UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-K




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




For
the fiscal year ended December 31, 2009




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




For
the transition period
from           to




Commission
File Number 000-53656







III to
I Maritime Partners Cayman I, L.P.


(Exact
name of registrant as specified in its charter)




Cayman
      Islands
                  
                  98-0516465(State
      or other jurisdiction of
                    incorporation
      or organization)
                  
                  (I.R.S.
      Employer
                    Identification
      No.)5580
      Peterson Lane
                    Suite
      155
                    Dallas,
      Texas
                  
                  75240(Address
      of principal executive offices)
                  
                  (Zip
      Code)




(972)
392-5400


(Registrant’s
telephone number, including area code)







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





Title
      of each class
                    To
      be so registered
                  Name
      of each exchange on which
                    each
      class is to be registeredNone
                  None





Securities
registered pursuant to Section 12(g) of the Act:





Class
      A Limited Partner Units(Title
      of Class)




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes   ̈    No  x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past
90 days.    Yes  x    No   ̈




Indicate
by check mark 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  ̈     No   ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act).


Large
      accelerated filer   ̈
            Accelerated
      filer   ̈Non-accelerated
      filer   ̈
            Smaller
      reporting company  x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).    Yes   ̈    No  x




No market
currently exists for the limited and general partnership interests of the
registrant.




Documents
incorporated by reference: None.












III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES




INDEX




Page
                      NumberForward-Looking
      Statements
                    
                    3Part
      IItem
      1.
                    
                    Business
                    
                    4Item
      1A.
                    
                    Risk
      Factors
                    
                    18Item
      2.
                    
                    Properties
                    
                    34Item
      3.
                    
                    Legal
      Proceedings
                    
                    34Part
      IIItem
      5.
                    
                    Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                    
                    34Item
      7.
                    
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    
                    36Item
      8.
                    
                    Financial
      Statements and Supplementary Data
                    
                    58Report
      of Independent Registered Public Accounting Firm
                    
                    59Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                    
                    60Consolidated
      Statements of Operations for years ended December 31, 2009 and
      2008
                    
                    61Consolidated
      Statements of Partners’ Equity for the years ended December 31, 2009 and
      2008
                    
                    62Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008
                    
                    63Consolidated
      Statements of Comprehensive Income (Loss) for the years ended December 31,
      2009 and 2008
                    
                    64Notes
      to Consolidated Financial Statements
                    
                    65Item
      9.
                    
                    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                    
                    87Item
      9A(T).
                    
                    Controls
      and Procedures
                    
                    87Item
      9B.
                    
                    Other
      Information
                    
                    87Part
      IIIItem
      10.
                    
                    Directors,
      Executive Officers and Corporate Governance
                    
                    87Item
      11.
                    
                    Executive
      Compensation
                    
                    88Item
      12.
                    
                    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                    
                    90Item
      13.
                    
                    Certain
      Relationships and Related Transactions, and Director
      Independence
                    
                    91Item
      14.
                    
                    Principal
      Accounting Fees and Services
                    
                    96Part
      IVItem
      15.
                    
                    Exhibits,
      Financial Statement Schedules
                    
                    96


2





Forward-Looking
Statements





Certain
statements contained or incorporated by reference in this Form 10-K including
without limitation statements containing the words “believe,” “anticipate,”
“attainable,” “forecast,” “will,” “may,” “expect(ation),” “envision,” “project,”
“budget,” “objective,” “goal,” “target(ing),” “estimate,” “could,” “should,”
“would,” “conceivable,” “intend,” “possible,” “prospects,” “foresee,” “look(ing)
for,” “look to,” and words of similar import, are forward-looking statements
within the meaning of the federal securities laws.  Forward-looking
statements appear in a number of places and include statements with respect to,
among other things:





·
            forecasts
      about our ability to make cash distributions on the
  units;


·
            planned
      capital expenditures and availability of capital resources to fund capital
      expenditures;


·
            future
      supply of, and demand for, products that will be shipped, supplied or
      otherwise supported by our vessels;


·
            expected
      demand in the maritime shipping industry in general and for our vessels in
      particular;


·
            our
      ability to maximize the use of our
vessels;


·
            expected
      delivery of the anchor handling tug supply ships and the chemical
      tanker;


·
            estimated
      future maintenance capital
expenditures;


·
            the
      absence of future disputes or other
  disturbances;


·
            increasing
      emphasis on environmental and safety
concerns;


·
            our
      future financial condition or results of operations and our future
      revenues and expenses;


·
            our
      business strategy and other plans and objectives for future
      operations;


·
            any
      statements contained herein that are not statements of historical
      fact.





These
statements are not guarantees of future performance and involve a number of
risks, uncertainties and assumptions.  Accordingly, our actual results or
performance may differ significantly, positively or negatively, from
forward-looking statements.  Unanticipated events and circumstances are
likely to occur.  Important factors that could cause our actual results of
operations or financial condition to differ include, but are not limited
to:





·
            inability
      to raise sufficient debt or equity capital to secure delivery of the
      remaining vessels for which we are obligated or intend to purchase and to
      provide capital for operations;


·
            fluctuations
      in charter rates;


·
            insufficient
      cash from operations;


·
            a
      decline in the demand for petroleum products or other products shipped,
      supplied or otherwise supported by our
vessels;


·
            intense
      competition in the anchor handling tug supply ship, multipurpose bulk
      carrier or chemical tanker
industries;


·
            the
      occurrence of marine accidents or other
hazards;


·
            fluctuations
      in currency exchange rates and/or interest
  rates;


·
            delays
      or cost overruns in the construction of new
  vessels;


·
            changes
      in international trade agreements;


·
            adverse
      developments in the marine transportation business;
  and


·
            other
      financial, operational and legal risks and uncertainties detailed from
      time to time in our Securities and Exchange Commission filings, including
      those set forth in this Form 10-K under Item 1A. Risk
    Factors.





All
forward-looking statements included in this Form 10-K and all subsequent written
or oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by these cautionary
statements.  The forward-looking statements speak only as of the date made
and, other than as required by law, we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.


3


PART
I




Item
1.  Business





In
accordance with the Securities and Exchange Commission’s (“SEC”) “Plain English”
guidelines, this Annual Report on Form 10-K (this “Form 10-K”) has been written
in the first person.  In this document, the words “we,” “our,” “ours” and
“us” refer only to III to I Maritime Partners Cayman I, L.P. and its
consolidated subsidiaries or to III to I Maritime Partners Cayman I, L.P. or an
individual subsidiary and not to any other person.





Our
functional currency is the U.S. dollar (“USD”).  However, the functional
currency of many of our subsidiaries is the Euro (“EUR”).  All amounts are
stated in USD, and where the amount relates to a subsidiary whose functional
currency is the Euro, the amount has been restated in EUR following the USD
amount.  Amounts related to future payments which are payable in EUR have
been stated in USD and translated using the exchange rate as of
December 31, 2009.  Amounts shown in narrative statements related to
payments made in the past have been translated using the exchange rate on the
date the transaction occurred.  When comparisons are made between balance
sheet dates, the appropriate exchange rate for the given balance sheet date is
used.  When comparisons are made related to income statement amounts, the
average exchange rate for the given period is used.





Company
Overview





We own
and operate maritime vessels.  Our primary focus is on anchor-handling tug
supply (“AHTS”) vessels, but we also purchased a non-controlling interest in two
multipurpose bulk carrier vessels (“mini-bulkers”) and have entered into an
agreement to purchase a chemical tanker.  We are also authorized to engage
in other activities if III to I International Maritime Solutions Cayman Inc., a
Cayman Islands corporation (“General Partner”), believes such activities will
benefit our core business of shipping operations.





We were
formed on October 18, 2006 and, to date, have had limited operating revenues and
operating history.  Previously, we had devoted substantially all our
efforts to financial planning, raising capital, debt financing, management
oversight of ship construction and preparation for the operation and chartering
of the ships being constructed.  As of December 31, 2009, delivery of three
of our AHTS vessels had occurred from the shipyard, Fincantieri Cantieri Navali
Italiani SpA (“Fincantieri”) in Italy, and we had contracts to purchase six
additional new AHTS vessels currently under construction by Fincantieri. 
Delivery of our first three AHTS vessels, UOS Atlantis, UOS Challenger and UOS
Columbia, occurred on February 27, 2009, May 28, 2009 and October 5, 2009,
respectively, with the AHTS vessels immediately placed in service.  With
these vessels delivered and operating under charters, our operations have begun
to shift focus from development stage to vessel operations, therefore we are no
longer a development stage company as defined by the topic Development Stage Entities of
Financial Accounting Standards Board Accounting Standards Codification (“FASB
ASC”), FASB ASC 915.  Since December 31, 2009, we have taken delivery
of three additional AHTS vessels, for which we are currently seeking
charters.  Because of our limited operating history, we have retained
experienced management companies to manage the operations of our
vessels.





Principal
Offices


Our
principal corporate offices are located at 5580 Peterson Lane, Suite 155,
Dallas, Texas 75240.  Our telephone number is 972-392-5400.





SEC
Reporting


We file
annual, quarterly and current reports and other materials with the SEC. 
You may read and copy any materials we file with the SEC at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, DC 20549.  You may obtain
information regarding the Public Reference Room by calling the SEC at
1-800-SEC-0330.  In addition, the SEC maintains a website at www.sec.gov
that contains reports and other information regarding issuers that file
electronically with the SEC.





We also
provide electronic access to our periodic and current reports on our website,
www.3to1IMS.com.  These reports are available on our website as soon as
reasonably practicable after we electronically file such materials with, or
furnish them to, the SEC.  The information contained on our website or any
other website is not incorporated by reference into this Form 10-K and does not
constitute a part of this report.  A copy of this Form 10-K will be
provided without charge upon written request to Investor Relations at the above
address.


4





We first
exceeded 500 Class A limited partners on July 30, 2008, and because we had more
than 500 Class A limited partners as of December 31, 2008, we were required to
register our Class A Units with the SEC pursuant to the provisions of Section
12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”).  The
sale by our Class A limited partners of our Class A Units is restricted pursuant
to the terms of our Partnership Agreement, and there is currently no public
market for such Class A Units nor is it anticipated that such a market will
develop.  We are authorized to issue Class A, Class B, Class C and Class D
limited partner units as well as general partner units.  To date we have
issued Class A, Class B and Class D limited partner units and general partner
units.





Formation
History


We were
formed in October 2006 as an exempted limited partnership under the laws of the
Cayman Islands, with III to I International Maritime Solutions Cayman, Inc., a
company limited by shares formed under the laws of the Cayman Islands, serving
as our general partner.  Under the law of the Cayman Islands, the reference
to “limited by shares” means that the liability of shareholders in our general
partner is limited to the amount, if any, unpaid on their shares.  This
unpaid amount can be called upon at any time, but the member cannot be obliged
to contribute any more than that amount.  Our general partner has just one
shareholder, who has met its liability amount in full.





Initially,
we owned approximately 96% of the units of I-A Suresh Capital Maritime Partners
Limited, a limited liability company formed under the laws of Cyprus (our
“Cyprus Subsidiary”).  On April 28, 2009, we underwent a reorganization in
order to simplify our ownership structure, streamline the calculation of
allocations and distributions by incorporating economic rights in our
Partnership Agreement that formerly resided in the organizational documents of
our Cyprus Subsidiary and to simplify the financial statements by eliminating
the non-controlling interest component related to the Cyprus Subsidiary. 
Pursuant to the reorganization, one of the non-controlling unitholders in our
Cyprus Subsidiary contributed its units in the Cyprus Subsidiary for our newly
created Class D units.  Our general partner, the other non-controlling
unitholder, contributed its units in the Cyprus Subsidiary in exchange for the
contribution by the other unitholder and the adoption of the Second Amended and
Restated Agreement of Limited Partnership.  Pursuant to our current
Partnership Agreement and the equity contribution agreement, the parties agreed
to treat the contribution and issuance of the Class D units as effective on
April 1, 2009.  As a result of the reorganization, we now own 100% of our
Cyprus Subsidiary.  Please note that, in an effort to utilize terminology
consistent with that used for domestic limited liability companies, we have used
the terms “units” and “unitholders” above for purposes of describing the equity
interests and equity holders, respectively, in connection with our Cyprus
Subsidiary.  However, unlike a domestic limited liability company, for
purposes of describing the equity interests and holders thereof in a Cyprus
limited liability company, the respective use of the terms “shares” and
“shareholders” is consistent with Cyprus law, and we have used the terms
“shares” and “shareholders” in all relevant documentation when necessary to
describe the respective equity interests and holders thereof of our Cyprus
Subsidiary.





In
accordance with FASB ASC 810, Consolidation -Non-controlling Interest in a
Subsidiary, we have treated the acquisition of the non-controlling
interest in our Cyprus Subsidiary as an equity transaction, and have recorded a
decrease in the equity of the Class D unitholders and of the general partner
equal to the negative carrying value of the non-controlling interest
attributable to the acquired interests effective April 1, 2009.  The table
below reflects the carrying value of our General Partner, Class D and
non-controlling interests as of December 31, 2009 and March 31, 2009.  The
excess of the fair value of the Class D units over the negative carrying value
has also been allocated solely to the Class D limited partners, resulting in no
affect on the financial statements of such excess.


5





Class DGeneral
                                    
                                    
                                    Limited
                                    
                                    
                                    Non-controllingPartner
                                    
                                    
                                    Partners
                                    
                                    
                                    InterestBalance
      at March 31, 2009
                                    
                                    $
                                    864,290
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    17,350,044Transfer
      of non-controlling interest in Cyprus Subsidiary
                                    
                                    
                                    (48,314
                                    )
                                    
                                    
                                    (48,314
                                    )
                                    
                                    
                                    96,628Contributions,
      net of syndication costs
                                    
                                    
                                    (31,274
                                    )
                                    
                                    
                                    (3,846
                                    )
                                    
                                    
                                    8,166,398Distributions
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (71,025
                                    )Net
      loss
                                    
                                    
                                    (270,564
                                    )
                                    
                                    
                                    (53,093
                                    )
                                    
                                    
                                    (2,528,153
                                    )Forward
      currency exchange contract
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,274,808Foreign
      currency translation adjustment
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,265,750Balance
      at December 31, 2009
                                    
                                    $
                                    514,138
                                    
                                    
                                    $
                                    (105,253
                                    )
                                    
                                    $
                                    25,554,450





Suresh
Capital Maritime Partners Germany GmbH (our “German Subsidiary”), a German
limited liability company and a wholly-owned subsidiary of our Cyprus
Subsidiary, was formed for the purpose of acquiring, managing and operating our
vessels.  Through our German Subsidiary we own a 75% limited partner
interest in nine special purpose entities (each an “SPV”) with the remaining
interest owned by Reederei Hartmann GmbH & Co. KG (“Reederei Hartmann”), a
Hartmann Group company, and affiliates of Reederei Hartmann.  The Hartmann
Group is a group of affiliated entities involved in the international shipping
industry that are owned or controlled by Hartmann AG, a German corporation
headquartered in Leer, Germany.  Each of these nine SPVs is run by the
general partner, ATL Offshore GmbH (“ATL”), also a member of the Hartmann
Group.  While ATL serves as the general partner of each of these nine SPVs,
it does not own any portion of such SPVs and thus does not participate in the
results or assets of such SPVs.





We also
acquired a 49% non-controlling interest in two SPVs, each of which owns and
operates a mini-bulker, with the remaining 51% ownership held by affiliates of
each of Reederei Hesse GmbH & Co. KG (“Reederei Hesse”), whom we have
retained to manage the operations of our mini-bulkers, and the Hartmann
Group.  Each SPV is a German limited partnership, Kommanditgesellschaft,
which owns or will own one AHTS vessel or one mini-bulker, as
applicable.





