in a partnership holding Ordinary Shares, you are encouraged to consult your own tax advisor regarding the United States federal income tax consequences of owning an interest in a partnership that holds Ordinary Shares.


40





Distributions





Subject to the discussion of passive foreign investment companies below, any distributions made by the Company with respect to Ordinary Shares to a United States Holder will generally constitute dividends, which may be taxable as ordinary income or "qualified dividend income" as described in more detail below, to the extent of the Company's current or accumulated earnings and profits, as determined under United States federal income tax principles.  Distributions in excess of the Company's earnings and profits will be treated first as a non-taxable return of capital to the extent of the United States Holder's tax basis in his Ordinary Shares on a dollar-for-dollar basis and thereafter as capital gain.  Because the Company is not a United States corporation, United States Holders that are corporations will not be entitled to claim a dividends-received deduction with respect to any distributions they receive from the Company.





Dividends paid on Ordinary Shares to a United States Holder which is an individual, trust or estate (a "United States Non-Corporate Holder") will generally be treated as "qualified dividend income" that is taxable to such shareholders at preferential United States federal income tax rates (currently through 2012) provided that (1) Ordinary Shares are readily tradable on an established securities market in the United States (such as the NASDAQ Global Select Market on which the Ordinary Shares are listed); (2) the Company is not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which the Company does not believe it is, has been since the beginning of its 2004 taxable year, or will be); and (3) the United States Non-Corporate Holder has owned the Ordinary Shares for more than 60 days in the 121-day period beginning 60 days before the date on which the Ordinary Shares become ex-dividend.





Legislation has been previously introduced in the United States Congress which, if enacted in its present form, would preclude the dividends paid by the Company from qualifying for such preferential rates prospectively from the date of the enactment. Any dividends paid by the Company which are not eligible for these preferential rates will be taxed as ordinary income to a United States Holder.





Sale, Exchange or other Disposition of Common Stock





Assuming the Company does not constitute a passive foreign investment company for any taxable year, a United States Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of the Company's Ordinary Shares in an amount equal to the difference between the amount realized by the United States Holder from such sale, exchange or other disposition and the United States Holder's tax basis in the Ordinary Shares.  Such gain or loss will be treated as long-term capital gain or loss if the United States Holder's holding period in the Ordinary Shares is greater than one year at the time of the sale, exchange or other disposition.  A United States Holder's ability to deduct capital losses is subject to certain limitations.





Passive Foreign Investment Company Status and Significant Tax Consequences





Special United States federal income tax rules apply to a United States Holder that holds stock in a foreign corporation classified as a passive foreign investment company, or a PFIC, for United States federal income tax purposes.  In general, the Company will be treated as a PFIC with respect to a United States Holder if, for any taxable year in which such holder held the Company's Ordinary Shares, either;





●
at least 75% of the Company's gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business), or




●
at least 50% of the average value of the assets held by the Company during such taxable year produce, or are held for the production of, passive income.


For purposes of determining whether the Company is a PFIC, the Company will be treated as earning and owning its proportionate share of the income and assets, respectively, of any of its subsidiary corporations in which it owns at least 25% of the value of the subsidiary's stock.  Income earned, or deemed earned, by the Company in connection with the performance of services would not constitute passive income.  By contrast, rental income would generally constitute "passive income" unless the Company is treated under specific rules as deriving its rental income in the active conduct of a trade or business.





The Company was a PFIC for United States federal income tax purposes through its 2003 taxable year. The Company has not been a PFIC beginning with its 2004 taxable year.  United States Holders who held the Company's Ordinary Shares prior to the 2004 taxable year are encouraged to consult their tax advisors regarding the proper tax treatment of any dispositions of Ordinary Shares and any distributions by the Company.


Based on the Company's current operations and future projections, the Company does not believe that it is or that it was since the beginning of its 2004 taxable year, nor does it expect to become, a PFIC with respect to any taxable year.  Although there is no legal authority directly on this point, the Company's belief is based principally on the position that, for purposes of determining whether the Company is a PFIC, the gross income the Company derives or is deemed to derive from the time chartering, bareboat chartering and voyage chartering activities should constitute services income, rather than rental income.  Correspondingly, the Company believes that such income does not constitute passive income, and the assets that the Company or its wholly-owned subsidiaries own and operate in connection with the production of such income, in particular, the vessels, do not constitute assets that produce, or are held for the production of, passive income for purposes of determining whether the Company is a PFIC.


41


Although there is no direct legal authority under the PFIC rules, the Company believes there is substantial legal authority supporting its position consisting of case law and United States Internal Revenue Service, or the IRS, pronouncements concerning the characterization of income derived from time charters, bareboat charters and voyage charters as services income for other tax purposes.  However, there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, in the absence of any legal authority specifically relating to the Code provisions governing PFICs, the IRS or a court could disagree with our position.  In addition, although the Company intends to conduct its affairs in such a manner as to avoid being classified as a PFIC with respect to any taxable year, there can be no assurance that the nature of its operations will not change in the future.





As discussed more fully below, if the Company were to be treated as a PFIC for any taxable year, a United States Holder would be subject to different taxation rules depending on whether the United States Holder makes an election to treat the Company as a "Qualified Electing Fund," which the Company refers to as a "QEF election." As an alternative to making a QEF election, a United States Holder should be able to elect to mark-to-market the Company's Ordinary Shares, which the Company refers to as a "Mark-to-Market Election" as discussed below.





Taxation of United States Holders Making a Timely QEF Election





If a United States  Holder makes a timely QEF election, which United States  Holder is referred to by the Company as an "Electing United States Holder," the Electing United States Holder must report each year for United States  federal income tax purposes its pro rata share of the Company's ordinary earnings and its net capital gain, if any, for the Company's taxable year that ends with or within the taxable year of the Electing United States Holder, regardless of whether or not distributions were received from the Company by the Electing United States Holder. The Electing United States Holder's adjusted tax basis in the Ordinary Shares will be increased to reflect taxed but undistributed earnings and profits.  Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the Ordinary Shares and will not be taxed again once distributed.  An Electing United States Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of the Ordinary Shares. A United States Holder will be eligible to make a QEF Election with respect to its Ordinary Shares only if the Company provides the United States Holder with annual tax information relating to the Company. There can be no assurance that the Company will provide such tax information on an annual basis.





Taxation of United States Holders Making a "Mark-to-Market" Election





Alternatively, if the Company were to be treated as a PFIC for any taxable year and, as anticipated, the Ordinary Shares are treated as "marketable stock," a United States  Holder would be allowed to make a Mark-to-Market election with respect to the Company's Ordinary Shares.  If that election is made, the United States Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the Ordinary Shares at the end of the taxable year over such holder's adjusted tax basis in the Ordinary Shares.  The United States Holder would also be permitted an ordinary loss in respect of the excess, if any, of the United States Holder's adjusted tax basis in the Ordinary Shares over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the Mark-to-Market election.  A United States Holder's tax basis in his Ordinary Shares would be adjusted to reflect any such income or loss amount.  Gain realized on the sale, exchange or other disposition of the Ordinary shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the Ordinary Shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the United States Holder.





Taxation of United States Holders Not Making a Timely QEF or Mark-to-Market Election





Finally, if the Company were to be treated as a PFIC for any taxable year, a United States  Holder who does not make either a QEF election or a Mark-to-Market election for that year, whom is referred to as a "Non-Electing United States Holder," would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing United States Holder on the Ordinary Shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing United States Holder in the three preceding taxable years, or, if shorter, the Non-Electing United States Holder's holding period for the Ordinary Shares), and (2) any gain realized on the sale, exchange or other disposition of the Ordinary Shares.  Under these special rules:





●
the excess distribution or gain would be allocated ratably over the Non-Electing United States Holders' aggregate holding period for the Ordinary Shares;




●
the amount allocated to the current taxable year and any taxable years before the Company became a PFIC would be taxed as ordinary income; and




●
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of tax payer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.




These penalties would not apply to a pension or profit sharing trust or other tax-exempt organization that did not borrow funds or otherwise utilize leverage in connection with its acquisition of the Ordinary Shares.  If a Non-Electing United States Holder who is an individual dies while owning the Ordinary Shares, the successor of such deceased Non-Electing United States Holder generally would not receive a step-up in tax basis with respect to such stock.






42




Backup Withholding and Information Reporting


In general, dividend payments, or other taxable distributions, made within the United States to a holder of Ordinary Shares will be subject to information reporting requirements.  Such payments will also be subject to "backup withholding" if paid to a non-corporate United States Holder who:





●
fails to provide an accurate tax payer identification number;




●
is notified by the IRS that he has failed to report all interest or dividends required to be shown on his United States federal income tax returns; or




●
in certain circumstances, fails to comply with applicable certification requirements.




If a holder sells his Ordinary Shares to or through a United States office of a broker, the payment of the proceeds is subject to both United States information reporting and backup withholding unless the holder establishes an exemption.  If a holder sells his Ordinary Shares through a non-United States office of a non-United States broker and the sales proceeds are paid to the holder outside the United States, then information reporting and backup withholding generally will not apply to that payment.  However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, including a payment made to a holder outside the United States, if the holder sells his Ordinary Shares through a non- United States  office of a broker that is a United States  person or has some other contacts with the United States.





Backup withholding is not an additional tax.  Rather, a tax payer generally may obtain a refund of any amounts withheld under backup withholding rules that exceed the tax payer's income tax liability by filing a refund claim with the IRS.





Bermuda Taxation





As of the date of this document, we are not subject to taxation under the laws of Bermuda and distributions to us by our subsidiaries also are not subject to any Bermuda tax.  As of the date of this document, there is no Bermuda income, corporation or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by non-residents of Bermuda in respect of capital gains realized on a disposition of our common shares or in respect of distributions by us with respect to our common shares.  This does not, however, apply to the taxation of persons ordinarily resident in Bermuda.  Bermuda holders should consult their own tax advisors regarding possible Bermuda taxes with respect to dispositions of, and distributions on, our common shares.





The Minister of Finance in Bermuda has granted the Company a tax exempt status until March 28, 2016, under which no income taxes or other taxes (other than duty on goods imported into Bermuda and payroll tax in respect of any Bermuda-resident employees) are payable by the Company in Bermuda.  If the Minister of Finance in Bermuda does not grant a new exemption or extend the current tax exemption, and if the Bermudian Parliament passes legislation imposing taxes on exempted companies, the Company may become subject to taxation in Bermuda after March 28, 2016.





Currently, there are no withholding taxes payable in Bermuda on dividends distributed by the Company to its shareholders.





Liberian Taxation





The Republic of Liberia enacted a new income tax act effective as of January 1, 2001, or the New Act.  In contrast to the income tax law previously in effect since 1977, or the Prior Law, which the New Act repealed in its entirety, the New Act does not distinguish between the taxation of a non-resident Liberian corporation, such as the Company's Liberian subsidiaries, which conduct no business in Liberia and were wholly exempted from tax under the Prior Law, and the taxation of ordinary resident Liberian corporations.





In 2004, the Liberian Ministry of Finance issued regulations pursuant to which a non-resident domestic corporation engaged in international shipping, such as the Company's Liberian subsidiaries, will not be subject to tax under the New Act retroactive to January 1, 2001, or the New Regulations.  In addition, the Liberian Ministry of Justice issued an opinion that the New Regulations were a valid exercise of the regulatory authority of the Ministry of Finance.  Therefore, assuming that the New Regulations are valid, the Company's Liberian subsidiaries will be wholly exempt from Liberian income tax as under the Prior Law.In 2009, the Liberian Ministry of Finance adopted an Economic Stimulus Act to clarify the tax treatment of non-resident Liberian corporations. Although such Act was signed into law by the President of Liberia it was never formally published, which is a requirement to make it effective. We are still waiting advice from Liberia regarding publication of the 2009 Economic Stimulus Act.





If the Company's Liberian subsidiaries were subject to Liberian income tax under the New Act, the Company's Liberian subsidiaries would be subject to tax at a rate of 35% on their worldwide income.  As a result, their, and subsequently the Company's, net income and cash flow would be materially reduced by the amount of the applicable tax.  In addition, the Company, as shareholder of the Liberian subsidiaries, would be subject to Liberian withholding tax on dividends paid by the Liberian subsidiaries at rates ranging from 15% to 20%.





43


F.  DIVIDENDS AND PAYING AGENTS





Not applicable.





G.  STATEMENT BY EXPERTS


Not applicable.





H.  DOCUMENTS ON DISPLAY





We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports and other information with the Securities and Exchange Commission. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission 100 F Street, N.E., Room 1580 Washington, D.C. 20549.  You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330, and you may obtain copies at prescribed rates from the public reference facilities maintained by the Commission at its principal office in Washington, D.C. 20549.  The Commission maintains a website (http://www.sec.gov.) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. In addition, documents referred to in this annual report may be inspected at our principal executive offices at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, Bermuda HM 08.