Additionally,
Kronos Shipping I, Ltd (“Kronos”), our wholly-owned subsidiary, was formed
during 2008 to acquire, manage and operate the chemical tanker that we currently
have an option to purchase.  In light of the global downturn in the economy
and the resulting decrease in charter rates for chemical tankers, and product
tankers in general, we are currently re-evaluating our intentions with respect
to the chemical tanker, and believe it is unlikely that we will complete the
acquisition of the tanker unless the shipyard constructing the vessel agrees to
significant concessions, to include timing of construction installments and an
adjustment to the overall contract price.





We
previously owned three additional SPVs that each held a contract to purchase an
additional AHTS vessel.  However, these SPVs were sold to our affiliate,
FLTC Fund I, in December 2007 for their approximate carrying value. 
Additional information is included in this Form 10-K under Item 13. Certain
Relationships and Related Transactions, and Director Independence under the
caption entitled Sale of
Certain AHTS SPVs.


6





For a
chart showing the ownership structure of our subsidiaries as of March 31, 2010,
see below.











*
            See
      charts on the following page for additional detail regarding the ship
      management arrangements for the AHTS vessels and the mini-bulkers, as well
      as the ownership of the mini-bulker
SPVs.


7








8





We have
subcontracted the commercial management of our vessels by entering into ship
management agreements with Hartmann Offshore GmbH (“Hartmann Offshore”), another
Hartmann Group company, with respect to all nine of the AHTS vessels while
Reederei Hesse was retained to provide management services for our
mini-bulkers.  The commercial management of each AHTS vessel was
subcontracted by Hartmann Offshore to United Offshore Support GmbH & Co. KG,
an affiliate of Hartmann Offshore and a member of the Hartmann Group (“UOS”),
while the commercial management of the mini-bulkers was subcontracted by
Reederei Hesse to Maritime Transport + Logistik GmbH & Co. KG, a Hartmann
Group company (“MTL”).  Additionally, if we decide to purchase the chemical
tanker, we intend to retain Bernhard Schulte Shipmanagement (the “Schulte
Group”), a maritime services company, to manage the operations of the chemical
tanker.  The chemical tanker is part of a pool of tankers managed by
Bernhard Schulte (Hellas) SPLLC, the tanker division of the Schulte Group
(“Hanseatic Tankers Pool”).  The Hanseatic Tankers Pool is a group of over
20 product and chemical tankers operated in a pool to build name
recognition.  Under the ship management agreements, the applicable
management companies are responsible for coordinating all commercial and
technical management of the vessels including crewing, maintenance, repair and
dry docking.  We and the other owners of each applicable vessel are
responsible for the costs associated with the ship management agreements and
have certain approval rights for major decisions.  Under these agreements,
each applicable management company will be paid based on a percentage of net
daily earnings.





Our
vessels may be employed under a variety of contracts, including both spot market
and time charters of varying durations, voyage charters and affreightment
contracts.  We remain responsible for paying the vessel’s operating
expenses which include the cost of crewing, insuring, repairing and maintaining
the vessel and payment of broker’s commissions.  When a charter expires,
the commercial manager will assess market conditions in the industry and
determine whether to seek to re-employ the vessel under a time or spot market
charter, voyage charter or affreightment contract.





Our
Ships





Our fleet
currently consists of six AHTS vessels and two mini-bulkers.  We have
contracts to acquire three additional AHTS vessels currently under construction
and have an option to acquire a chemical tanker.  A brief description of
each type of vessel, including details of our planned fleet is provided
below.





Anchor Handling Tug Supply
Ships


An AHTS
vessel is an offshore supply and support vessel specially designed to provide
anchor handling services and tow offshore platforms, barges and production
modules or vessels.  The AHTS vessel is also used in general supply service
for all kinds of platforms, transporting both wet and dry cargo in addition to
deck cargo.





We
acquired our first three AHTS vessels in February 2009, May 2009, and October
2009, and acquired an additional AHTS vessel in February 2010 and two in March
2010, from Fincantieri Shipyards (“Fincantieri”) in Italy.  We have
contracts to purchase three additional new AHTS vessels currently under
construction by Fincantieri with delivery of the remaining three AHTS vessels
scheduled for
April2010,
although we expect delays of one to three months.  Each of these contracts
sets forth the terms of our purchase of a newly constructed AHTS vessel, and the
prices for such vessels range from $53,259,995 (EUR 37,159,000) to $61,051,414
(EUR 42,595,000) for a total commitment for all nine AHTS vessels of
$516,488,222 (EUR 360,349,000), with such prices to be paid in multiple
installments upon the completion of various construction milestones.  Each
agreement specifies a delivery date for the vessel being constructed, and
contains a liquidated damages provision typically imposing daily fees ranging
from $7,167 (EUR 5,000) to $21,500 (EUR 15,000) resulting from delivery delays
beyond the fifteen day grace period from the date specified in the contracts,
including any amendments thereto.  Each such shipbuilding contract also
sets forth the agreed-upon characteristics for the applicable ship, including
cargo capacity, speed, fuel consumption and propulsion machinery, and each
agreement contains liquidated damages provisions which specify the agreed
damages to be paid by the builder in the event the completed vessel fails to
satisfy any of such characteristics as prescribed by the shipbuilding
contract.  Our AHTS vessels will support offshore deep sea oil and gas
drilling in any of the following locations: the North Sea, Gulf of Mexico,
Mediterranean Sea, Indian Ocean, Brazil, Africa, Southeast Asia and
Australia.





9





Additionally,
each AHTS vessel SPV (“AHTS SPV”) has entered into a contract with Hartmann
Offshore, whereby Hartmann Offshore supervises and manages the technical aspects
and the construction of the vessel to be acquired by the applicable AHTS
SPV.  For each AHTS SPV, two contracts are in place during the construction
of the AHTS vessel, one of which covers the technical and commercial management
of the vessel (the “Technical Management Contracts”) and the other which covers
the supervision of the construction of the vessel, the assessment of the
builder’s adherence to the specifications and the assessment of any
modifications pertaining to the vessel (the “Construction Supervision
Contracts”).  Under the Technical Management Contracts, Hartmann Offshore
receives fees of $716,650 (EUR 500,000) payable in four equal installments, each
due at (i) the beginning of steel cutting, (ii) installation of the main
engines, (iii) launching of the vessel and (iv) delivery of the completed
vessel.  Hartmann Offshore subcontracted the commercial management duties
under the Technical Management Contracts to UOS.  Under the Construction
Supervision Contracts, Hartmann Offshore receives fees of $358,325 (EUR 250,000)
payable in two equal installments, each due at installation of the main engines
and delivery of the completed vessel.  Additionally, Hartmann Offshore
shall be reimbursed for travel costs and other reasonable out of pocket
expenses.





Our AHTS
vessels are built to deploy and recover mooring systems for deepwater drilling
rigs.  These are highly specialized vessels designed to have 16,320 BHP
(brake horsepower), 450 ton main winch capacity and 190 ton BP (bollard
pull).  With dynamic positioning capabilities and high cargo capacities,
these powerful vessels double as rig and platform supply vessels that are
capable of supporting various deepwater operations.  State of the art
electronics allow these vessels to monitor and maintain equipment throughout all
modes of service.





Each AHTS
SPV has entered into a management agreement with Hartmann Offshore or its
nominee whose performance is guaranteed by Hartmann Offshore.  Such
management agreements commence upon delivery of the applicable ship and
terminate when the ship is sold.  Under these management agreements, the
ship manager provides a full range of management services, including but not
limited to the following:





·
            Crew
      management services, whereby the ship manager shall provide suitable
      qualified crew for the applicable vessel in accordance with international
      standards;


·
            Technical
      management services relating to the operation and maintenance of the
      applicable vessel;


·
            Commercial
      management services with respect to the chartering of the applicable
      vessel (Hartmann Offshore subcontracted these services to
      UOS);


·
            Arrangement
      of insurance policies with respect to the vessel, if so instructed by the
      owners of the ship;


·
            Supervision
      of the sale and purchase of the applicable vessel, including the
      supervision of the performance of any sale or purchase agreement, the
      identification of potential purchasers and the negotiation of the purchase
      agreement;


·
            Supply
      of necessary provisions for the vessel;
and


·
            Arranging
      for the provision of bunker fuel as required for the vessel’s
      trade.





Pursuant
to each such ship management agreement, Hartmann Offshore is paid a fee to
manage the day to day operations of the vessels, which shall be 4% of the net
daily earnings of the applicable vessel, subject to a maximum and minimum of
$2,400 and $750, respectively, per day.  The Hartmann Group currently
operates and/or manages more than 170 vessels, including containerships,
bulkers, tankers, liquefied petroleum gas (“LPG”) carriers and multipurpose
ships.





Our AHTS
vessels will operate under time charter leasing arrangements with oil companies
under either short-term “spot market” charters, which are measured in days or
weeks, or long-term charters, which typically range from one to three years,
including renewal options.  Under these arrangements, our AHTS SPVs will
typically be responsible for vessel operating expenses such as crew wages, class
costs, insurance on the vessel and routine maintenance, as well as management
fees as described below.  A vessel’s net daily earnings will consist of the
revenue earned under that vessel’s charters less that vessel’s operating
expenses, which would not include interest expense on acquisition debt.  A
brief description of the current AHTS vessels and their net daily earning during
2009, is set forth below.  For a more detailed explanation of their net
daily earnings to date, including a description of various revenues received
other than day rates and expenses, see Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations under the caption
entitled AHTS Vessel Net Daily
Earnings in the Overview section.


10





·
            UOS
      Atlantis – Our first AHTS vessel, UOS Atlantis, was placed in service upon
      delivery on February 27, 2009, and began operating under its current
      charter on March 15, 2009.  Our net daily earnings for UOS Atlantis
      averaged $9,345 for the year ended December 31,
  2009.





·
            UOS
      Challenger – Our second AHTSvessel, UOS
      Challenger, was placed in service upon delivery on May 28, 2009, and began
      operating under its current charter on June 24, 2009.  Our net daily
      earnings (deficit) for UOS Challenger averaged ($2,543) for the year ended
      December 31, 2009.





·
            UOS
      Columbia – Our third AHTS vessel, UOS Columbia, was placed in service upon
      delivery on October 5, 2009 in the North Sea spot market.  Our
      net daily earnings (deficit) for UOS Columbia averaged ($18,515), based on
      the date the AHTS vessel was placed in service through December 31,
      2009.





·
            UOS
      Discovery – Our fourth AHTS vessel, UOS Discovery, was delivered on
      February 16, 2010, and is currently not under
  charter.





·
            UOS
      Endeavour – Our fifth AHTS vessel, UOS Endeavour, was delivered on March
      11, 2010, and is currently not under
charter.





·
            UOS
      Explorer – Our sixth AHTS vessel, UOS Explorer, was delivered on March 15,
      2010, and is currently not under
charter.





Our
commercial manager, UOS, is currently pursuing opportunities for our
vessels.  The remaining three AHTS vessels are currently scheduled for
delivery during April 2010, although delays in delivery of one or two months are
expected.If the
current environment were to continue or worsen, and we were unable to achieve
adequate utilization of our vessels, the delivery of the additional vessels and
the associated operating costs and debt service will negatively impact our
financial results.





In March
2009, we entered into an agreement with UOS (“AHTS Pool Agreement”) to
participate in a revenue pool comprised of our nine AHTS SPVs and three AHTS
SPVs owned by our affiliate, FLTC Fund I (the “Pool Members,” together the “UOS
AHTS Pool”).  The agreement names UOS as the “Pool Manager,” with
responsibility for the management and accounting of the pool and also for
monitoring Pool Members’ compliance with the AHTS Pool Agreement.  Under
the AHTS Pool Agreement, each of our AHTS SPVs has agreed to pool its returns
from employment of the vessel less voyage expenses (“Voyage Results”) with the
other Pool Members to achieve an even distribution of the risks resulting from
the fluctuation in the offshore chartering business.  The AHTS Pool
Agreement will have no effect on our consolidated revenues until such time as
one of the FLTC Fund I vessels is placed in service, which is expected to be May
2010.





Multipurpose Bulk Carrier
Vessels


A bulk
carrier, bulk freighter or bulker is a merchant ship specially designed to
transport bulk cargo such as grains, fertilizer, quick lime, soda ash, forest
and paper products and cement in its cargo holds.  A mini-bulker is a
single hold bulk carrier with maximum cargo capacity of 10,000 metric tons or
less.





We
acquired a non-controlling interest in two new mini-bulkers which were acquired
from Nanjing Huatai Co. Limited in China in August and December 2007,
respectively.  Each of our mini-bulkers is managed by Reederei Hesse as
technical manager and MTL as commercial manager, and is held in a separate SPV,
of which we indirectly own 49% with the remaining 51% owned by affiliates of the
Hartmann Group and Reederei Hesse.  Pursuant to each ship management
agreement, the managers receive 4% of the net daily earnings of the applicable
vessel.  Our mini-bulkers currently operate in liner services between the
Baltic area and Northern Spain, Portugal, the Mediterranean Sea, Greece, Turkey
and Israel.





Chemical/Product Tanker
Ships


A
chemical tanker is a type of tanker designed to transport bulk cargos like
chemicals, clean petroleum products and vegoils.  The Schulte Group paid
deposits of $8,300,000 to Nantong Mingde Heavy Industry Stock Co., Ltd. and
Jiangxi Topsky Technology Co., Ltd., the sellers of a chemical tanker currently
under construction.  In connection with our potential acquisition of such
chemical tanker, we paid $3,000,000 to the Schulte Group and agreed to repay
$5,300,000 to Conway Shipping, Ltd. (“Conway”), an affiliate of the Schulte
Group owned by certain members of the Schulte family, to whom the Schulte
Group’s rights in the chemical tanker were subsequently transferred.  The
$5,300,000 that we have agreed to repay Conway represents a portion of the first
construction installment due to the sellers of the chemical tanker that was
previously advanced by the Schulte Group in connection with the acquisition of
the chemical tanker.


11





If
acquired, the operations of the chemical tanker would be managed by the Schulte
Group.  The Schulte Group provides shore and ship-based maritime and
engineering expertise and manages a large fleet of ships.  If acquired, the
chemical tanker would be held in a separate SPV owned by Kronos.  We may,
in the future, sell or assign the chemical tanker or the rights to acquire it,
or we may elect to abandon the purchase of the chemical tanker thereby incurring
certain liquidated damages.  Under our current agreement with Conway, the
liquidated damages would total $3,000,000 payable to Conway and would be settled
from funds we have already paid as deposits on the potential tanker acquisition,
and we would not be required to repay the $5,300,000 owed to
Conway.





At the
present time, we are re-evaluating our intentions with respect to the chemical
tanker, and believe it is unlikely that we will complete the acquisition of the
tanker unless the shipyard constructing the vessel agrees to significant
concessions, to include timing of construction installments, and an adjustment
to the overall contract price.  We have therefore recorded an impairment to
the deposit on asset acquisition on our balance sheet to reduce the carrying
value of this asset, resulting in the recognition of a loss on impairment of
$9,874,907.  If we do formally forfeit our option to acquire the tanker, we
expect to recognize gain on the extinguishment of debt of $5,300,000 in a future
period, as under the terms described above, we would not be required to repay
the $5,300,000 to Conway.  The net result of this would be a loss of
approximately $4,574,907, which in the end represents liquidating damages of
$3,000,000 plus our capitalized costs approximating $1,574,907.





Additional
information related to the Schulte Group, Conway and Kronos is included in this
Form 10-K in Part II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations under the caption entitled Financing Arrangements in the
Liquidity and Capital
Resources.