I.  SUBSIDIARY INFORMATION





Not applicable.




ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The Company is exposed to market risk from changes in interest rates primarily resulting from the floating rate of the Company's borrowings.  The Company does not currently utilize interest rate swaps to manage such interest rate risk.  The Company has not entered into any financial instruments for speculative or trading purposes.





The Company's borrowings as of December 31, 2010 of $157.3 million (December 31, 2009: $120.5 million) bear interest at LIBOR plus a margin. A 1% change in interest rates would increase or decrease interest expense by $1.6 million per year as of December 31, 2010. The fair value of the loan facility at December 31, 2010 was equal to the carrying amount of the facility at the same date.





ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES





Not applicable.





44





PART II





ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES





None.





ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS





None.





ITEM 15.  CONTROLS AND PROCEDURES





a)   Disclosure Controls and Procedures


Management assessed the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this annual report as of December 31, 2010. Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective as of the evaluation date.




b)   Management's annual report on internal controls over financial reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) promulgated under the Securities Exchange Act of 1934.


Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:




●
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;




●
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of Company's management and directors; and




●
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.




Management conducted the evaluation of the effectiveness of the internal controls over financial reporting using the control criteria framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) published in its report entitled Internal Control-Integrated Framework.




Our management with the participation of our principal executive officer and principal financial officer assessed the effectiveness of the design and operation of the Company's internal controls over financial reporting pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as of December 31, 2010. Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Company's internal controls over financial reporting are effective as of December 31, 2010.




The effectiveness of the Company's internal control over financial reporting as of December 31, 2010 has been audited by PricewaterhouseCoopers AS, an independent registered public accounting firm, as stated in their report which appears herein.




c)   Attestation report of the registered public accounting firm
  The independent registered public accounting firm that audited the consolidated financial statements, PricewaterhouseCoopers AS, has issued an attestation report on the effectiveness of the Company's internal control over financial reporting as of December 31, 2010, appearing under Item 18, and such report is incorporated herein by reference.




d)   Changes in internal control over financial reporting




There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially effected or are reasonably likely to materially affect, the Company's internal control over financial reporting.






45





ITEM 16. [Reserved]





ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT




The Board has determined that the Company's audit committee has one audit committee financial expert. Mr. David White is an independent director and is the audit committee financial expert.





ITEM 16B. CODE OF ETHICS





The Company has adopted a code of ethics that applies to all entities controlled by the Company and all employees, directors, officers and agents of the Company, including representatives and agents of the Company's General Manager. The Company has posted a copy of its code of ethics on its website at www.knightsbridgetankers.com. The Company will provide any person, free of charge, a copy of its code of ethics upon written request to the Company's registered office.





ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Our principal accountant for 2010 was PricewaterhouseCoopers AS and for 2009 and 2008 was MSPC, Certified Public Accountants and Advisors, or MSPC. The following table sets forth for the two most recent fiscal years the fees paid or accrued for audit and services provided by PricewaterhouseCoopers AS and MSPC. Fees in the 2010 column relate to services provided by PricewaterhouseCoopers AS and fees in the 2009 column relate to services provided by MSPC.





(in $)

2010


2009Audit Fees (a)


240,000



241,950Audit-Related Fees (b)


-



-Tax Fees (c)


-



-All Other Fees (d)


-



-Total


240,000



241,950





(a)           Audit Fees


Audit fees represent professional services rendered for the audit of our annual financial statements and services provided by the principal accountant in connection with statutory and regulatory filings or engagements.





(b)           Audit–Related Fees


Audit-related fees consisted of assurance and related services rendered by the principal accountant related to the performance of the audit or review of our financial statements which have not been reported under Audit Fees above.





(c)           Tax Fees


Tax fees represent fees for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning.





(d)           All Other Fees


All other fees include services other than audit fees, audit-related fees and tax fees set forth above.





Our Board has adopted pre-approval policies and procedures in compliance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X that require the Board to approve the appointment of the independent auditor of the Company before such auditor is engaged and approve each of the audit and non-audit related services to be provided by such auditor under such engagement by the Company. All services provided by the principal auditor in 2010 were approved by the Board pursuant to the pre-approval policy.





ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES





Not applicable.





ITEM 16E.  PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS





None.





ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT





On August 19, 2010, the Company's independent registered public accounting firm, MSPC, notified the Company that it would not stand for re-election at the Company's Annual General Meeting of shareholders to be held on September 24, 2010.






46





The reports of MSPC on the financial statements of the Company as of December 31, 2009 and 2008 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with the audits of the Company's financial statements for each of the two fiscal years ended December 31, 2009 and 2008, and through August 19, 2010, there were no disagreements with MSPC on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures which, if not resolved to the satisfaction of MSPC, would have caused MSPC to make reference to the matter of such disagreements in their reports.


On August 20, 2010, the audit committee of the Board recommended the engagement of PricewaterhouseCoopers AS ("PwC") as the Company's new independent registered public accounting firm. The engagement of PwC was approved at the Annual General Meeting of shareholders held on September 24, 2010. During the Company's two fiscal years ending December 31, 2009 and 2008 and through August 19, 2010, neither the Company nor anyone on its behalf has consulted with PwC regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements, and neither a written report was provided to the Company nor oral advice was provided that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 16.F of Form 20-F and the related instructions to Item 16.F of Form 20-F, or a reportable event, as that term is defined in Item 16.F of Form 20-F.





A letter from MSPC, dated March 18, 2011, to the Securities and Exchange Commission confirming the information provided in response to this Item 16.F. is filed as Exhibit 15.3 to this annual report.





ITEM 16G. CORPORATE GOVERNANCE





Pursuant to the NASDAQ listing standards available to foreign private issuers, we are not required to comply with all of the corporate governance practices followed by U.S. companies under the NASDAQ listing standards.  The significant differences between our corporate governance practices and the NASDAQ standards applicable to listed U.S. companies are set forth below.




Executive Sessions.NASDAQ requires that non-management directors meet regularly in executive sessions without management.  As permitted under Bermuda law and our byelaws, our non-management directors do not regularly hold executive sessions without management and we do not expect them to do so in the future.




Audit Committee.  NASDAQ requires, among other things, that a listed U.S company have an audit committee with a minimum of three independent members.  As permitted under Bermuda law and our byelaws, our audit committee consists of two members which currently meets the NASDAQ independence requirements.




Nominating/Corporate Governance Committee.  NASDAQ requires that a listed U.S. company have a nominating/corporate governance committee composed solely of independent directors.  As permitted under Bermuda law and our byelaws, we do not currently have a nominating or corporate governance committee.  Our Board is responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees.




Compensation Committee.  NASDAQ requires that a listed U.S. company have a compensation committee composed solely of independent directors.  As permitted under Bermuda law and our byelaws, compensation of executive officers is not required to be determined by a committee composed of independent members.




Related Party Transactions.  NASDAQ requires that a listed U.S. company conduct appropriate review and oversight of all related party transactions for potential conflict of interest situations on an ongoing basis by the company's audit committee or another independent body of the board of directors.  As permitted under Bermuda law and our byelaws, our directors are not prohibited from being a party to, or otherwise interested in, any transaction or arrangement with us or in which we are otherwise interested, provided that the director makes proper disclosure of same as required by our byelaws and Bermuda law.




Proxy Materials.  NASDAQ requires that a listed U.S. company solicit proxies and provide proxy statements for all shareholder meetings. Such company must also provide copies of its proxy solicitation to NASDAQ.  As permitted under Bermuda law and our byelaws, we do not currently solicit proxies or provide proxy materials to NASDAQ.  Our byelaws also require that we notify our shareholders of meetings no less than 5 days before the meeting.














47


PART III





ITEM 17.  FINANCIAL STATEMENTS





Not applicable.





ITEM 18.  FINANCIAL STATEMENTS





The following financial statements listed below and set forth on pages F-1 through F-14 are filed as part of this annual report:





Consolidated Financial Statements of Knightsbridge Tankers Limited





Index to Consolidated Financial Statements of Knightsbridge Tankers Limited

F-1Report of Independent Registered Public Accounting Firm – PricewaterhouseCoopers AS

F-2Report of Independent Registered Public Accounting Firm – MSPC

F-3Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008

F-4Consolidated Balance Sheets as of December 31, 2010 and 2009

F-5Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008

F-6Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2010, 2009 and 2008

F-7Notes to Consolidated Financial Statements

F-8





ITEM 19.  EXHIBITS





Number

Description of Exhibit1.1

Memorandum of Association of the Company (1)1.2

Amended Bye-Laws of the Company (2)4.1

2010 Equity Incentive Plan (3)4.2

Share Sale and Purchase Agreement between Golden Ocean Group Limited and the Company regarding the shares in Golden Future Inc.4.3

Share Sale and Purchase Agreement between Golden Ocean Group Limited and the Company regarding the shares in Golden Zhejiang Inc.4.4

Amended and Restated General Management Agreement entered into between the Company and ICB Shipping (Bermuda) Limited4.5

Drybulk Commercial Management Agreement entered into between the Company and Golden Ocean Management Limited4.6

Supplemental Agreement to Drybulk Commercial Management Agreement (Golden Zhejiang joins as party)8.1

Significant Subsidiaries12.1

Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.12.2

Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.    48
  13.1

Principal Executive Officer Certifications pursuant to 18 U.S.C. Section 1350 as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.13.2

Principal Financial Officer Certifications pursuant to 18 U.S.C. Section 1350 as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.15.1

Consent of Independent Registered Public Accounting Firm (MSPC)15.2

Consent of Independent Registered Public Accounting Firm (PricewaterhouseCoopers AS)15.3

Letter from MSPC regarding change of certifying accountant(1)

Incorporated by reference to Exhibit No. 4.1 in the Company's Registration Statement on Form F-1, filed December 13, 1996.(2)

Incorporated by reference to Exhibit No. 4.2 in the Company's Annual report on Form 20-F for the fiscal year ended December 31, 2005.(3)

Incorporated by reference to Exhibit No. 2 of the Company's Report on form 6-K filed September 27, 2010





49





SIGNATURES





The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.





KNIGHTSBRIDGE TANKERS LIMITED











/s/ Inger M. Klemp


Inger M. Klemp


Chief Financial Officer


Dated:  March 18, 2011





50




Index to Consolidated Financial Statements of Knightsbridge Tankers Limited




Report of Independent Registered Public Accounting Firm – PricewaterhouseCoopers AS

F-2Report of Independent Registered Public Accounting Firm – MSPC

F-3Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008

F-4Consolidated Balance Sheets as of December 31, 2010 and 2009

F-5Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008

F-6Consolidated Statements of Changes in Stockholders' Equity for the years ended

F-7December 31, 2010, 2009 and 2008Notes to Consolidated Financial Statements

F-8


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the Board of Directors and Shareholders of Knightsbridge Tankers Ltd.





In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, consolidated statements of cash flows and consolidated statements of changes in stockholders' equity present fairly, in all material respects, the financial position of Knightsbridge Tankers Ltd. and its subsidiariesat December 31, 2010 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under item 15(b) of Knightsbridge Tankers Ltd.'s Annual Report on Form 20-F. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit and the report of other auditors provide a reasonable basis for our opinions.





A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.





Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.





/s/PricewaterhouseCoopers AS





PricewaterhouseCoopers AS


Oslo


March 18, 2011


F-2


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the Board of Directors and Stockholders


Knightsbridge Tankers Limited





We have audited the accompanying consolidated balance sheets of Knightsbridge Tankers Limited and subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2009.  These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinions.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Knightsbridge Tankers Limited and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.





/s/ MSPC





MSPC


Certified Public Accountants and Advisors


A Professional Corporation


New York, New York


March 17, 2010








F-3


Knightsbridge Tankers Limited


Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008


(in thousands of $, except per share data)





2010


2009


2008Operating revenuesTime charter revenues

74,232



54,892



74,837Voyage charter revenues

15,268



12,447



8,077Bareboat charter revenues

6,397



-



-Total operating revenues

95,897



67,339



82,914Operating expensesVoyage expenses and commission

10,467



8,588



4,012Ship operating expenses

19,678



18,829



14,535Administrative expenses

3,018



1,823



1,538Depreciation

19,567



14,343



13,711Total operating expenses

52,730



43,583



33,796Net operating income

43,167



23,756



49,118Other income (expenses)Interest income

54



123



2,336Interest expense

(3,940
)


(1,895
)


(3,216
)Other financial items

(724
)


(304
)


(184
)Net other expenses

(4,610
)


(2,076
)


(1,064
)Net income

38,557



21,680



48,054Per share information:Earnings per share: basic and diluted

Cash dividends per share declared

$2.02 $1.70



$1.27 $0.25



$2.81 $2.75







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










F-4


Knightsbridge Tankers Limited


Consolidated Balance Sheets as of December 31, 2010 and 2009


(in thousands of $)