The
decision to sell, assign or acquire the vessel will include an evaluation of,
but not limited to, the following:





·
            World
      economy;


·
            Demand
      and supply of cargoes and trades;


·
            Demand
      for product and chemical tankers;


·
            Supply
      of product and chemical tankers;


·
            Freight
      rates for product and chemical tankers with less than 30,000 deadweight
      tonnage; and


·
            Secondhand
      price projections.





The
expected/actual construction commencement date and expected/actual completion
date, as applicable, for each of the vessels are as follows:





Type of Vessel
              
              Hull No.
              
              Vessel Name
              
              Construction
                Commencement Date
              
              Expected
                Delivery Date2
      Multipurpose Bulk
              
              MPP
      1
              
              MS
      Laakdiep
              
              Delivered
              
              DeliveredCarriers
              
              MPP
      2
              
              MS
      Larensediep
              
              Delivered
              
              Delivered9
      Anchor Handling Tug
              
              6160
              
              UOS
      Atlantis
              
              Delivered
              
              DeliveredSupply
      Vessels
              
              6161
              
              UOS
      Challenger
              
              Delivered
              
              Delivered6162
              
              UOS
      Columbia
              
              Delivered
              
              Delivered6163
              
              UOS
      Discovery
              
              Delivered
              
              Delivered6168
              
              UOS
      Endeavor
              
              Delivered
              
              Delivered6169
              
              UOS
      Enterprise
              
              Oct-08
              
              Apr-106171
              
              UOS
      Explorer
              
              Delivered
              
              Delivered6172
              
              UOS
      Freedom
              
              Mar-08
              
              Apr-106173
              
              UOS
      Liberty
              
              Nov-08
              
              Apr-101
      Chemical Tanker
              
              MD2007-11-12
              
              Anthos
              
              Jun-10
              
              Oct-11





The
expected construction commencement and delivery dates set forth above are based
on current information from the shipbuilders.  These dates are estimates
and may change prior to vessel completion.


12





Transactions
with Affiliates and Related Parties





The table
below sets forth the material agreements under which our affiliates and other
related parties provide services to us and/or receive fees or other
payments.  The agreements in the table are categorized as either “Vessel
Construction Phase Contracts,” “Vessel Operating Phase Contracts” or “Non-Vessel
Specific Contracts.”  Vessel Construction Phase Contracts relate to
matters during the period when the applicable vessel is under construction,
while Vessel Operating Phase Contracts are agreements relating to matters after
the applicable vessel has been delivered.  Non-Vessel Specific Contracts
are more general in nature and do not specifically relate to any vessel or
related stage of construction or operation.





Agreement
                                                  
                                                  Counterparty Receiving
                                                    Fees/Payments
                                                  
                                                  Relationship of
                                                    Counterparty
                                                  
                                                  Aggregate
                                                    PaymentsVessel
      Construction Phase ContractsContract
      for Financial Services (9 total)
                                                  
                                                  Suresh
      Capital Consulting & Finance Ltd.;
                                                    Maritime
      Funding Group LLC;
                                                    Churada
      Investments
                                                  
                                                  Under
      common control with Suresh Capital Partners, LLC, one of our limited
      partners
                                                  
                                                  $716,650
      (EUR 500,000) per AHTS vessel;
                                                    $6,449,850
      (EUR 4,500,000) total(1)Contract
      for Construction Supervision (9 total)
                                                  
                                                  Hartmann
      Offshore GmbH
                                                  
                                                  Non-controlling
      interest holder in our AHTS SPVs
                                                  
                                                  $358,325
      (EUR 250,000) per AHTS vessel; $3,224,925 (EUR 2,250,000) total(2)Contract
      for Technical and Commercial Management (9 total)
                                                  
                                                  Hartmann
      Offshore GmbH;commercial
      management subcontracted toUnited Offshore Support GmbH & Co.
      KG
                                                  
                                                  Non-controlling
      interest holders in our AHTS SPVs
                                                  
                                                  $716,650
      (EUR 500,000) per AHTS vessel; $6,449,850 (EUR 4,500,000) total(3)Vessel
      Operating Phase ContractsStandard
      Ship Management Agreement (9 total)
                                                  
                                                  Hartmann
      Offshore GmbH; commercial management subcontracted to United Offshore
      Support GmbH & Co. KG
                                                  
                                                  Non-controlling
      interest holders in our AHTS SPVs
                                                  
                                                  See
      details below(4)Contract
      Carrier Agreement (2 total)
                                                  
                                                  Reederei
      Hesse GmbH & Co.; commercial management subcontracted to
                                                    MTL
      Maritime Transport + Logistik GmbH & Co. KG
                                                  
                                                  Under
      common control with the majority interest holders in the SPVs which own
      the mini-bulkers
                                                  
                                                  See
      details below(5)Pool
      Agreement AHTS-Moss 424
                                                  
                                                  ATL
      Offshore GmbH & Co. “Isle of Fehmarn” KG;
                                                    ATL
      Offshore GmbH & Co. “Isle of Memmert” KG;
                                                    ATL
      Offshore GmbH & Co. “Isle of Mellum” KG
                                                  
                                                  Subsidiaries
      of our affiliate, FLTC Fund I
                                                  
                                                  See
      details below(6)




13




Mutual Indemnity
      Agreement
                  
                  ATL
      Offshore GmbH & Co. “Isle of Fehmarn” KG;
                    ATL
      Offshore GmbH & Co. “Isle of Memmert” KG;
                    ATL
      Offshore GmbH & Co. “Isle of Mellum” KG
                  
                  Subsidiaries
      of our affiliate, FLTC Fund I
                  
                  See
      details below(7)Non-Vessel
      Specific ContractsSecond
      Amended and Restated Agreement of Limited Partnership
                  
                  III
      to I International Maritime Solutions Cayman, Inc.;
                    Suresh
      Capital Partners, LLC;
                    The
      Maritime Funding Group, Inc. Irrevocable trust
                  
                  Our
      general partner;
                    Our
      Class D limited partners
                  
                  See
      details below(8)Second
      Amended and Restated Agreement to Perform Administrative and Professional
      Services
                  
                  Dental
      Community Management, Inc.
                  
                  Owned
      in part by Jason M. Morton, a director and the Chief Financial Officer of
      our general partner
                  
                  $1,200,000/year


(1)
            This
      amount represents the total amount due under the contract.  There are
      four equal payments of EUR 125,000 due under each of these contracts based
      on predetermined progress points, the first being the date steel cutting
      begins, the second being the installation of the main engines, the third
      being the launching of the vessel and the fourth being the delivery of the
      vessel.  It is anticipated that $4,658,225 (EUR 3,250,000) will be
      paid for financial services during the year ended December 31, 2010. 
      During the year ended December 31, 2009, no financial services fees were
      paid due to cash flow issues.  For a detailed description of these
      agreements, see Item 13. Certain Relationships and Related Transactions,
      and Director Independence under the caption The German Subsidiary
      Financial Services
Agreements.





(2)
            This
      amount represents the total amount due under the contract.  There are
      two equal payments of EUR 125,000 due under each of these contracts based
      on predetermined progress points, the first being the installation of the
      main engines and the second being the delivery of the vessel.  It is
      anticipated that $1,254,138 (EUR 875,000) will be paid during the year
      ended December 31, 2010 for construction supervision.  During the
      year ended December 31, 2009, $1,612,463 ($1,125,000) was paid for
      construction supervision.  See Item 13. Certain Relationships and
      Related Transactions, and Director Independence under the caption Payment of Construction
      Administrative and Technical and Commercial Management
      Fees.





(3)
            This
      amount represents the total amount due under the contract.  There are
      four equal payments of EUR 125,000 due under each of these contracts based
      on predetermined progress points, the first being the date steel cutting
      begins, the second being the installation of the main engines, the third
      being the launching of the vessel and the fourth being the delivery of the
      vessel.  It is anticipated that $1,612,463 (EUR 1,125,000) will be
      paid during the year ended December 31, 2010 for technical and commercial
      management.  During the year ended December 31, 2009, $2,508,275 (EUR
      1,750,000) was paid for technical and commercial management.  See
      Item 1. Business under the caption Our
    Ships.





(4)
            It
      is not practicable to accurately quantify the annual fees to be payable
      pursuant to these agreements, as the amounts payable pursuant to these
      agreements are based on a percentage (4%) of the net daily earnings of the
      relevant vessel, subject to a maximum and minimum of $2,400 and $750,
      respectively, per day.  See Item 1. Business under the caption Our
    Ships.


14





(5)
            It
      is not practicable to accurately quantify the annual fees payable pursuant
      to these agreements, as the amounts payable pursuant to these agreements
      are based on a percentage (4%) of the net daily earnings of the relevant
      vessel.  See Item 1. Business under the caption Our
    Ships.





(6)
            It
      is not practicable to quantify the annual fees payable pursuant to this
      agreement, as the amounts allocable to each vessel in the pool will vary
      depending on the aggregate revenues generated by the vessels’
      operations.  For a detailed description of this agreement, see Item
      1. Business under the caption Our Ships and Item 13.
      Certain Relationships and Related Transactions, and Director Independence
      under the caption The
      AHTS Vessel Pooling
Agreement.





(7)
            It
      is not practicable to quantify the annual amounts payable pursuant to this
      agreement, as the amounts payable thereunder are contingent obligations
      arising pursuant to the indemnification provisions contained
      therein.  For a detailed description of this agreement, see Item 13.
      Certain Relationships and Related Transactions, and Director Independence
      under the caption Cross-Collateralization of
      Nord/LB Loan Facility.





(8)
            Pursuant
      to the terms of our Partnership Agreement, our general partner and Class D
      limited partners are entitled to receive a portion of distributions that
      would otherwise be distributed to certain of our other limited
      partners.  Additional information is provided in our Second Amended and Restated Agreement
      of Limited Partnership, included as Exhibit 3.4 to this Form 10-K,
      and in Item 1A. Risk Factors under the caption entitled There may be conflicts of
      interest as a result of our general partner’s carried
      interest.  Because any amounts received by our general partner
      or our Class D limited partners pursuant to our Partnership Agreement
      depend on the amounts that are actually distributable to our limited
      partners, it is not practicable to accurately quantify the amounts to be
      paid to our general partner and Class D limited partners for a given
      period pursuant to this agreement.





Because
we have entered into the foregoing agreements with certain of our affiliates and
other related parties, these agreements were not negotiated at arms’ length and
therefore may not be on terms that are as fair to us as might be obtained by
entering into such agreements with non-affiliated third parties.  See Item
1A. Risk Factors under the caption entitled We have entered into contracts with
our affiliates that were not negotiated at arms-length.





Insurance





The
operation of any ocean-going vessel carries an inherent risk of catastrophic
marine disasters and property losses caused by adverse weather conditions,
mechanical failures, human error, war, terrorism and other circumstances and
events.  In addition, the transportation of crude oil and other
contaminants is subject to the risk of spills and business interruptions due to
political circumstances in foreign countries, hostilities, labor strikes and
boycotts.





Environmental
legislation, imposing potentially unlimited liability upon owners, operators and
bareboat charterers for oil pollution incidents, has made insurance more
expensive for ship owners and operators.  We believe that our current
insurance coverage, maintained at the SPV level, is adequate to protect us
against the principal accident-related risks that we face in the conduct of our
business.





Permits
and Authorizations





We are
required by various governmental and quasi-governmental agencies to obtain
permits, licenses and certifications with respect to our vessels.  The
kinds of permits, licenses and certificates required depend upon several
factors, including the commodity transported, waters in which the vessel
operates, nationality of the vessel’s crew and age of the vessel.  We
expect to be able to obtain all permits, licenses and certificates currently
required to permit our vessels to operate.  However, we may not be able to
obtain the necessary permits or, if able, may not be able to obtain such permits
without incurring unreasonable expenses and/or lengthy delays.  In
addition, laws and regulations, environmental or otherwise, may be changed or
adopted which could limit our ability to do business or increase our costs of
doing business.


15





Regulations





Government
regulations significantly affect the ownership and operation of our
vessels.  We are subject to international conventions in addition to
national, state, provinces and local laws and regulations in force in the
countries in which our vessels operate or are registered.





A variety
of government and private entities subject our vessels to both scheduled and
unscheduled inspections.  These entities include local port authorities,
classification societies, flag state administrations and charterers. 
Certain of these entities require us to obtain permits, licenses and
certifications for the operation of our vessels.  Failure to maintain
necessary permits or approvals could require us to incur substantial costs or
temporarily suspend the operation of one or more of our vessels.




Increasing
environmental concerns have created a demand for vessels that conform to
stricter environmental standards.  We are required to maintain operating
standards for all our vessels that emphasize operational safety, quality
maintenance, continuous training of our officers and crews and compliance with
international regulations.  We believe the operation of our vessels is in
compliance with applicable environmental laws and regulations applicable to us
as of the date of this Form 10-K.





International
Maritime Organization


The
International Maritime Organization (“IMO”) has negotiated international
conventions that impose liability for oil pollution in international waters and
a signatory’s territorial waters.  The IMO adopted Annex VI to the
International Convention for the Prevention of Pollution from Ships to address
air pollution from ships effective May 2005.  Annex VI sets limits on
sulfur oxide and nitrogen oxide emissions from ship exhausts, prohibits
deliberate emissions of ozone content fuel oil and allows for special areas to
be established with more stringent controls on sulfur emissions.  As of
December 31, 2009, we believe our vessels were in compliance with Annex
VI.





The
operation of our vessels is also affected by the requirements set forth in the
IMO’s Management Code for the Safe Operation of Ships and Pollution Prevention
(“ISM Code”).  The ISM Code requires ship owners and bareboat charterers to
develop and maintain an extensive “Safety Management System” that includes the
adoption of a safety and environmental protection policy setting forth
instructions and procedures for safe operation and dealing with
emergencies.  Failure to comply with the ISM Code may subject us to
increased liability, decreased insurance coverage for the affected vessels and
result in a denial of access to, or detention in, certain ports.





Employees




As of December 31, 2009, ourAHTS SPVsemployed 138
seafarers.  Management considers relations with its employees to be
satisfactory.





Industry
Overview





Shipping
is a global industry with prospects closely tied to the level of economic
activity in the world.  The maritime shipping industry is fundamental to
international trade because it is the only practicable and cost effective means
of transporting large volumes of many essential commodities and finished
goods.  There are five main segments in the shipping industry:





·
            tankers,
      which carry such cargo as crude oil and petroleum
  products;


·
            bulk
      carriers, which carry items such as coal and
  grain;


·
            containerships,
      which carry only containers;


·
            gas
      tankers, which carry mostly LPG and liquefied natural gas (“LNG”);
      and


·
            offshore
      support vessels, including AHTS vessels and platform supply
      vessels.





Our
primary focus is in offshore support vessels.  However, we also purchased a
non-controlling interest in two mini-bulkers and may acquire a chemical
tanker.


16





The
offshore support vessel industry is engaged in supporting various stages of
exploration, development and production of oil and gas from offshore
locations.  Therefore, the supply and demand characteristics of the broader
oil and gas industries are central to the development of the offshore support
vessel market.  In general, global economic growth generates rising demand
for power and fuel.  Offshore exploration, drilling and production are
crucial to satisfying this demand.  We believe that these broader market
dynamics combined with the age of the existing global fleet and the demand for
sophisticated vessels should provide substantial employment opportunities for
our vessels; however, global economic contraction or stagnant growth may reduce
the demand for power and fuel, in turn reducing the demand for our
vessels.  As a result, we may be unable to charter our vessels at
profitable day rates or at all.