2010


2009ASSETSCurrent assetsCash and cash equivalents

56,771



7,964Restricted cash

15,000



10,000Trade accounts receivable, net

2,008



4,437Related party receivables

69



-Other receivables

1,189



662Inventories

1,492



3,167Voyage in progress

-



2,679Prepaid expenses and accrued income

1,399



418Total current assets

77,928



29,327Vessels, net

459,032



344,399Deferred charges

2,629



1,220Other long term assets

2,364



-Total assets

541,953



374,946LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesCurrent portion of long-term debt

3,600



13,960Trade accounts payable

3,867



3,664Accrued expenses

3,514



6,841Other current liabilities

1,331



4,251Total current liabilities

12,312



28,716Long-term liabilitiesLong-term debt

153,740



106,520Total liabilities

166,052



135,236Commitments and contingenciesStockholders' equityShare capital (24,425,699 shares outstanding, par value $0.01, 2009: 17,100,000)

244



171Additional paid in capital

131,026



-Contributed capital surplus

179,019



179,019Retained earnings

65,612



60,520Total stockholders' equity

375,901



239,710Total liabilities and stockholders' equity

541,953



374,946








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


F-5


Knightsbridge Tankers Limited


Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008


(in thousands of $)







2010


2009


2008Net income


38,557



21,680



48,054Adjustments to reconcile net income to net cash provided by operating activities:Depreciation


19,567



14,344



13,712Amortization


652



188



148Other, net


152



-



-Changes in operating assets and liabilities:Trade accounts receivable, net


2,428



(1,692
)


2,097Related party receivables


(69
)


-



-Other receivables


(527
)


(215
)


5,389Inventories


1,675



(1,945
)


2,702Voyages in progress


2,679



(2,679
)


-Prepaid expenses and accrued income


(197
)


59



133Trade accounts payable


202



(1,761
)


1,201Accrued expenses


(2,522
)


4,741



(3,749
)Other current liabilities


(126
)


1,842



-Net cash provided by operating activities


62,471



34,562



69,687Investing activitiesChanges in restricted cash


(5,000
)


-



-Additions to newbuildings


(3,600
)


(116,475
)


(17,847
)Purchase of  vessels


(94,000
)


-



-Net cash used in investing activities


(102,600
)


(116,475
)


(17,847
)Financing activitiesProceeds from long-term debt


205,740



60,000



-Repayment of long-term debt


(168,880
)


(42,560
)


(8,960
)Debt fees paid


(2,061
)


(1,286
)


-Net proceeds from share issuance


87,602



-



-Dividends paid


(33,465
)


(4,275
)


(47,025
)Net cash provided by (used in) financing activities


88,936



11,879



(55,985
)Net increase (decrease) in cash and cash equivalents


48,807



(70,034
)


(4,145
)Cash and cash equivalents at beginning of year


7,964



77,998



82,143Cash and cash equivalents at end of year


56,771



7,964



77,998Supplemental disclosure of cash flow information:Interest paid, net of capitalized interest


3,598



1,364



3,219


Significant Investing and Financing Activities





In July and October 2010, the Company purchased two 2010-built Capesize dry bulk carriers, Golden Future and Golden Zhejiang, from Golden Ocean. Golden Future was purchased for $47.0 million in cash and 1,464,515 shares worth $25.0 million. Golden Zhejiang was purchased for $47.0 million in cash and 973,684 shares worth $18.5 million.





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


F-6


Knightsbridge Tankers Limited


Consolidated Statements of Changes in Stockholders' Equity for the years ended


December 31, 2010, 2009 and 2008


(in thousands of $, except number of shares)





2010


2009


2008NUMBER OF SHARES OUTSTANDINGBalance at beginning of year

17,100,000



17,100,000



17,100,000Shares issued

7,325,699



-



-Balance at end of year

24,425,699



17,100,100



17,100,100SHARE CAPITALBalance at beginning of year

171



171



171Shares issued

73



-



-Balance at end of year

244



171



171ADDITIONAL PAID IN CAPITALBalance at beginning of year

-



-



-Shares issued

131,026



-



-Balance at end of year

131,026



-



-CONTRIBUTED CAPITAL SURPLUSBalance at beginning and end of year

179,019



179,019



179,019RETAINED EARNINGSBalance at beginning of year

60,520



43,115



42,086Net income

38,557



21,680



48,054Dividends paid

(33,465
)


(4,275
)


(47,025
)Balance at end of year

65,612



60,520



43,115Total Stockholders' Equity

375,901



239,710



222,305





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


F-7


Knightsbridge Tankers Limited


Notes to Consolidated Financial Statements








1. DESCRIPTION OF BUSINESS





Knightsbridge Tankers Limited (the "Company") was incorporated in Bermuda in September 1996. The Company was originally founded for the purpose of the acquisition, disposition, ownership, leasing and chartering of five very large crude carriers, or VLCCs and certain related activities. The Company has subsequently expanded its scope of activities and has taken delivery of two Capesize newbuilding dry bulk vessels in 2009 and purchased two 2010-built Capesize drybulk vessels in 2010. The Company's shares are listed on the NASDAQ Global Select Market.





The business of the Company is managed by ICB Shipping (Bermuda) Limited (the "General Manager"), a wholly-owned subsidiary of Frontline Ltd. and Golden Ocean Management (Bermuda) Limited, a wholly-owned subsidiary of Golden Ocean Group Limited (the "Drybulk Commercial Manager").





In December 2007, one vessel was sold with delivery taking place during February 2008. Two VLCCs are on time charters that commenced in 2007 with initial terms of four and five years respectively, each earning a rate of $37,750 per day plus a market-based profit sharing payment computed as 50% of the difference between the related spot market index rate and the base rate. Two VLCCs are on bareboat charters at a daily time charter equivalent rate of $32,000 per day. One is 2.5 year bareboat charter (charterer has the option to extend for a further 2.5 years) and the other is a five year bareboat charter. The Company's two Capesize newbuilding dry bulk carriers commenced five year time charters upon their deliveries in August 2009 and October 2009 earning rates of $40,000 and $52,670 per day gross, respectively, less 1.25% commission. The two 2010-built Capesize drybulk vessels were purchased with existing time charters. One Capesize vessel is on a minimum 2.5 year time charter at a rate of $31,500 per day less 6.25% commission and the other is on a four year time charter at $29,900 per day less 6.25% commission.





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Basis of presentation


The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the assets and liabilities of Knightsbridge Tankers Limited and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.





The preparation of financial statements in accordance with generally accepted accounting principles requires that management make estimates and assumptions affecting 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.





Effective July 1, 2009, the Company effected a change in estimate related to the estimated scrap rate for its VLCC vessels from $149 per lightweight ton to $281 per lightweight ton. The resulting increase in salvage value has been applied prospectively and reduced depreciation by $1.0 million for the year ended December 31, 2009. This change also resulted in an increase in net income of $1.0 million and an increase of $0.06 in earnings per share for the year ended December 31, 2009.





Reporting currency


The functional currency of the Company and all of its subsidiaries is the United States dollar as all revenues are received in United States dollars and a majority of the Company's expenditures are made in United States dollars. The Company and its subsidiaries report in United States dollars.





Foreign currency


Transactions in foreign currencies during the year are translated into United States dollars at the rates of exchange in effect at the date of the transaction. Foreign currency monetary assets and liabilities are translated using rates of exchange at the balance sheet date. Foreign currency non-monetary assets and liabilities are translated using historical rates of exchange. Foreign currency transaction gains or losses are included in the consolidated statements of operations.





Revenue and expense recognition


Revenues and expenses are recognized on the accruals basis. Revenues are generated from freight billings, time charter and bareboat charter hires. Voyage revenues and expenses are recognized ratably over the estimated length of each voyage and, therefore, are allocated between reporting periods based on the relative transit time in each period. The impact of recognizing voyage expenses ratably over the length of each voyage is not materially different on a quarterly and annual basis from a method of recognizing such costs as incurred. Probable losses on voyages are provided for in full at the time such losses can be estimated. Time charter and bareboat charter revenues are recorded over the term of the charter as a service is provided. The Company uses a discharge-to-discharge basis in determining percentage of completion for all spot voyages and voyages servicing contracts of affreightment whereby it recognizes revenue ratably from when product is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage. However, the Company does not recognize revenue if a charter has not been contractually committed to by a customer and the Company, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.


F-8





Amounts receivable from profit sharing arrangements are accrued based on the time charter equivalent rates achieved through vessel deployment over the preceding quarter in the market for certain key routes and are not contingent on the performance of the Company. This amount is calculated and accounted for on a quarterly basis and is received on a quarterly basis. Each quarterly settlement is final and does not get carried forward to the next quarter. There is no consideration of future performance in the recording of profit sharing revenue.





Leases


The current charters for the Company's eight vessels are classified as operating leases by the Company.





Cash and cash equivalents


All demand and time deposits and highly liquid, low risk investments with maturities of three months or less at the date of purchase are considered equivalent to cash.





Restricted cash


Restricted cash consists of bank deposits maintained in accordance with contractual loan arrangements.





Trade accounts receivable


Trade and other receivables are presented net of allowances for doubtful balances. If amounts become uncollectible, they are charged against income when that determination is made.





Inventories
 Inventories, which are comprised principally of fuel and lubricating oils, are stated at the lower of cost and market value. Cost is determined on a first-in, first-out basis.





Vessels and depreciation


Vessels are stated at cost less accumulated deprecation. Depreciation is calculated based on cost less estimated residual value, using the straight-line method, over the useful life of each vessel. The useful life of each vessel is deemed to be 25 years.





On July 1, 2009, the Company effected a change in estimate related to the estimated scrap rate for its four VLCCs. The scrap rate was amended from an average of $149 per lightweight ton to $281 per lightweight ton. The resulting change in salvage value has been applied prospectively and reduced depreciation by approximately $1.0 million for the six months and year ended December 31, 2009. This change also resulted in an increase in net income of approximately $1.0 million for the six months and year ended December 31, 2009.





Deferred charges


Loan costs, including debt arrangement fees, are capitalized and amortized on a straight-line basis over the term of the relevant loan. The straight line basis of amortization approximates the effective interest method in the Company's consolidated statement of operations. Amortization of loan costs is included in interest expense.  If a loan is repaid early, any unamortized portion of the related deferred charges is charged against income in the period in which the loan is repaid.





Earnings per share


Earnings per share are based on the weighted average number of common shares outstanding for the period presented.  There were no potentially dilutive securities outstanding during 2008 and 2009. Restricted stock units, which were granted on December 29, 2010, do not have a dilutive effect in 2010.





Impairment of long-lived assets


Long-lived assets that are held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The company assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposal. If the future net undiscounted cash flows are less then the carrying value of the asset, an impairment charge is recognized based on the difference between carrying value and fair value. Fair value is typically established using an average of three independent valuations. In addition, long-lived assets to be disposed of by sale are reported at the lower of their carrying amount or fair value less estimated costs to sell.





Distributions to shareholders


Distributions to shareholders are applied first to retained earnings. When retained earnings are not sufficient, distributions are applied to the contributed capital surplus account.





Drydocking


Normal vessel repair and maintenance costs are expensed when incurred. The Company recognizes the cost of a drydocking at the time the drydocking takes place, that is, it applies the "expense as incurred" method.





Stock-based compensation


The Company accounts for share based payments in accordance with ASC 718. Accordingly, the Company expenses the fair value of restricted stock units issued to directors and management companies over the period in which the options vest.


F-9


3.  NEWLY ISSUED ACCOUNTING STANDARDS





In January 2010, the FASB issued authoritative guidance that changes the disclosure requirements for fair value measurements.  Specifically, the changes require a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. The changes also clarify existing disclosure requirements related to how assets and liabilities should be grouped by class and valuation techniques used for recurring and nonrecurring fair value measurements. We adopted the guidance in the first quarter 2010, which did not have an impact on our consolidated financial statements.




In January 2010 the FASB issued authoritative guidance in order to eliminate diversity in the way different companies reflect new shares issued as part of a distribution in their calculation of earnings per share. The provisions of this new guidance are effective on a retrospective basis and their adoption had no impact on the Company's reported earnings per share.





In February 2010, the FASB amended guidance on subsequent events to alleviate potential conflicts between FASB guidance and SEC requirements. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and we adopted these new requirements in the first quarter 2010. The adoption of this guidance did not have an impact on our financial statements




In July 2010, the FASB issued authoritative guidance which requires expanded disclosures about the credit quality of an entity's financing receivables and its allowance for credit losses on a disaggregated basis. The adoption of this guidance by the Company with effect from 1 January 2010 did not have any effect on its consolidated financial statements.




4. TAXATION





The Company is incorporated in Bermuda. Under current Bermuda law, the Company is not required to pay taxes in Bermuda on either income or capital gains. The Company has received written assurance from the Minister of Finance in Bermuda that, in the event of any such taxes being imposed, the Company will be exempted from taxation until the year 2016. Based upon review of applicable laws and regulations, and after consultation with counsel, the Company does not believe it is subject to material income taxes in any jurisdiction.