The
following table outlines the development of an offshore oil field and is broken
down into three distinct phases, each requiring the use of AHTS
vessels:





Term
                                    
                                    Activities
                                    
                                    Key
      Factors
                                    
                                    Support
                                      ServicesExploration
                                    
                                    3-5
      years
                                    
                                    ·  Collection,
      analysis and interpretation of seismic data
                                      ·  Discovery
      of oil and gas reserves
                                    
                                    ·  Oil
      price levels
                                      ·  Proven
      reserve replenishment
                                    
                                    ·  Refueling
                                      ·  Transportation
      of crew and supplies
                                      ·  Rig
      relocationsDevelopment
                                    
                                    2-4
      years
                                    
                                    ·  Construction
      and installation of production infrastructure in preparation for
      production
                                    
                                    ·  Current
      and planned platform construction
                                    
                                    ·  Anchor
      handling
                                      ·  Transportation
      of bulk and deck cargo
                                      ·  Towing
                                      ·  Transportation
      of crew and suppliesProduction
                                    
                                    10-55
      years
                                    
                                    ·  Management
      of production of oil and gas
                                      ·  Maintenance
                                    
                                    ·  Production
      volumes
                                    
                                    ·  Anchor
      handling
                                      ·  Transportation
      of bulk and deck cargo
                                      ·  Transportation
      of crew and supplies
                                      ·  Inspection
      and maintenance support
services





Competition





Competition
for charters is intense and based on price; vessel location, size, age,
condition, acceptability and quality; and on the vessel operator’s quality and
reputation.  Historically, the majority of AHTS vessel owners were focused
on regional markets; however, expansion and joint ventures have enabled the
larger owner groups to establish a global presence.  The principal markets
for AHTS vessels follow offshore exploration and development and include: the
Gulf of Mexico, the North Sea, the Indian Ocean, Southeast Asia, Australia,
Africa, Brazil and the Middle East.





With
respect to mini-bulkers, the fleet ownership is even more diverse than the AHTS
fleet, as are the principal markets for such vessels.  Mini-bulkers are
able to operate virtually anywhere, and are not as dependent on offshore
exploration and development.  However, it is not uncommon for owners of
such vessels to establish and operate liner services in certain geographic
areas, depending on the cargos to be shipped.  For both AHTS vessels and
mini-bulkers, vessel migration between operating locations may be limited by,
among other things, mobilization costs, vessel suitability and government
statutes prohibiting foreign-flagged vessels from operating in certain
waters.


17


Item
1A.  Risk Factors





Investing
in us involves a degree of risk, including the risks described below.  Our
financial condition and operating results have been, and will continue to be,
affected by a wide variety of risk factors, many of which are beyond our
control, that could have adverse effects on our financial condition and
profitability during any particular period.  Additional risks and
uncertainties not currently known or deemed to be immaterial may also materially
and adversely affect our business operations.  If any of the following
risks were to actually occur, our business, financial condition or results of
operations could be materially and adversely affected.  Limited partner
units are inherently different from the capital stock of a corporation, although
many of our business risks are similar to those that would be faced by a
corporation engaged in a similar business.





Risks
Relating to Our Business





There
are operational risks inherent to the shipping industry.


The
operation of any vessel involves the inherent risk of catastrophic marine
disasters, adverse weather and sea conditions, mechanical failure, collisions,
property losses to ships and business interruption due to political action in
countries other than the United States.  Any such event may result in a
reduction in our investment returns or an increase in costs.  We currently
insure our vessels for their estimated market value against damage or loss,
including war, terrorism acts and other risks.  In addition, the operations
of our vessels are covered by workers’ compensation, maritime employer’s
liability, general liability and other insurance customary in the shipping
industry.  We intend to obtain similar coverage for all future vessels;
however, there can be no assurances that such insurance coverage can be
maintained on current vessels, obtained on future vessels or that such coverage
will be adequate should we incur a significant loss.





We
depend on our management companies and certain affiliates to assist us in our
business operations.


Each of
our vessels is or will be owned by an individual SPV, which is single ship
operating offshore entity.  Each AHTS SPV is run by the general partner,
ATL, which is an affiliate of the Hartmann Group.  The mini-bulker SPVs,
ATL Reederei GmbH & Co. MS “Larensediep” KG and Hesse Schiffahrts GmbH &
Co. MS “Markasit” KG, are run by ATL Reederei GmbH and Hesse Schiffahrts GmbH,
respectively, as the general partner.  Additionally, in order to provide
added certainty with respect to our operations, we entered into ship management
agreements for technical and commercial management with Hartmann Offshore with
respect to the AHTS vessels and Reederei Hesse with respect to the
mini-bulkers.  The commercial management of each AHTS vessel was
subcontracted by Hartmann Offshore to UOS while the commercial management of the
mini-bulkers was subcontracted by Reederei Hesse to MTL.  Additionally, we
intend to retain the Schulte Group to manage the operations of the chemical
tanker that we may acquire, which would operate in the Hanseatic Tankers
Pool.  Under these ship management agreements, the applicable management
company or its affiliates will provide certain management services including
identifying crews and chartering the ships to customers.  In addition,
Reederei Hartmann and its affiliates are non-controlling owners of 25% of each
AHTS SPV, and affiliates of the Hartmann Group and Reederei Hesse collectively
own 51% of each mini-bulker SPV.




In
addition, our ownership of each SPV owning an AHTS vessel or mini-bulker is held
through our Cyprus Subsidiary.  The holders of our Class D units have
certain rights to approve certain of our actions with respect to vessels held
through our Cyprus Subsidiary.




If our
relationships with these third parties are terminated, we may not be able to
establish relationships with other persons experienced with the operation of
international shipping vessels, and our operations could suffer.  In
addition, the terms of our relationship with any replacement third party may be
less favorable to us.  In addition, the economic interests of these third
parties may not always be aligned with our interests and they may not always act
in our best interests.




We
have entered into contracts with our affiliates and other related parties that
were not negotiated at arms-length.


We have
entered into various contracts with our affiliates and other related parties
that were not negotiated as arms-length transactions. Additional information is
provided in this Form 10-K in Item 1. Business under the section entitled Transactions with Affiliates and
Related Parties.  As a result, the terms of such agreements may not
be as favorable to us as if they had been negotiated with unrelated
parties.


18




The
bankruptcy of our management companies, shipyards, charter parties or financing
sources could have a material adverse effect on our operations.


As
indicated above, we depend on our management companies to manage our vessel
operations.  We also depend on the shipyards that construct our ships to
deliver these vessels in a timely manner and on the ability of our charter
parties to pay us the agreed upon charter rates for each applicable vessel
pursuant to the relevant charter agreement.  Additionally, we depend on our
third party financing sources to provide the capital necessary to acquire and
operate our vessels.  If, in the future, any of these entities were the
subject of a bankruptcy or other insolvency proceeding, they might be unable to
perform their respective obligations under the management agreements or loan
documents, as applicable, which could result in a material adverse effect on our
results of operations and prohibit us from completing the planned acquisition of
additional vessels.  In addition, we may be unable to recover any amounts
advanced to such parties for the construction of the vessels or
otherwise.





Our
operations, growth, investment returns, and stability in the value of our
vessels depend on the demand for offshore oil and gas drilling and capital
spending by the oil and gas industry.


The
majority of the vessels we plan to acquire are AHTS vessels, which are primarily
used for the installation, maintenance and movement of oil and gas
platforms.  With a majority of our vessels focused on the oil and gas
business, our operations, growth, investment returns, and the stability in the
value of our AHTS vessels, which represent the majority of our assets, depend on
the demand for offshore oil and gas drilling and the related level of capital
spending by oil and gas exploration and production companies who are the
principal users of our AHTS vessels.  The charter rates of such vessels are
highly dependent on the level of capital spending by oil and gas
companies.  The level of capital spending is substantially related to the
demand for oil and gas and prevailing oil and gas prices, each of which can be
affected by many factors, including the following:




·
            fluctuations
      in the actual or projected price of oil and
gas;


·
            global
      and regional demand and perceptions about future
  demand;


·
            the
      ability of the Organization of Petroleum Exporting Countries (“OPEC”) to
      control oil production levels and pricing, as well as the level of
      production by non-OPEC countries;


·
            significant
      weather events or conditions;


·
            governmental
      restrictions placed on exploration and production of natural
      resources;


·
            refining
      capacity and its geographical
location;


·
            political
      and economic uncertainties, particularly in oil and gas consuming regions,
      which could reduce energy consumption or its
  growth;


·
            increases
      in the production of oil and gas in areas linked by pipelines to consuming
      areas;


·
            extension
      of existing or development of new pipeline
  systems;


·
            conversion
      of existing non-oil or gas pipelines to oil or gas
    pipelines;


·
            decreases
      in the consumption of oil or gas due to increases in its price relative to
      other energy sources;


·
            development
      or increased use of alternative fuel
sources;


·
            advances
      in exploration and development technology;
and


·
            the
      cost of exploration for and production of oil and gas that can be affected
      by environmental regulations.





The
current global economic climate contributed to a significant decline in oil and
gas prices and related infrastructure investments. Further declines could result
in decreased revenues and/or profitability.


The
current global economic downturn resulted in a significant decline in oil and
gas prices and a reduction in the level of oil and gas infrastructure,
exploration and development investments, which in turn have resulted in reduced
demand for AHTS vessels and similar offshore support vessels.  While the
price of oil rose during 2009, the instability in the market and further
declines could result in decreased revenues and/or profitability, and/or the
impairment in the value of our AHTS vessels.  While the first three of
our AHTS vessels that were delivered are currently operating under time
charters, the latest three vessels are currently idle and seeking
charters.  A prolonged period of depressed oil and gas prices could
cause us to have difficulty locating suitable charter parties for our AHTS
vessels, or we may be compelled to charter our AHTS vessels at lower rates,
which could result in decreased revenues and/or profitability and result in
losses due to idle vessels.  Additionally, such conditions could cause
downward pressure on the value of our AHTS vessels, and we could be required to
record an impairment of our assets on our balance sheet, and recognize the
associated loss in our results of operations.


19


Our
investment returns will be reduced by fees, interest and incentive distributions
payable to third parties.


We are
obligated to pay certain fees, interest and incentive distributions to various
third parties, including but not limited to our lenders and the managers of our
vessels. These fees and incentive distributions will reduce our investment
returns.




Delays
in deliveries of our newbuilding vessels could harm our operating
results.


The three
remaining new AHTS vessels we have agreed to acquire are scheduled to be
delivered during April 2010, although we expect delays of one to three months.
Additionally, if we decide to purchase the chemical tanker, it is expected to be
delivered in October 2011. The delivery of the new vessels could be delayed as a
result of work stoppages or labor disputes, changes in regulations, hostilities,
political instability or any number of other occurrences, including our
inability to finance any remaining purchase price of such new vessels. Delays in
the delivery of these vessels, other new vessels we may order or secondhand
vessels we may agree to acquire, could delay our receipt of revenues for such
vessels and could adversely affect our anticipated results of
operations.




We
have a history of operating losses, and we expect to incur operating losses in
the future.


We have
incurred operating losses in each year since our inception. Our net operating
loss was $14,669,578 and $2,700,954 for the fiscal years ended December 31, 2009
and 2008, respectively. Because a significant portion of our efforts still
entail debt financing, raising capital, management oversight of ship
construction and preparing for the operation and chartering of the ships being
constructed and because [three] of the vessels already delivered are not
currently chartered, we expect to continue to incur operating losses until all
of our vessels have been delivered and are operating under charter agreements,
and we cannot be certain that we will ever achieve profitability.




We
have entered into a revenue pooling agreement with three SPVs owned by our
affiliate, FLTC Fund I, which could negatively affect our operating
revenues.


In March
2009, we entered into an agreement with United Offshore Support GmbH & Co.
KG (“UOS”) and three SPVs owned by our affiliate, FLTC Fund I (the “AHTS Pool
Agreement”). Pursuant to the AHTS Pool Agreement, we have agreed to participate
in a revenue pool comprised of our nine AHTS SPVs and three AHTS SPVs owned by
our affiliate, FLTC Fund I (the “Pool Members”). Under the AHTS Pool Agreement,
each Pool Member has agreed to pool its returns from the employment of its AHTS
vessel (less voyage expenses) with the other Pool Members to achieve an even
distribution of the risks resulting from the fluctuation in the offshore
chartering business. As a result, if the vessels owned by our AHTS SPVs are
chartered at higher average rates than the vessels owned by the three SPVs of
FLTC Fund I, then our AHTS SPVs could receive less operating revenue than they
would otherwise receive in the absence of the AHTS Pool Agreement.




We
may have difficulty properly managing our growth through acquisitions of
vessels.


Our
success will depend upon the operations of the shipyards building any
newbuilding vessels we may order, including the three AHTS vessels and chemical
tanker we currently have under contract. During
periods in which charter hire rates are high, vessel values are generally high
as well. As a result, it may be difficult to consummate further vessel
acquisitions at favorable prices. If charter rates drop we may not be able to
renegotiate the purchase prices for our vessels and therefore would be required
to pay above market value for such remaining vessels. This could result our
recording an impairment in the value of our assets on our balance sheet, and
recognition of the associated losses in our results of operations. In addition,
growing any business by acquisition presents numerous risks such as managing
relationships with customers and integrating newly acquired assets into existing
infrastructure. We cannot give any assurances that we will be successful in
executing our growth plans or that we will not incur significant expenses and
losses in connection with our future growth plans. In addition, due to the
long-term nature of the vessel purchase agreements, we may be required to accept
vessels when ready for delivery which may be at times that charter rates are low
or that no charters are available for such vessels.





We
are subject to regulation and liability under environmental laws that could
require significant expenditures and affect our cash flows and net
income.


Our
business and the operation of our SPVs and their vessels are materially affected
by environmental regulation in the form of international, national, state or
province and local laws and regulations; conventions; and standards in force in
the international waters and jurisdictions in which our vessels operate, as well
as in the country or countries of their registration. These regulations include
those that govern the management and disposal of hazardous substances and
wastes, cleanup of oil spills and other contaminations, air emissions, water
discharges and ballast water management. Because such conventions, laws and
regulations are often revised, we cannot predict the ultimate cost of complying
with such requirements or the impact thereof on the resale price or useful life
of our vessels. Additional conventions, laws and regulations may be adopted that
could limit our ability to do business or increase the cost of doing business,
which may materially and adversely affect our operations. Our operating entities
will be required by various governmental and quasi-governmental agencies to
obtain certain permits, licenses, certificates and financial assurances with
respect to operations. Many environmental requirements are designed to reduce
the risk of pollution, such as oil spills, and our compliance with these
requirements can be costly.


20





Environmental
requirements can also (i) affect the resale value or useful lives of our
vessels; (ii) require ship modifications or operational changes or restrictions;
(iii) lead to decreased availability of insurance coverage for environmental
matters or (iv) result in the denial of access to certain jurisdictional waters
or ports or detention in certain ports. Under local, national and foreign laws
as well as international treaties and conventions, we could incur material
liabilities, including cleanup obligations and natural resource damages
liability, in the event that there is a release of petroleum or other hazardous
material from our vessels, or otherwise in connection with our operations. We
could also become subject to personal injury or property damage claims relating
to the release of hazardous materials associated with our existing or historic
operations. Violations of, or liabilities under, environmental requirements can
result in substantial penalties, fines and other sanctions, including seizure or
detention of our vessels.




The
operation of our vessels will also be affected by the requirements set forth in
the ISM Code. The ISM Code requires ship owners to develop and maintain an
extensive “Safety Management System” that includes the adoption of a safety and
environmental protection policy setting forth instructions and procedures for
safe operation and dealing with emergencies. Failure to comply with the ISM Code
may subject us to increased liability, decreased insurance coverage for the
affected ships and result in denial of access to, or detention in, certain
ports.




In
addition, in complying with existing environmental laws and regulations and
those that may be adopted, we may incur significant costs in meeting new
maintenance and inspection requirements. New restrictions on air emissions from
our vessels could increase operating costs from developing contingency
arrangements for potential spills or reduce our ability to obtain insurance
coverage. Government regulation of vessels, particularly in the areas of safety
and environmental requirements, can be expected to become stricter in the
future. These regulations could require us to incur significant capital
expenditures on our vessels to keep them in compliance or even require us to
scrap or sell certain vessels altogether. Substantial violations of applicable
requirements could have a material adverse impact on our financial condition,
results of operations and ability to make distributions to our
partners.




Maritime
claimants could arrest our vessels, which could interrupt our cash
flows.


Crew
members, suppliers of goods and services to a vessel, shippers of cargo and
other parties may be entitled to a maritime lien against our vessels for
unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien
holder may enforce its lien by arresting a vessel through foreclosure
proceedings. The arrest or attachment of one or more of our vessels could
interrupt our cash flows and require us to pay large sums of money to have the
arrest lifted. In addition, in some jurisdictions, claimants can arrest other
vessels owned or controlled by the same owner, which could result in the loss of
more than one of our vessels at the same time.





The
operational managers of any ships we acquire may be unable to attract and retain
expert ship captains and other key management and technical
personnel.


The
success of our business depends upon the continued service of expert ship
captains and other officers and key personnel, and the ability of our ship
managers or any other of our operational managers to attract, retain and
motivate highly qualified personnel to crew our vessels. The loss of the
services of a number of these highly skilled personnel, our managers’ inability
to recruit replacements for such personnel or their ability to attract, retain
and motivate highly qualified personnel could harm our investments.





The
shipping industry is highly competitive and the increased competition could
result in reduced profitability.


Contracts
for vessels are generally awarded on a competitive basis and competition in the
market is strong. The primary factors companies use for determining who to hire
include the availability and capability of vessels, ability to meet the
customer’s schedule, price, reputation, quality of service and experience. Some
of our competitors may have greater financial resources and larger operations
than we do. As a result, they may be able to make vessels available more quickly
and efficiently. In addition, excess shipping capacity exerts downward pressure
on charter rates. Excess capacity can occur when newly constructed vessels enter
the market and when vessels are mobilized between markets. Our competitors that
have greater financial resources may be able to withstand the effects of
declines in charter rates for a longer period of time.


21





We
may become dependent on spot charters in the volatile shipping markets, which
may result in decreased revenues and/or profitability.


Although
the first three of our AHTS vessels that have been delivered are currently
operating under time charters, the latest three delivered vessels are currently
idle and seeking charters. In the future, these idle vessels and any of our
currently-chartered vessels may operate under spot charters. Our commercial
manager, UOS, is currently seeking opportunities for our vessels. The spot
market is highly competitive and rates within this market are subject to
volatile fluctuations, while time charters provide income at pre-determined
rates over more extended periods of time. If we decide to spot charter our
vessels, we may not be able to keep all our vessels fully employed in these
short-term markets. Additionally, it is uncertain whether future spot rates will
be sufficient to enable our vessels to be operated profitably. A significant
decrease in charter rates could affect the value of our fleet and could
adversely affect our profitability and cash flows, resulting in an impairment of
our ability to pay debt service to our lenders, capital contributions to our
SPVs, and distributions to our partners.





There
are risks associated with operating internationally.


We
anticipate that the majority of our investment returns will be generated by
international shipping operations. Our international operations and the
international operations of our ships are vulnerable to the usual risks inherent
in doing business in countries other than the United States. Such risks include
but are not limited to:





·
            political
      and economic instability;


·
            differing
      business cultures and legal
regimes;


·
            piracy
      and terrorism;


·
            possible
      vessel seizures, nationalization of assets and other governmental
      actions;


·
            the
      ability to recruit and retain highly skilled captains and other crew
      personnel for overseas operations;


·
            price
      fluctuations and market volatility;


·
            inflation
      rates;


·
            currency
      fluctuations and revaluations;


·
            government
      involvement in and control over
economies;


·
            differing
      auditing and financial reporting
standards;


·
            differing
      tax regimes and changes in tax
treaties;


·
            less
      developed corporate laws regarding fiduciary duties and investor
      protections;


·
            controls
      on foreign operations and limitations on repatriation of funds generated
      from such operations; and


·
            import
      and export restrictions.





The
current global economic turmoil and the continued threat of piracy, terrorist
activity and other acts of war or hostility have significantly increased the
risk of political, economic and social instability in some of the geographic
areas in which we operate. It is possible that future acts of piracy or
terrorism may be directed against us or involve our vessels.





Fluctuations
in the value of the Euro versus the U.S. dollar could have a material adverse
effect on our results of operations.


Many of
our transactions are denominated in EUR such as payments to our Cyprus
Subsidiary, purchase of our AHTS vessels and normal operating transactions of
the SPVs. In addition, it is typical that chartering arrangements for AHTS
vessels are denominated in USD. If the value of the EUR rises against the USD,
we may be required to raise additional funds to cover the increased cost of
these payments resulting in increased dilution to the partners or default on
capital commitments. The net profits, if any, of our operations will be
denominated in EUR. If the value of the EUR declines against the USD, such
profits, if any, will be reduced due to the conversion of our subsidiary
financial statements into our functional currency of USD. As a result, our
operating results could be affected if the value of the EUR fluctuates against
the USD during the time in which we are required to make capital commitment
payments or attempt to distribute funds to our partners. We have and may in the
future purchase a variety of financial instruments in order to hedge against
such currency fluctuations, but there can be no assurance that instruments
suitable for currency hedging will be available or effective in managing our
risks associated with currency fluctuations.


22





Our
insurance may be insufficient to cover losses that may occur to our property or
result from our operations.


The
operation of shipping vessels is inherently risky. Although each SPV carries
insurance, all risks may not be adequately insured against and any particular
claim may not be paid. We may not be able to procure adequate insurance coverage
at commercially reasonable rates in the future. In the past, stricter
regulations in the shipping industry have led to higher costs for insurance,
particularly for insurance covering environmental damage or pollution. New
regulations could lead to similar increases or even make a specific type of
insurance unavailable. In addition, certain actions we take could cause our
insurance to become voidable by the insurers.




Risks Related to the
Partnership




We
need to raise substantial additional funds in the future to complete the planned
acquisition of all our vessels and fund operations. As a result, an ownership
interest in the partnership could be substantially diluted.


We
currently anticipate the need for approximately $58,371,143 (EUR 40,725,000) to
facilitate our remaining AHTS acquisition commitments and provide sufficient
operating capital based on capital contributions through March 15, 2010.
Additionally, if we acquire the chemical tanker, we will need to raise an
additional amount of approximately $15,000,000. These additional funds could be
obtained, if at all, in the form of debt or equity financing. In the event such
additional funds are raised through the sale of equity interests in the
partnership, the percentage interest of all partners could be significantly
diluted. Such additional equity interests could be as offerings of Class A, B, C
or D units in the partnership, or, as a newly created class of limited partner
units and could be issued at a different price or have allocation or
distribution participation percentage rights as to specific assets or income
streams that are different than the rights of the other units. In addition, such
debt or equity financing could occur in the Cyprus Subsidiary or any other
subsidiary, which could have the effect of lowering our ownership interest in
the Cyprus Subsidiary, German Subsidiary or SPVs. If we are unable to raise
sufficient funds from debt or equity financing, we may not be able to complete
the purchase of the remaining vessels from Fincantieri, and the shipyard may be
entitled to keep any progress payments on such vessels as well as assess
additional charges and penalties for non-performance under the shipbuilding
contracts. In addition, the banks may foreclose on our existing vessels or other
assets or we may lose some of our ownership in the AHTS vessels to Reederei
Hartmann. If any of these things happen, our business, financial condition and
results of operations would be adversely and materially affected.




In connection
with the credit facility with Norddeutsche Landesbank Girozentrale
(“Nord/LB”), Nord/LB has
requested a change in the form of collateral from Reederei Hartmann under the
Hartmann Guarantee and has delayed funding certain progress payments to
Fincantieri on our remaining AHTS vessels.


As of
December 31, 2009, the terms of the Hartmann Guarantee were being renegotiated
between Reederei Hartmann and Nord/LB. The main subject of the negotiations was
the form of collateral to be provided under the guarantee by Reederei Hartmann
to Nord/LB. Nord/LB had delayed draws on the Pre-Delivery Facility under the
Senior Loan, resulting in our being unable to make timely progress payments to
Fincantieri. Due to the delay, a number of progress payments which were
otherwise due to be paid to Fincantieri under the shipbuilding contracts with
respect to the remaining vessels to be delivered had not been paid. As a result,
we were not in compliance with the terms of the remaining shipbuilding contracts
and Fincantieri would have had the right to cease construction activities on the
remaining vessels. However, Fincantieri acknowledged the delay and indicated to
us that it does not intend to cease construction pending resolutions of these
matters. In addition, Fincantieri has not taken any action under the
shipbuilding contracts to demand payment. As a result of these missed payments,
we were not in compliance with certain covenants of our Senior Loan with Nord/LB
as of December 31, 2009, however such non-compliance did not represent an event
of default under the terms of the loan document. Nord/LB is aware that the
payments have not been made, and has not taken any action under the Senior Loan
related to the non-compliance.




The
resolution to this situation is ongoing, and involves the granting of loans from
Reederei Hartmann to our German Subsidiary (“RHKG Loan Agreements”) and the
amendment of the shipbuilding contracts to postpone the installment payments due
under the contracts until delivery of the applicable AHTS vessel and to provide
for interest due to Fincantieri on the outstanding installment payments due at a
rate based on the three-month EURIBOR plus 2%, currently 3.00%. In connection
with certain of the RHKG Loan Agreements, which are fully described below in
Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations, under the caption entitled RHKG Loan Agreementsin the
Financing Arrangements section, RHKG obtained the funds for their loan to our
German Subsidiary pursuant to a loan on nearly identical terms from the
Fincantieri, the shipyard constructing the vessels. It is anticipated that RHKG
will enter into similar loan agreements with our three remaining AHTS SPVs that
have not taken delivery of their respective AHTS vessels. However, no assurances
can be given that Fincantieri will continue to loan RHKG the funds necessary to
secure delivery of these final three vessels, or that RHKG will continue to loan
our German Subsidiary such funds on acceptable terms or at all.


23


We are
also pursuing potential additional financing from Nord/LB via an increase of the
amount guaranteed by SACE under the Senior Loan, but the outcome of this effort
is unknown as of the date of filing. If obtained, we anticipate that this
financing would allow us to repay the RHKG Loan Agreements, either in full or
partially, via a distribution from the AHTS SPV to our German Subsidiary, which
would then use those funds to effect repayment of all or part of the RHKG Loan
Agreement balances. If we are unable to obtain this additional financing, or if
we are unable to further achieve a distribution to our German Subsidiary
allowing us to repay the RHKG Loan Agreements or a portion thereof, it could
impact the timing of distributions to investors due to likely differences in
terms between the RHKG Loan Agreements and any potential additional Nord/LB
financing. The RHKG Loan Agreements call for a five year repayment term and the
reserving of dividends from the AHTS SPV’s for this purpose. The current Nord/LB
financing has a significantly longer payment term of ten to twelve years, and
the terms regarding restrictions on our use of dividends from the AHTS SPVs are
less prohibitive than those under the RHKG Loan Agreements. However, there can
be no assurances that the terms of any additional advances under the potential
additional Nord/LB financing will be the same as the current terms.




In the
event we are unable to resolve the issues with Nord/LB to fund amounts under the
Senior Loan sufficient to make these progress payments or if Fincantieri or RHKG
are unwilling or unable to loan the remaining amounts necessary for delivery of
the remaining three vessels, and we are unable to raise the necessary funds from
other sources, we may not be able to fund the remaining payments necessary to
effect delivery of the remaining vessels. If that were to occur, we would be in
default of the shipbuilding contracts and our Senior Loan documents. In the
event we were to default on the Senior Loan agreement, Nord/LB could foreclose
on our vessels or avail itself of the other rights and remedies contained in the
Senior Loan documents. If we were to default on the shipbuilding contracts,
Fincantieri could cease construction on the vessels, and could seek payment for
completed work, plus a 10 percent profit on the remaining work to complete the
vessel. If Reederei Hartmann were to provide funds to the SPV pursuant to the
Hartmann Guarantee to cover the payments due other than as a further loan under
the RHKG Loan Agreements and we were unable to fund our remaining capital by the
date of delivery of the respective vessels, Reederei Hartmann could take over
the unfunded portion of our equity interest in (i) the AHTS SPVs and (ii) the
mini-bulker SPVs pursuant to the applicable “Sale and Assignment of a Limited
Share” agreement, in each case, by and between the German Subsidiary and
Reederei Hartmann.




We
depend upon the ability of the entities through which we operate to distribute
funds to us in order to make payments to unit holders.


We do not
expect to have any significant assets at our parent limited partnership level
other than equity securities in our direct and indirect subsidiaries, including
the SPVs. As a result, our ability to make distributions and other payments to
our partners depends upon the operations of the SPVs and their ability to
distribute funds to us. In connection with the credit facility with Nord/LB and
Reederei Hartmann’s $45,932,786 (EUR 32,046,875) corporate guarantee thereunder,
the German Subsidiary entered into (i) the Share Transfer Agreement SCMP (“Share
Transfer Agreement”), (ii) two “Sale and Assignment of a Limited Share”
agreements allowing Reederei Hartmann to increase its equity interest in the
mini-bulker SPVs, in each case if such corporate guarantee is drawn, and (iii)
the RHKG Loan Agreements, which could allow Reederei Hartmann to increase its
equity interest in the AHTS SPVs if we default in our repayment obligations.
Additionally, in connection with the RHKG Loan Agreements, the ability of our
German Subsidiary and SPVs to make these distributions is restricted, as the
funds generated by the AHTS SPVs are held in escrow pending the satisfaction of
capital funding requirements of all AHTS SPVs and the repayment of the loans
under the RHKG Loan Agreements. In addition, the ability of our SPVs and German
Subsidiary to make these distributions could be affected by a claim or action by
a third party, including a creditor, or the terms of its organizational
documents or laws of its jurisdiction of formation. Additional information
related to the Nord/LB financing is included in this Form 10-K under Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations under the caption entitled Financing Arrangements in the
Liquidity and Capital
Resources section.


24


We
have a limited operating history, and neither the partnership nor the general
partner has significant experience in the shipping industry.


The
partnership and the general partner were organized in 2006 and have little
operating history. Prior to the formation of the partnership and the general
partner, the management of the general partner did not have any experience in
the shipping industry. Only eight of the eleven vessels in our current fleet
have been delivered to the relevant SPV as of the date of this Form 10-K, with
the first of the two mini-bulkers being delivered in August 2007 and the first
of the AHTS vessels being delivered in February 2009. This lack of experience
and limited operating history causes a lack of extended historical financial and
operational data making it more difficult to evaluate our business, forecast
future revenues and other operating results and assess the merits and risks of
ownership of our partnership units. This lack of information increases the risk
of partners’ investments. Moreover, risks and uncertainties frequently
encountered by companies with a limited operating history should be considered
and evaluated. These risks and difficulties include challenges in accurate
financial planning as a result of limited historical data and uncertainties
resulting from the relatively limited time period for implementation and
evaluation of our business strategies as compared to older companies with longer
operating histories. Our failure to successfully address these risks and
difficulties could materially harm our business, financial condition and results
of operations.




We
may not make cash distributions, either because our business plan is not
successful, our cash flows are not sufficient to cover our operating expenses
and debt repayment obligations or we decide to reinvest our income.