5. SEGMENT INFORMATION





The Company and the chief operating decision maker ("CODM") measure performance based on the Company's overall return to shareholders based on consolidated net income. The CODM does not review a measure of operating result at a lower level than the consolidated group. Consequently, the Company has only one reportable segment: tankers.  The tankers segment includes crude oil tanker vessels and dry bulk vessels. Both types of vessel are managed as part of this one segment.




The Company's vessels operate worldwide and therefore management does not evaluate performance by geographical region as this information is not meaningful.




The Company has been operating in two markets since 2009. We operate in the tanker and drybulk carrier markets as an international provider of seaborne transportation of crude oil and drybulk cargoes. An analysis of revenues from these services is as follows:





(in thousands of $)

2010


2009


2008Total operating revenues – tanker market


55,072



58,860



82,914Total operating revenues – drybulk carrier market


40,825



8,479



-





In 2010, three customers accounted for $61.7 million or 64% of gross revenue, whilst in 2009 two customers accounted for $45.0 million or 67% of gross revenue. In 2008, three customers accounted for $74.8 million or 91% of gross revenues. Customers with revenues of more than 10% of the total revenue earned in 2010, 2009 and 2008 are listed below.





(in thousands of  $)

2010


2009


2008Frontline Ltd.


28,041



28,563



47,162Shagang Shipping Company Ltd


19,084



-



-Sanko Steamship Company Ltd


14,616



-



-Great Elephant Corporation


-



16,425



16,363Malaysia International Shipping Corporation


-



-



11,31261,741



44,988



74,837





6. EARNINGS PER SHARE





The computation of basic and diluted earnings per share is based on net income and the weighted average number of shares outstanding during the year of 19,120,285, 17,100,000 and 17,100,000 for the year ended December 31, 2010, 2009 and 2008, respectively. Restricted stock units, which were granted on December 29, 2010 do not have a dilutive effect in 2010.


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7.   LEASES





The minimum future revenues to be received on time charter and bareboat charters, which are accounted for as operating leases as of December 31, 2010 are as follows:





Year ending December 31,(in thousands of $)2011


90,2072012


73,5982013


51,7812014


39,8752015


5,220Thereafter


-Total minimum lease revenues


260,681





As of December 31, 2010, all of the Company's vessels are leased out to third parties on time and bareboat charters for intial periods ranging from 2.5 to 5 years. All the vessels are leased out on operating leases.





The cost and accumulated depreciation of vessels leased to third parties at December 31, 2010 was $657.9 million and $198.9 million, respectively, and at December 31, 2009 were $523.7 million and $179.3 million, respectively.





8. TRADE ACCOUNTS RECEIVABLE, NET





Trade accounts receivable are presented net of allowance for doubtful accounts amounting to $0.2 million (2009: $0.2 million).





9. VESSELS





(in thousands of $)

2010


2009Cost


657,890



523,689Accumulated depreciation


(198,858
)


(179,290
)459,032



344,399





During 2010, the Company purchased two 2010-built Capesize dry bulk carriers with existing time charters at a cost of $134.2 million.





Depreciation expense was $19.6 million, $14.3 million and $13.7 million for the years ended December 31, 2010, 2009 and 2008, respectively.





10. DEFERRED CHARGES





(in thousands of $)

2010


2009Capitalized financing fees and expenses


3,335



1,655Accumulated amortization


(706
)


(435
)2,629



1,220





Debt arrangement fees of $2.1 million were capitalized during the year. In addition, fully amortized costs of $0.4 million were removed from cost and accumulated amortization.





11. OTHER LONG TERM ASSETS





Other long term assets at December 31, 2010 represents the unamortized portion of the time charter taken over upon the acquisition of the Golden Zhejiang, which is being amortized over the period of the time charter on a straight line basis. An amount of $0.8 million is included in Prepaid Expenses and Accrued Income in this respect.





12. ACCRUED EXPENSES





(in thousands of $)

2010


2009Voyage expenses


584



2,889Ship operating expenses


1,916



1,304Administrative expenses


515



2,293Interest expense


499



3553,514



6,841






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13. OTHER CURRENT LIABILITIES


(in thousands of $)

2010


2009Charterhire received in advance


1,331



1,457Newbuilding accrual


-



2,7941,331



4,251





14. DEBT





(in thousands of $)

2010


2009U.S. dollar denominated floating rate debt:-$140 Million Loan


-



60,480-$58.24 Million Loan


57,340



--$60 Million Loan


-



60,000-$175 Million Loan


100,000



-Total debt


157,340



120,480Less: current portion


(3,600
)


(13,960
)153,740



106,520





The average interest rate for the floating rate debt was 2.68% for the year ended December 31, 2010 and 2.41% for the year ended December 31, 2009.





$140 Million Loan


In March 2004, the Company refinanced a prior debt facility with a $140.0 million credit facility in the form of five tranches of $28.0 million, each in respect to a VLCC in the fleet at the time (including all VLCC vessels in the current fleet). One tranche was repaid upon the sale of the related vessel in 2007. The credit facility was secured by, among other things, a mortgage on each VLCC and an assignment of any charter in respect to that VLCC. The repayment terms of the facility were seven years. The credit facility bore interest at LIBOR plus a margin was repaid in July 2010.





$60 Million Loan


In August 2009, the Company entered into a four year term loan facility agreement consisting of two tranches of $30.0 million each. In August 2009, the Company drew down $30.0 million and in October 2009, the Company drew down the second tranche of $30.0 million. The loans were secured by, among other things, a mortgage on two Capesize vessels and an assignment of any charters in respect to those vessels. The $60 Million Loan bore interest at LIBOR plus a margin and was repaid in December 2010.





$105 Million Loan ($60 Million Loan extension)


In July 2010, the $60 Million Loan was extended to $105 million. The Company drew down $47.5 million which was repaid in December 2010.





$58.24 Million Loan


In July 2010, the Company entered into a $58.24 million credit facility consisting of four tranches of $14.56 million each in respect of the VLCC vessels in the fleet. The loan is repayable in June 2015. As of December 31, 2010, the outstanding balance was $57.34 million. The loan bears interest at LIBOR plus a margin.





$175 Million Loan


In December 2010, the Company refinanced the $105 million loan facility and entered into a $175 million credit facility consisting of four tranches of $25.0 million each in respect of the Capesize vessels and a revolving debt facility of $75 million. The loan is repayable in May 2015. As of December 31, 2010, the outstanding balance was $100.0 million. The loan bears interest at LIBOR plus a margin.