We may be
unable to make cash distributions to our partners if the income from our
operations and investments does not exceed our operating costs and debt
repayment obligations. Also, funds generated by all of our SPVs shall be held in
escrow and may not be distributed until the capital funding requirements of each
SPV have been satisfied and funds generated by our SPVs which are parties to the
RHKG Loan Agreements are prohibited from being distributed until the repayment
of the RHKG loan attributable to such SPV. In addition, the general partner may
retain income from our investments to reinvest rather than make distributions to
the partners. We are not obligated to make distributions to the limited partners
except for their pro rata share of any distributions that we make in the
discretion of the general partner and upon liquidation of the
partnership.




The
structure of our operations through the Cyprus Subsidiary outlined herein is
subject to changes due to tax, financial or other reasons. Any such changes
could adversely affect the partnership, our results of operations and limited
partners’ investments.


We
currently own and operate our vessels through the Cyprus Subsidiary. We chose
this structure based upon tax, financial and other issues relating to the
partnership and our operations. However, the structure may change significantly
in the future due to the termination or amendment of any existing or anticipated
contract, changes in or revised assumptions with respect to tax law, additional
fundraising or debt issuance or for any number of other reasons. Subject to the
rights of other parties involved in our structure, the general partner has the
ability to change the operating structure for any reason. Any such changes in
the structure could adversely affect our rights and obligations, results of
operations and limited partners’ investments. In addition, we have not yet
determined the ultimate structure for the potential acquisition of the chemical
tanker. Should we acquire the chemical tanker or any other vessels, the tax
effects of the ownership, operation and sale of such vessels may be materially
different than those outlined herein.




We
own and operate our vessels through majority owned entities and often rely on
third parties to operate our vessels.


We own
and operate our vessels through offshore entities that are managed by persons
that we do not employ. The success of our operations depends on the decisions of
third parties who manage our vessel operations, including our ship managers. Our
relationships are contractual in nature and such contracts may be terminated
under certain circumstances. If our relationships with these third parties are
terminated, we may or may not be able to establish relationships on the same or
similar terms with other persons experienced or qualified to operate such
vessels.





Our
intended use of debt financing at various levels of our organizational structure
magnifies the risk of loss and our exposure to adverse economic
conditions.


We
utilize substantial debt financing to fund our operations and expect this to
continue. In addition to the current loans, notes and credit facilities, we may
borrow funds through the partnership, Cyprus Subsidiary, German Subsidiary, SPVs
or elsewhere to finance the construction, acquisition, management and operation
of our vessels and shipping activity. Consequently, the entity level at which we
borrow and the associated interest rates will affect our operating results and
potential profit. Additional information regarding our credit facilities is
provided in this Form 10-K under Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations under the caption entitled Financing Arrangements in the
Liquidity and Capital
Resources section.


25


There are
limitations on our use of leverage at the AHTS SPV level associated with the
terms of the Nord/LB financing. There are also limitations on our use of
leverage in our wholly owned subsidiary Kronos related to the terms of the
Deutsche Schiffsbank facility, which would be drawn upon in the event we
exercise our option to purchase the chemical tanker. These limitations would
require us to obtain the consent of the senior lender, Nord/LB and Deutsche
Schiffsbank, respectively, before adding additional leverage in either the AHTS
SPVs or Kronos. Our debt as of December 31, 2009 totals $158,386,070, the
current portion of which is $17,858,391. This amount includes the original
principal balances of the respective loans and any interest accrued on those
balances through December 31, 2009. Interest due on those loans is rolled into
the loan renewal amounts, typically on a quarterly basis, upon which additional
interest then accrues.




In
addition to the existing credit facilities, we may enter into other agreements
with one or more banks or other financial institutions regarding our borrowings
and will usually mortgage the assets of each such entity as collateral for the
loans, including the vessels owned by such entities. We may seek standby or
permanent financing from one or more banks; borrow funds from institutions,
foreign or domestic, by means of privately placed notes or debentures; and enter
into other type of financing arrangements that the general partner considers
appropriate. The amounts available for borrowing under the existing credit
facilities and other borrowing available to us, if any, are not sufficient to
pay for the acquisition of all of our vessels, our operating activities and
other necessary activities. In the event we are not able to raise sufficient
debt or other financing, we may not be able to fund our operations and
acquisition of our remaining vessels under contract. As a result, we will be
required to raise additional amounts from the sale of debt or equity from other
sources. In addition, the banks may foreclose on our existing vessels or other
assets or we may lose some ownership in our AHTS vessels and/or the mini-bulkers
to Reederei Hartmann.




Because
our operational strategy includes substantial capital leverage, our operations
will be subject to increased exposure to adverse economic factors such as
increases in interest rates, downturns in the economy or further deterioration
in economic conditions. Similarly, we may be unable to generate sufficient cash
flows to meet principal and interest payments on our indebtedness. Accordingly,
our results of operations and financial condition could be severely
impaired.




The
cross-collateralization of our AHTS vessels with the vessels of FLTC Fund I
pursuant to the fleet financing arrangement contained in the credit facility
with Nord/LB could result in foreclosure on our AHTS vessels resulting from the
default of FLTC Fund I under its financing arrangements with
Nord/LB.


In order
to obtain more favorable financing terms under the credit facility with Nord/LB,
we agreed to a fleet financing arrangement whereby such credit facility would be
secured by three AHTS vessels owned by our affiliate, FLTC Fund I, and our nine
AHTS vessels. As a result, if FLTC Fund I were to default under its financing
arrangements with Nord/LB, Nord/LB could potentially foreclose on one or more of
our AHTS vessels notwithstanding the absence of a default by us under the
Nord/LB credit facility. In the event of such a foreclosure on one or more of
our AHTS vessels, we would seek restitution from FLTC Fund I; however, there are
no assurances that we would be able to obtain all or a portion of any such
amounts demanded.




We
have entered into a mutual indemnity agreement with three AHTS SPVs owned by our
affiliate, FLTC Fund I, which could cause us to incur substantial
indemnification obligations to such AHTS SPVs.


In
connection with the cross-collateralization of our AHTS vessels with the AHTS
vessels of FLTC Fund I pursuant to the Nord/LB credit facility, we entered into
a mutual indemnity agreement in May 2009 with the three AHTS SPVs owned by FLTC
Fund I (the “AHTS Mutual Indemnity Agreement”). Pursuant to the AHTS Mutual
Indemnity Agreement, we agreed to indemnify the AHTS SPVs owned by FLTC Fund I
for all liabilities suffered by such AHTS SPVs arising out of or associated with
any breach by us (or resulting from any payment or performance by such AHTS SPVs
in order to avoid a breach by us) under the credit facility with Nord/LB or the
AHTS Mutual Indemnity Agreement. In the event we become obligated to make
payments to the AHTS SPVs owned by FLTC Fund I pursuant to the indemnification
provisions of the AHTS Mutual Indemnity Agreement, our results of operations and
financial condition could be severely impaired.


26


Tax
laws and regulations may change, and such changes could adversely affect our
partners’ investments.


There
have been numerous tax laws and regulations that have been enacted or changed in
recent years. These changes have affected many substantive provisions of the tax
laws. In addition, certain tax laws will expire if not renewed by appropriate
legislative bodies. Some tax laws with foreign governments are set forth in tax
treaties that may be amended or terminated. The impact and interpretation of tax
laws and regulations by courts and tax regulators may change without warning or
may not be fully understood at this time. In formulating our operational
structure, we made certain assumptions with respect to tax laws in the United
States, Germany, Cyprus and the Cayman Islands as well as tax treaties among
these countries. However, those assumptions may not be accurate and future
changes in tax laws and regulations may alter the tax treatment of an investment
in the partnership dramatically. In addition, our operations in the territorial
waters of any country may subject our operations to such country’s tax laws. In
the event our assumptions concerning tax matters prove to be incorrect, an
investment in the limited partner units may suffer significant adverse effects.
In addition, we may not be able to achieve an efficient tax structure and our
results of operations could be subject to higher than anticipated rates of
taxation, unanticipated classification of income and substantial penalties and
interest.




Parties
who have or are considering investing in our limited partner units should
conduct a thorough review of the tax treatment of their ownership of limited
partner units with their tax advisor. The partnership and the general partner
cannot advise limited partners with respect to the tax implications of an
investment in the partnership.




Our
limited partners may be liable for taxes with respect to their allocated portion
of partnership income and gains, even if such limited partners do not actually
receive distributions of such allocated amounts.


Each
limited partner will be liable for any taxes owed related to their allocable
share of any taxable income or gains realized by the partnership, even if no
distributions are actually made to such limited partner. Pursuant to the terms
of our Partnership Agreement, we are required to make annual cash distributions
to our partners to the extent there is available cash in an amount estimated to
cover the income taxes owed on such allocable income or gains. However, each
partner should be aware that the amount of income taxes owed on allocated
taxable income may exceed the cash available for distribution by the partnership
resulting in an out-of-pocket tax expense to the partners, even if no
distributions are made to such partners. In addition, the sale or transfer of
units or the sale or other disposition of our assets may result in adverse
United States federal income tax consequences to the partners. If the U.S.
Internal Revenue Service (“IRS”) audits the partnership and determines that we
underreported our income, each partner may be assessed unpaid income taxes on
their allocation of such underreported income, including penalties and
interest.




If
our units are traded our units are traded on an established securities market or
the substantial equivalent thereof, we would lose our status as a partnership
for tax purposes and would be taxed as a corporation.


We have
elected to be taxed as a partnership. While we were required to register our
partnership’s Class A units with the SEC pursuant to the Exchange Act, we do not
intend to list the partnership units for trading on any securities exchange or
the equivalent thereof. In addition, the Partnership Agreement substantially
prohibits the transfer of the partnership units. If the partnership units became
traded on an established securities exchange or were deemed to be regularly
tradable on a secondary market or substantial equivalent thereof, we would
become subject to U.S. federal income tax as a corporation. We would then have
to pay taxes on our income at potentially higher rates and our partners would
have to pay additional taxes on distributions.





The
partnership and the general partner are not registered under the Investment
Company Act of 1940 and certain other statutes and, accordingly, our partners
will not be able to rely on the protections afforded by these
statutes.


We are
not registered under the Investment Company Act of 1940, as amended (“Investment
Company Act”), which provides certain protections to investors and imposes
certain restrictions on registered investment companies including restrictions
with respect to capital structure, operations, transactions with affiliates and
other matters. Since we are not registered under the Investment Company Act,
none of these restrictions are applicable to us. The general partner is not
registered as a broker-dealer under the Exchange Act or with the National
Association of Securities Dealers, Inc. (“NASD”), and consequently, is not
subject to the record keeping and specific business practice provisions of the
Exchange Act or NASD. In addition, our general partner is not registered as an
investment adviser under the Investment Advisers Act of 1940, as amended
(“Advisers Act”), and consequently, is not subject to the record keeping,
disclosure and other obligations specified in the Advisers Act.


27


If
either the partnership or any of our subsidiaries were treated as a “passive
foreign investment company,” certain adverse U.S. federal income tax
consequences could result to U.S. tax persons owning partnership
units.


It is
anticipated that the partnership and the Cyprus Subsidiary will be treated as
partnerships for U.S. federal income tax purposes. The general partner intends
to treat the partnership and the Cyprus Subsidiary as partnerships for U.S.
federal income tax purposes; provided, however, following the reorganization of
the Cyprus Subsidiary, the Cyprus Subsidiary will be treated as an entity
disregarded as separate from the partnership. If either the partnership or the
Cyprus Subsidiary is recharacterized by the IRS as a foreign corporation, it is
possible that either the partnership or the Cyprus Subsidiary could be treated
as a “passive foreign investment company” (“PFIC”) for U.S. federal income tax
purposes.




A foreign
corporation will be treated as a PFIC for U.S. federal income tax purposes if at
least 75% of its gross income for any taxable year consists of certain types of
“passive income” or 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, gains from the sale or exchange of investment property and rents and
royalties other than rents and royalties that 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.” U.S. tax persons owning an equity interest in a
PFIC are subject to a disadvantageous U.S. federal income tax regime with
respect to income derived by the PFIC, distributions received from the PFIC and
gains, if any, derived from the sale or other disposition of ownership interests
in the PFIC. If either the partnership or the Cyprus Subsidiary is treated as a
PFIC or owns an interest in an entity treated as a PFIC for any taxable year, we
will provide information to U.S. tax persons owning partnership units to enable
them to make certain elections to alleviate certain of the adverse U.S. federal
income tax consequences that would arise as a result of holding an interest in a
PFIC.




While
there are legal uncertainties involved in this determination, and we have not
received and do not intend to seek an opinion of counsel or the IRS, the general
partner believes that the German Subsidiary should not be treated as a PFIC
based on the operations in the SPVs. We currently intend for each SPV to hire
its crew and operate its ship under a day rate arrangement. However, if the
vessels were rented to third parties who operated and staffed the vessels (a
“bare boat charter”), the rental income from such vessel would likely be
considered “passive income” and as a result, the German Subsidiary could
possibly be treated as a PFIC if either the income or assets test described
above is satisfied. There is no assurance that the nature of our assets, income
and operations will not change in the future or that we can avoid being treated
as a PFIC in the future.




If
either the partnership or any of the subsidiaries of the partnership were
treated as a Controlled Foreign Corporation, certain adverse U.S. federal income
tax consequences could result to certain U.S. tax persons owning partnership
units.


It is
anticipated that the partnership and the Cyprus Subsidiary will be treated as
partnerships for U.S. federal income tax purposes, and the general partner has
treated the partnership and the Cyprus Subsidiary as partnerships for U.S.
federal income tax purposes; provided, however, as a result of the
reorganization of the Cyprus Subsidiary, the Cyprus Subsidiary will be treated
as an entity disregarded as separate from the partnership. If either the
partnership or the Cyprus Subsidiary is recharacterized by the IRS as a foreign
corporation, it is possible that either the partnership or the Cyprus Subsidiary
could be treated as a “controlled foreign corporation” (“CFC”) for U.S. federal
income tax purposes.




A foreign
corporation, more than 50% of whose vote or value is owned by “U.S.
Shareholders,” is a CFC. For this purpose, a U.S. Shareholder is a U.S. tax
person owning directly, indirectly or constructively 10% or more of the foreign
corporation’s total combined voting power. If a foreign corporation is a CFC,
every person who is a U.S. Shareholder of such corporation and who directly or
indirectly owns stock in such corporation on the last day of the taxable year in
which the foreign corporation is a CFC, must include in his gross income his pro
rata share of the CFC’s “subpart F income” for such year and “increases in
investments in U.S. property” made by the CFC during its tax year. Generally,
subpart F income includes passive income earned by a CFC as well as certain
types of sales, services or insurance income. The definition of passive income
for CFC purposes is the same as passive income for PFIC purposes discussed
above. Under the existing entity structure, while the general partner does not
anticipate that the partnership will have U.S. tax persons owning a 10% or more
interest in the partnership, no assurance can be given that we will not have
such holders or that we or one or more of our subsidiaries will not be
considered a CFC; provided, however, following the reorganization of the Cyprus
Subsidiary, it is anticipated that the partnership will likely have U.S. Tax
Persons owning units in the partnership that may be treated as U.S. Shareholders
of any subsidiary of the partnership that is a foreign corporation which could
result in such subsidiary being treated as a CFC. Additionally, if we or our
subsidiaries are classified as a CFC, a U.S. tax person that directly,
indirectly or constructively owns less than 10% of the value of the
partnership’s units, and, with respect to a subsidiary of the partnership
classified as a CFC, has no other direct, indirect or constructive ownership in
such CFC, would not be subject to U.S. federal income tax under the CFC rules;
but, they might be considered to own an equity interest in a
PFIC.


28


We
have and may incur substantial capital commitments to the AHTS SPVs that own our
vessels. The failure to make any such capital contributions could result in a
loss of partial ownership of such AHTS SPVs and cause severe financial
results.


In order
to outfit our AHTS vessels for operation and establish adequate operational
reserves, we are committed to provide capital contributions to the AHTS SPVs in
an aggregate amount of up to $58,371,143 (EUR 40,725,000) based on capital
contributions through March 15, 2010 upon the request of the general partner of
the AHTS SPVs. The failure to fulfill such capital commitments could result in a
loss of partial ownership of such SPVs, which could have a material adverse
effect on our operating results and financial condition resulting in the partial
or complete loss of an investment in the partnership.




While
our initial business strategy is to invest in new vessels, our Partnership
Agreement authorizes the general partner to make investments in anything related
to the shipping industry.


We were
formed for the primary purpose of acquiring, managing and operating vessels
including AHTS vessels, heavy lift vessels, break bulk vessels, tankers and
other specialty vessels initially through the Cyprus Subsidiary. However,
pursuant to the Partnership Agreement, the general partner has broad discretion
to acquire shipping assets directly or indirectly in any manner in the shipping
industry. In the event the general partner elects to complete the acquisitions
of shipping related assets other than through the Cyprus Subsidiary, our
business plan and investment returns may be different than those outlined
herein.




Our
financing arrangements contain restrictive covenants that limit our liquidity
and ability to make distributions.


Our
existing credit facilities impose operational and financial restrictions on us.
In addition, future financing arrangements may impose similar or additional
restrictions. Examples of these restrictions include, but are not limited to,
limitations on our ability to:




·
            incur
      additional indebtedness;


·
            create
      additional liens on our assets;


·
            make
      investments or loans;


·
            engage
      in mergers or acquisitions;


·
            make
      distributions to our partners;


·
            ship
      certain types of cargo;


·
            enter
      into certain types of charter
agreements;


·
            maintain
      unrestricted cash reserves; and


·
            make
      capital expenditures.




Our
failure to comply with the terms of the existing credit facilities or any other
financing arrangements we enter into could lead to defaults, in which case our
lenders could accelerate our indebtedness and foreclose on our vessels or other
assets securing such loans. The loss of any vessels or other assets would have a
material adverse effect on our operating results and financial
condition.




Our
exit strategies are subject to market uncertainties.


The
feasibility and terms of any proposed exit strategies for our investments will
depend on factors that are not within the control of the general partner or the
partnership including fluctuations in market conditions, status of capital
markets, effect of applicable legislation and political and economic conditions.
Consequently, the precise timing of the disposition of an investment and the
manner of disposition are impossible to predict, and no assurance can be given
that such disposition will be achieved on favorable terms, if at
all.


29


An
investment in our partnership units is not and will not be liquid and our
limited partners will not be able to sell their units.


Our
limited partners will not be able to sell or transfer partnership units without
the approval of the general partner. In addition, any transfer of units may be
made only if the transfer is registered or exempt from registration under the
Securities Act of 1933 (“Securities Act”) and other applicable state securities
laws. There currently is not a market for the units, and we do not expect a
market to exist in the foreseeable future. Our limited partners will not be able
to liquidate their investment in their partnership units in the event of an
emergency or for any other reason. Additionally, partnership units may not be
accepted as collateral for loans. The duration of the partnership is perpetual
and there is no guarantee the partnership will liquidate within any specified
time frame, although the partnership may be dissolved upon the approval of the
partners holding at least eighty percent (80%) of the Class A, B, C and general
partner units.




We
are a Cayman Islands limited partnership, and the Cayman Islands do not have a
well developed body of partnership law.


Our
affairs are governed by our formation documents, Partnership Agreement and the
business laws of the Cayman Islands. The provisions of such laws may be similar
to provisions of partnership laws of a number of states in the United States;
however, there have been few, if any, judicial cases in the Cayman Islands
interpreting such laws. The rights and fiduciary responsibilities of the general
partner and limited partners under the law of the Cayman Islands are not as
clearly established as the rights and fiduciary responsibilities of such
partners under statutes or judicial precedent in existence in certain U.S.
jurisdictions. As a result, our partners may have more difficulty in protecting
their interests in the face of actions by management or the general partner than
would partners of a partnership formed in a U.S. jurisdiction.




It
may be difficult to enforce service of process and enforcement of judgments
against us, our officers and our directors.


We are a
Cayman Islands limited partnership and almost all of our assets will be located
outside of the United States. Our operating structure also includes Cyprus and
German entities. As a result, it may be difficult enforcing, both in and outside
of the United States, judgments obtained in the U.S. courts against us,
including actions based upon the civil liability provisions of U.S. federal or
state securities laws. There is also substantial doubt that the courts of the
Cayman Islands, Cyprus, Germany or any other foreign jurisdiction would enter
judgments in original actions brought in those courts predicated on U.S. federal
or state securities laws.




Our
Partnership Agreement permits us to issue additional units without our partners’
approval, which would dilute existing unitholders’ interest.


Our
Partnership Agreement permits our general partner to create additional classes
of units and issue additional units without any additional approval from our
limited partners. We are permitted, without any further approval of the limited
partners, to issue additional classes of units at any time in the future which
may be pari passu with
or junior to the existing units, but which may not, unless approved by the
limited partners, be senior to the General Partner, Class A, Class B, Class C or
Class D units with respect to right and timing of payment; provided, that any
additional class of units shall not be considered senior solely as a result of
it being issued at a different price or with allocation or distribution
participation percentage rights as to specific assets or income streams that are
different than the rights of the General Partner, Class A, Class B, Class C or
Class D units. The issuance of additional units may dilute the value of the
interests of the existing unitholders in our net assets and dilute the interests
of unitholders in distributions by us.




The
issuance of additional partnership units may result in adverse tax consequences
to purchasers of such additional partnership units.


The
issuance of additional units to prospective purchasers could result in adverse
tax consequences to the purchasers of such additional units if the fair market
value of the assets of the partnership has significantly increased at the time
of the issuance of such additional units. Under the Partnership Agreement,
purchasers of additional units may receive disproportionate allocations of items
of income and gain in the year of issuance of such additional units if the
partnership determines to adjust the book value of the assets of the partnership
as permitted by the capital account maintenance rules contained in Treasury
Regulations. However, the IRS may take the position that the issuance of such
additional units should result in a currently taxable capital shift to the
purchaser of such additional units.


30


If
the partnership is deemed to be an investment company under the Investment
Company Act, we will not be able to execute our business strategy.


Because
we can operate in a manner similar to venture capital funds, there is a risk
that the SEC or a court might conclude that we fall within the definition of an
“investment company,” and unless an exemption is available, we would be required
to register under the Investment Company Act. Compliance with the Investment
Company Act as a registered investment company would cause us to significantly
alter our business strategy of participating in the management and development
of affiliated entities, impair our ability to operate as planned and harm our
business. In addition, our contracts might become voidable and a court could
appoint a receiver to take control of and liquidate our business.




The SEC
has adopted Rule 3a-1 that provides an exemption from registration as an
investment company if an entity meets both an asset and income test and is not
otherwise primarily engaged in an investment company business. Such investment
company business would consist of such acts as holding itself out to the public
as such or by taking controlling interests in entities with a view to realizing
profits through subsequent sales of these interests. An entity satisfies the
asset test of Rule 3a-1 if it has no more than 45% of the value of its total
assets, adjusted to exclude U.S. Government securities and cash, in the form of
securities other than interests in majority-owned subsidiaries and entities
which it primarily and actively controls. An entity satisfies the income test of
Rule 3a-1 if it has derived no more than 45% of its net income for its last four
fiscal quarters combined from securities other than interests in majority owned
subsidiaries and primarily and actively controlled entities.




Our
business strategy and activities involve taking mainly majority ownership and
primary controlling interests in partner entities with a view of participating
actively in their management and development. We believe that this strategy and
the scope of our business activities would not cause us to fall within the
definition of an investment company or, if so, provide us with a basis for an
exclusion from the definition of an investment company under the Investment
Company Act. We cannot assure investors that our organizational structure and
business strategy will preclude regulation under the Investment Company Act, and
we may need to take specific actions that would not otherwise be in our best
interests to avoid such regulation.




If we
fell under the definition of an investment company and were unable to rely on an
available exemption or obtain an order of the SEC granting an exemption, we
would have to register under the Investment Company Act and comply with
substantive requirements applicable to registered investment companies. These
requirements include:




·
            limitations
      on our ability to borrow;


·
            limitations
      on our capital structure;


·
            restrictions
      on acquisitions of interests in associated
  companies;


·
            prohibitions
      on transactions with affiliates;


·
            restrictions
      on specific investments; and


·
            compliance
      with reporting, record keeping, voting, proxy disclosure and other rules
      and regulations.




Certain
rules and regulations under the Employee Retirement Income Security Act of 1974
(“ERISA”) and the Internal Revenue Code of 1986, as amended (“the Code”) could
significantly change our operations and prevent us from executing our business
model.


The rules
under ERISA and the Code are broadly construed and may change by the issuance of
new guidance or new interpretations of existing rules. Depending on how such
rules are construed or change, such rules could adversely affect investment in
the partnership.




There are
numerous rules under ERISA and the Code that apply to employee benefit plans and
their fiduciaries. On a fairly regular basis, new rules under ERISA and the Code
are issued by the applicable regulatory authorities. In addition, the courts and
regulators regularly issue other binding and non-binding guidance regarding the
application of these rules. Often this guidance is based on a specific fact
pattern which could be analogous to one or more of the features of the
partnership and our investments. The impact and interpretation of these rules by
courts and regulators may change without warning or may not be fully understood
at this time. In formulating our organizational structure, we have attempted to
comply with these rules in good faith; however, these rules and some of the
guidance related thereto create uncertainty as to whether certain features
involving the partnership are in compliance with ERISA and the Code. In the
event our compliance efforts concerning these rules prove to be insufficient or
incorrect, an investment in the partnership units may suffer significant adverse
effects. In particular, the fiduciaries of the partnership and a “benefit plan
investor” could be required by the courts and/or regulators to unwind any
transaction that results in a violation of ERISA and/or the Code and pay
penalties in connection with the transaction such as penalties for the breach of
fiduciary duties under ERISA and excise taxes for the engagement in prohibited
transactions under the Code. Moreover, depending on the extent to which the
partnership and “benefit plan investors” may be required to unwind a
transaction, it may not be in our best interest to remain as a going
concern.


31


If
our assets are deemed to be “plan assets,” we may not be able to execute our
business strategy.


If our
ownership of “benefit plan investors” were to equal or exceed 25% of any class
and we were unable to comply with the venture capital operating company
requirements, our assets could be deemed “plan assets” which could adversely
affect our operations, administration and the duties, obligations, liabilities
and remuneration of the general partner. As a result of our acceptance of a
limited number of ERISA partners to date and our desire to avoid having our
assets deemed to be “plan assets,” our Partnership Agreement includes certain
ERISA provisions to provide us with some means of avoiding having our assets
deemed to be “plan assets.” These provisions may not enable us to avoid having
our assets deemed to be “plan assets.”




All
of our business decisions will be made by the general partner.


Control
of our business and affairs is vested exclusively in the general partner. The
limited partners have no contractual right to participate in our management,
except that the limited partners have the right to remove the general partner
under limited circumstances and the Class D partners have certain limited
approval rights with respect to actions taken through our Cyprus Subsidiary. The
general partner may transfer all of its General Partner units, and thereby
substitute another person as the general partner, without the approval of the
limited partners.




There
may be conflicts of interest as a result of the general partner’s ability to
engage in other business and investment activities.


The
general partner and its affiliates are permitted to engage in other business and
investment activities outside of the partnership. The general partner will
receive reimbursements from us for various expenses and certain affiliates of
the general partner will receive payments from us in connection with our
operations. The general partner and certain of its affiliates will receive
compensation from us or our operations regardless of our profitability. The
general partner may contract for goods and services on our behalf in non
arm’s-length transactions with affiliates of the general partner. Additionally,
certain officers and/or directors of the general partner will also devote
substantial business time and efforts to other entities organized in the future
by the general partner or its affiliates. For example, certain officers and
directors of the general partner serve in similar capacities with respect to
FLTC Fund I, an affiliate of the general partner, which is engaged in a similar
line of business to ours. FLTC Fund I is also a co-borrower under the Nord/LB
credit facility. Additionally, we pay monthly fees to DCMI, which is owned in
part by the chief financial officer of our general partner, in exchange for
DCMI’s performance of certain administrative and professional services on our
behalf.




There
may be conflicts of interest as a result of the general partner’s limitation of
liability and indemnification under our Partnership Agreement.


Under the
terms of our Partnership Agreement and to the extent not expressly inconsistent
with applicable law, the general partner shall not be liable, responsible or
accountable for any damages, losses, claims, liabilities, expenses, judgments,
fines, demands or other amounts, or in any other manner whatsoever to us, any
partner or any other person or entity for any action taken or for the failure to
take any action on our behalf within the reasonable scope of the authority
conferred on the general partner under our Partnership Agreement or by law,
unless the act or inaction giving rise to a claim against the general partner is
determined to have constituted actual fraud, gross negligence, willful
misconduct or recklessness against the partnership.




Furthermore,
under the terms of our Partnership Agreement and to the extent not expressly
inconsistent with applicable law, the partnership, its receiver, its trustee and
its successors or assigns, shall indemnify the general partner against and save
it harmless from any claim, demand, judgment or liability, and against and from
any loss, cost, fee, fine, damage or expense (including, without limitation,
attorneys’ fees and court costs), that may be made or imposed upon the general
partner by reason of or arising with respect to (i) any act performed for or on
our behalf or in furtherance of our business, (ii) any inaction on the part of
the general partner, (iii) any liabilities arising under any foreign, federal
and state securities laws to the extent permitted under applicable law, (iv) any
liabilities arising under any and all other laws as in effect from time to time,
or (v) the general partner’s status as a partner or as an employee, consultant
or agent of the partnership or any affiliate thereof, and regardless of whether
brought by a third-party, by a partner or by or on behalf of the
partnership.


32


There
may be conflicts of interest as a result of the diversity of our limited
partners.


Our
limited partners may include U.S. taxable and tax-exempt entities and
institutions from jurisdictions outside of the United States. Such limited
partners may have conflicting investment, tax and other interests with respect
to their interests in the partnership. The conflicting interests of individual
limited partners may relate to or arise from, among other things, the nature of
our ship investments, structuring of the acquisition of assets and timing of the
disposition of such assets. As a consequence, conflicts of interest may arise in
connection with decisions made by our general partner, including with respect to
the nature or structuring of ship investments, that may be more beneficial for
one limited partner than for another limited partner, especially with respect to
limited partners’ individual tax situations. In selecting and structuring
appropriate asset acquisitions, the general partner will consider the business
strategy and tax objectives of the partnership and the partners as a whole, not
the individual business strategy, tax or other objectives of any limited
partner.




There
may be conflicts of interest as a result of our general partner’s carried
interest.


Pursuant
to the terms of our Partnership Agreement, our general partner is entitled to
receive a portion of distributions that would otherwise be distributed to our
limited partners. Our general partner paid $100 per unit for the general partner
units it purchased, which are entitled to their pro rata portion of any
allocations and distributions alongside our Class A, B and C units. However, in
addition to this pro rata right, our general partner is entitled to a portion of
all amounts which would otherwise be distributable to our Class A limited
partners, or “carried interest.” This carried interest is payable in connection
with our general partner’s actions as general partner and is not in respect of
any capital contributed by the general partner. Because of our general partner’s
carried interest, our general partner might not always be aligned with the
interests of our limited partners due to the possibility that our general
partner may be inclined to make riskier or more speculative investments on our
behalf than would the case in the absence of such carried interests. However,
the incentive of our general partner to make any such risky or speculative
investments may be tempered by reason of the capital investments of our general
partner and its affiliates and by the fact that losses will reduce our
performance as well as the amount of any distributions to our general
partner.