Certain of the Company's loan agreements contain loan-to-value clauses, which could require the Company, at its option, to post additional collateral or prepay a portion of the outstanding borrowings should the value of the vessels securing borrowings under each of such agreements decrease below required levels. In addition, the loan agreements include certain financial covenants including the requirement to maintain a certain level of free cash and failure to comply with any of the covenants in the loan agreements could result in a default under those agreements and under other agreements containing cross-default provisions. The Company was in compliance with all of the financial covenants contained in the Company's loan agreements as of December 31, 2010.





The outstanding debt as of December 31, 2010 is repayable as follows:





(in thousands of $)Year ending December 31,2011


3,6002012


3,6002013


3,6002014


3,600Thereafter


142,940Total debt


157,340





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15.  SHARE CAPITAL





Authorized share capital:


(in thousands of $)

2010


200935,000,000 ordinary shares of $0.01 each


350



350





Issued and fully paid share capital:


(in thousands of $)

2010


2009At January 1


171



171Issued during the year


73



-At December 31


244



171





In July 2010, 1,464,515 shares were issued to Golden Ocean Group Limited ("Golden Ocean") at $17.07 per share as part of the purchase consideration for the 2010-built Capesize dry bulk carrier, Golden Future. In October 2010, the Company issued 4,887,500 new shares at $19.00 through a public offering and issued 973,684 shares to Golden Ocean at $19.00 per share as part of the purchase consideration for the 2010-built Capesize dry bulk carrier, Golden Zhejiang.





The Company's ordinary shares are listed on the NASDAQ Global Select Market.





16. RESTRICTED STOCK UNITS





In September 2010, the Board of Directors approved the adoption of an Equity Incentive Plan (the "Plan") and reserved 800,000 common shares of the Company for issuance pursuant to the Plan. The Plan permits restricted stock units ("RSUs") to be granted to directors, officers, employees of the Company and its subsidiaries, affiliates, consultants and service providers. The RSUs will vest over three years at a rate of 1/3 of the number of RSUs granted on each yearly anniversary of the date of grant, subject to the participant continuing to provide services to the Company from the grant date through the applicable vesting date.





On December 29, 2010, a total of 29,571 RSUs were issued to directors of the Company and a total of 29,572 RSUs were issued to the General Manager and Drybulk Commercial Manager. The share price on the date of issue was $22.23 per share. The stock compensation charge in 2010 is immaterial.





17. FINANCIAL INSTRUMENTS





Interest rate risk management


In certain situations, the Company may enter into financial instruments to reduce the risk associated with fluctuations in interest rates. The Company does not hold or issue instruments for speculative or trading purposes. As at December 31, 2010, the Company is not party to any interest rate swaps to hedge interest rate exposure.





Foreign currency risk


The majority of the Company's transactions, assets and liabilities are denominated in United States dollars, the functional currency of the Company. There is no significant risk that currency fluctuations will have a negative effect of the value of the Company's cash flows.





Fair values


The carrying value and estimated fair value of the Company's financial instruments at December 31, 2010 and 2009 are as follows:





2010


2010


2009


2009(in thousands of $)

Fair

Value


Carrying

Value


Fair

Value


Carrying

ValueCash and cash equivalents


56,771



56,771



7,964



7,964Restricted cash


15,000



15,000



10,000



10,000Floating rate debt


157,340



157,340



120,480



120,480





The carrying value of cash and cash equivalents, and restricted cash, is a reasonable estimate of fair value.





The estimated fair value for floating rate long-term debt is considered to be equal to the carrying value since it bears variable interest rates, which are reset on a quarterly basis.





Concentrations of risk


There is a concentration of credit risk with respect to cash and cash equivalents to the extent that substantially all of the amounts are carried with Skandinaviska Enskilda Banken, The Royal Bank of Scotland plc, DnB NOR and Nordea Bank Norge ASA. The Company does not require collateral or other security to support financial instruments subject to credit risk.






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18. RELATED PARTY TRANSACTIONS


In July and October 2010, the Company purchased two 2010-built Capesize dry bulk carriers, Golden Future and Golden Zhejiang, from Golden Ocean. Golden Future was purchased for $47.0 million in cash and 1,464,515 shares with a value of $25.0 million. Golden Zhejiang was purchased for $47.0 million in cash and 973,684 shares with a value of $18.5 million. Both vessels were acquired with an existing time charter and $3.3 million of the purchase price for the Golden Zhejiang has been attributed to the value of the time charter.





Management fees of $0.5 million, which represents a commission of 1.25% of gross freight earned by the drybulk carriers,  were invoiced by Golden Ocean, and paid by the Company, during 2010. At December 31, 2010, $69,000 was due from Golden Ocean. On December 29, 2010, 14,786 RSUs were issued to Golden Ocean Management (Bermuda) Limited, a wholly-owned subsidiary of Golden Ocean.





19. MANAGEMENT OF COMPANY





On February 12, 1997, the Company entered into a management agreement with the General Manager under which the General Manager provided certain administrative, management and advisory services to the Company for an amount of $750,000 per year. Effective February 2004, the Company entered into an amendment to the agreement with the General Manager. The management fee was amended to $630,000 per year, in addition to a commission of 1.25% on gross freight revenues. Pursuant to the terms of the amendment, the Company became responsible for paying its own administrative expenses. In February 2006, the management fee was increased to $1,150,000 per annum. On August 12, 2010, the Company entered into an Amended and Restated Management Agreement, which increased the management fee to $2,315,000 per annum effective January 1, 2010.





On June 25, 2010, the Company entered into a commercial management agreement with the Drybulk Commercial Manager, under which the Drybulk Commercial Manager provides administrative and commercial expertise relating to the Company's dry bulk vessels. The Drybulk Commercial Manager will receive 1.25% on gross freight revenues earned by the dry bulk vessels.





20. COMMITMENTS AND CONTINGENCIES





The General Manager insures the legal liability risks for the Company's shipping activities with Assuranceforeningen SKULD, Assuranceforeningen Gard Gjensidig and Britannia Steam Ship Insurance Association Limited, all mutual protection and indemnity associations. The Company is subject to calls payable to the associations based on the Company's claims record in addition to the claims records of all other members of the associations. A contingent liability exists to the extent that the claims records of the members of the associations in the aggregate show significant deterioration, which result in additional calls on the members.





21. SUBSEQUENT EVENTS





In February 2011, the Board declared a dividend of $0.50 per share which was paid on March 3, 2011.











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