There
may be conflicts of interest as a result of our legal
representation.


Our
attorneys have acted as counsel to the partnership in connection with various
activities and as counsel to our general partner and certain of its affiliates.
The partnership will generally engage common legal counsel to represent such
parties in a particular transaction, including a transaction in which different
parties may have conflicting interests. Although separate counsel may be engaged
from time to time in the sole discretion of our general partner, our general
partner believes the advantages of having a common counsel for the partnership,
time and cost savings and other efficiencies usually outweigh the
disadvantages.




Dissolution
of the partnership may have adverse consequences.


The
partnership may be dissolved at any time by the general partner. Dissolution of
the partnership could occur at a time that would be disadvantageous to our
limited partners upon the approval of partners holding at least 80% of our
partnership units (other than Class D units). The partnership units may be
materially and adversely affected by our dissolution and our limited partners
may sustain economic losses, including adverse U.S. federal income tax
consequences, from such dissolution. Upon dissolution or termination of the
partnership, the proceeds realized from the liquidation of assets, if any, will
be distributed to our limited partners after the satisfaction of the claims of
our creditors and the establishment of any reserves that the general partner
deems necessary for any contingent or unforeseen liabilities or obligations.
Accordingly, our limited partners’ ability to recover all or any portion of
their investment under such circumstances will depend upon the amount of funds
realized and claims to be satisfied in connection with the
dissolution.


33


Item
2. Properties





Our most
significant assets are and will continue to be the vessels we own and plan to
acquire, each of which is described in this Form 10-K under Item 1. Business.
Additionally, in connection with our service agreement with DCMI, DCMI allows us
to use the 2,697 square feet of office space located at 5580 Peterson Lane in
Dallas, Texas, which comprises a portion of the leased space governed by a
master lease agreement with Peterson Place Partners, Ltd. This office space
serves as our principal corporate office in Dallas, Texas, and is currently
adequate to accommodate our office needs. Functions performed in the Dallas
office include overall corporate management, planning and strategy, corporate
finance, investor relations, governmental affairs and accounting, tax, treasury,
information technology, legal and human resources support
functions.





Item
3. Legal Proceedings





We may in
the future be involved as a party to various legal proceedings, which are
incidental to the ordinary course of business. We regularly analyze current
information and, as necessary, provide accruals for probable liabilities on the
eventual disposition of these matters. No director, executive officers or
affiliate of ours or owner of record or beneficially of more than five percent
of any class of our limited partner units is a party adverse to us or has a
material interest adverse to us in any proceeding. In the opinion of management,
as of December 31, 2009, there were no threatened or pending legal matters that
would have a material impact on our consolidated results of operations,
financial position or cash flows.





PART
II





Item
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities





Our
limited partnership units are not publicly traded. There is no market for these
units and it is unlikely that a market will develop. As of March 22, 2010, the
number of units outstanding and number of partners were as follows:





Title of Class
                  
                  Number of
                    Partners
                  
                  
                  Number
                    of UnitsGeneral
      Partners
                  
                  
                  1
                  
                  
                  
                  9,900Class
      A Limited Partners
                  
                  
                  661
                  
                  
                  
                  614,216Class
      B Limited Partners
                  
                  
                  47
                  
                  
                  
                  84,313Class
      C Limited Partners
                  
                  
                  —
                  
                  
                  
                  —Class
      D Limited Partners
                  
                  
                  2
                  
                  
                  
                  2,000711
                  
                  
                  
                  710,429





Dividends
are not paid on the limited partnership units. At the general partner’s
discretion, we may, from time-to time, distribute excess cash flows or capital
proceeds to the partners in the event that such funds exist or are earned. Our
distribution provisions can be found in our Second Amended and Restated Agreement of
Limited Partnership, included as Exhibit 3.4 to this Form 10-K. No
distributions were made to our limited partners during the years ended December
31, 2009 and 2008, and we do not anticipate paying distributions during 2010.
Distributions can only be paid after all operating costs and debt service.
Additionally, certain provisions of our debt instruments restrict the amount of
potential cash available for distribution. Please refer to Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations under
the caption Financing
Arrangementsin theLiquidity
and Capital Resourcessection.





During
the time period beginning on our formation on October 18, 2006 and ending on
December 31, 2009, we issued and sold approximately 708,457 General Partner,
Class A and Class B limited partnership units to our partners at a purchase
price of $100.00 per unit. Out of these units, 9,900 were General Partner units
issued to our general partner, 612,244 were Class A limited partner units and
84,313 were Class B limited partner units. We also issued 2,000 Class D limited
partner units in exchange for certain securities of our Cyprus
Subsidiary.


34





During
the quarter ended December 31, 2009, we issued and sold approximately 6,626
Class A limited partner units to our partners at a purchase price of $100.00 per
unit. No General Partner, Class B, or Class D units were sold or issued during
the quarter.





Exemption
from registration for Sales of Restricted Securities





None of
these sales were registered with the SEC. Each of these sales were deemed to be
exempt from registration under the Securities Act pursuant to Section 4(2) and
Rule 506 of Regulation D thereof, as transactions by an issuer not involving a
public offering. No underwriting discounts or commissions were paid in these
transactions and we conducted no general solicitation in connection with the
offer or sale of the securities. The purchasers of the securities in each
transaction were accredited investors as defined in Regulation D, and such
purchasers made representations to us regarding their status as accredited
investors and their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof.
Registration of sales to accredited investors is preempted from state regulation
by Section 18 of the Securities Act, though states may require the filing of
notices, a fee and other administrative documentation. All purchasers were
provided a private placement memorandum containing all material information
concerning the partnership and the offering. All purchases were made with cash
and the total amount of cash consideration for those securities was
approximately $70,645,720.





Issuer
Purchases of Equity Securities





We did
not repurchase any of our partnership units during the fourth quarter of fiscal
2009.





35


Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations





The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations is a discussion of our historical consolidated financial
condition and operating results for the fiscal years ended December 31, 2009 and
2008. This report should be read in conjunction with our audited consolidated
financial statements and related notes as presented elsewhere in this
report.





The
discussion includes forward-looking statements. As such, the cautionary language
applicable to such forward-looking statements described above in Forward-Looking Statements is
incorporated by reference into this section. Forward-looking statements are
management’s best estimates, and actual results could differ substantially from
those estimates. Among the factors that could cause actual results to differ
materially are those discussed in this Form 10-K under Item 1A. Risk
Factors.





Our
functional currency is the U.S. dollar (“USD”). However, the functional currency
of many of our subsidiaries is the Euro (“EUR”). All amounts are stated in USD,
and where the amount relates to a subsidiary, the amount has been restated in
EUR following the USD amount. Amounts related to future payments which are
payable in EUR have been stated in USD and translated using the exchange rate as
of December 31, 2009. Amounts shown in narrative statements related to payments
made in the past have been translated using the exchange rate on the date the
transaction occurred. When comparisons are made between balance sheet dates, the
appropriate exchange rate for the given balance sheet date is used. When
comparisons are made related to income statement amounts, the average exchange
rate for the given period is used.





Overview





The
partnership is a Cayman Islands exempted limited partnership formed in October
2006 with III to I International Maritime Solutions Cayman, Inc. as our general
partner. Through our subsidiaries, we own majority interests in nine
anchor-handling tug supply (“AHTS”) vessels, six of which are in operation, and
non-controlling interests in two multipurpose bulk carrier vessels
(“mini-bulkers”) currently in operation. The first three AHTS vessels were
delivered in 2009, with three more AHTS vessels being delivered so far in
2010.





The
average charter rate per day based on contracts currently in place as of
December 31, 2009 was $32,333 per day. Our first AHTS vessel, UOS Atlantis, was
delivered in February 2009. The vessel was placed in operation through a
one-year charter through March 2010. On November 4, 2009, an extension of this
charter was executed, resulting in an adjustment to the rate and an extension of
the term of the contract through March 14, 2011. The new rate was retroactive to
September 16, 2009. Our second AHTS vessel, UOS Challenger, was delivered in May
2009. It began operating in June 2009 under a charter agreement with a term of
approximately seven months with an option for an additional 18 months, which was
exercised on December 16, 2009. Our third AHTS vessel, UOS Columbia, was
delivered in October 2009, and was placed into the North Sea spot market, where
it completed two short-term charters over its first sixty days in operation, one
for seven days and one for one day. The vessel then began operating under the
first of two short-term charters, the second of which began in mid-February as a
three month charter, with options for one three month extension and ninety
one-day extensions. The last three AHTS vessels were delivered one in February
2010 and two in March 2010, and are currently seeking charters.





Each of
the entities holding one of our AHTS vessels (each an “AHTS SPV”) has entered
into a ship management agreement with Hartmann Offshore for the management of
its respective vessel. Each of our mini-bulkers is managed by Reederei Hesse.
Reederei Hesse and their affiliates and affiliates of the Hartmann Group
collectively own the remaining ownership of each of the mini-bulkers. In
addition to our AHTS vessels and mini-bulker acquisitions, we have advanced
funds for the potential purchase of a chemical tanker to be held in a separate
special purpose entity (“SPV”) which will be owned by Kronos Shipping I, Ltd.
(“Kronos”). If the acquisition of the chemical tanker is completed, we intend to
retain Bernhard Schulte Shipmanagement (“Schulte Group”) to manage the
operations of our chemical tanker as part of a fleet of like-kind vessels in the
Hanseatic Tanker Pool.


36





In light
of the global downturn in the economy and the resulting decrease in charter
rates for chemical tankers, and product tankers in general, we are currently
re-evaluating our intentions with respect to the chemical tanker, and believe it
is unlikely that we will complete the acquisition of the tanker unless the
shipyard constructing the vessel agrees to significant concessions, to include
timing of construction installments and an adjustment to the overall contract
price. We have therefore recognized an impairment to the deposit on asset
acquisition on our balance sheet to reduce the carrying value of this asset,
resulting in the recognition of a loss on impairment of $9,874,907. If we do
formally forfeit our option to acquire the tanker, we expect to recognize gain
on the extinguishment of debt of $5,300,000 in a future period. The net result
of this would be a loss of approximately $4,574,907, which in the end represents
liquidating damages of $3,000,000 plus our capitalized costs approximating
$1,574,907. Please refer to the caption Chemical Tanker Transaction/Schulte
Group Facility/Kronos under Financing Arrangements in
the Liquidity and Capital Resources section for additional information regarding
the potential acquisition of the chemical tanker.





With the
first six AHTS vessels delivered and the first three operating under charters,
our operations have begun to shift focus from development stage to vessel
operations, and we are therefore no longer a development stage company as
defined theDevelopment Stage
Entitiestopic of Financial Accounting Standards Board Accounting
Standards Codification (“FASB ASC”), FASB ASC 915.





The
mini-bulkers are merchant ships specially designed to transport bulk cargo and
typically operate under short-term leases in established liner services between
the Baltic area and Northern Spain, Portugal, the Mediterranean Sea, Greece,
Turkey and Israel where the operator has established long-term
partners.





The AHTS
vessel industry supports the exploration, development and production stages of
offshore oil and gas drilling. Our AHTS vessels are specialized vessels built to
tow deepwater drilling rigs into position and deploy and recover the mooring
systems for the rig. The vessels may also be used for rig and platform supply,
transportation of bulk and deck cargo and in emergency situations such as
fire-fighting, evacuation of personnel or oil recovery operations. The market
for our AHTS vessels, which we anticipate will represent the majority of our
operations, is dependent upon the numerous factors which drive demand for
offshore oil and gas exploration and development. This demand is ultimately tied
to oil and gas prices that are determined by the supply and demand relationship
for oil.





Our AHTS
vessels could support offshore deep sea oil and gas drilling in any of the
following locations: the North Sea, Gulf of Mexico, Mediterranean Sea, Brazil,
Indian Ocean, West Africa, Southeast Asia and Australia. They will generally be
available to work worldwide, with the exception of the United States due to
Jones Act restrictions. Once in operation, we anticipate that our AHTS vessels
will earn revenue through time charter leasing arrangements with oil companies
under either short-term “spot market” charters, which are measured in days or
weeks, or long-term charters, which typically range from one to three
years.





In March
2009, we entered into an agreement (“AHTS Pool Agreement”) with United Offshore
Support GmbH & Co. KG (“UOS”), an affiliate of Hartmann Offshore and a
member of the Hartmann Group, to participate in a revenue pool comprised of our
nine AHTS SPVs and three AHTS SPVs owned by our affiliate, FLTC Fund I (the
“Pool Members,” together the “UOS AHTS Pool”). The agreement names UOS as the
“Pool Manager,” with responsibility for the management and accounting of the
pool and also for monitoring Pool Members’ compliance with the AHTS Pool
Agreement. Under the AHTS Pool Agreement, each of our AHTS SPVs has agreed to
pool its revenue less voyage expenses (“Voyage Results”) with the other Pool
Members to achieve an even distribution of the risks resulting from the
fluctuation in the offshore chartering business. The AHTS Pool Agreement will
have no effect on our consolidated revenues until such time as one of the FLTC
Fund I vessels is placed in service, which is expected to occur in May 2010.
Under these arrangements, our AHTS SPVs will typically be responsible for their
individual vessel operating expenses such as crew costs, class costs, insurance
on the vessel and routine maintenance. Class costs represent the cost of
maintaining our vessels to the level which permits them to obtain annual quality
certificates applicable to the AHTS vessel class, mandatory inspections every
two and one half years and dry docking, which is mandatory every five years.
Crew costs represent the cost of employing the crews, including wages, which
operate the vessel.





AHTS Vessel Net Daily
Earnings


Our AHTS
vessels will operate under time charter leasing arrangements with oil companies
under either short-term “spot market” charters, which are measured in days or
weeks, or long-term charters, which typically range from one to three years,
including renewal options. Under these arrangements, our AHTS SPVs will
typically be responsible for vessel operating expenses such as crew wages, class
costs, insurance on the vessel and routine maintenance, as well as management
fees as described below. A vessel’s net daily earnings will consist of the
revenue earned under that vessel’s charters less that vessel’s operating
expenses, which would not include interest expense on acquisition debt. A
description of the current AHTS vessels and their net daily earning during 2009,
is set forth below.


37





·
            UOS
      Atlantis – Our first AHTS vessel, UOS Atlantis, was placed in service upon
      delivery on February 27, 2009, and began operating under its current
      charter on March 15, 2009. Our net daily earnings for UOS Atlantis
      averaged $9,345 for the year ended December 31, 2009, based on the date
      the vessel was placed in service through December 31, 2009. Included in
      this vessel’s revenue is a mobilization fee of $100,000, which is a
      one-time fee due under the charter contract for the initial mobilization
      of the vessel to its charter destination, as well as approximately $60,000
      related to the sale of the fuel on board the vessel to the charterer at
      the time of delivery of the vessel into its charter. Included in this
      vessel’s operating expenses are management fees paid to Hartmann Offshore
      totaling $405,361 for the year ended December 31, 2009. Also included in
      current results are expenses related to damage to the vessel’s propeller
      sustained in July while the vessel was in port totaling
      $590,191.





·
            UOS
      Challenger – Our second AHTSvessel, UOS Challenger,
      was placed in service upon delivery on May 28, 2009, and began operating
      under its current charter on June 24, 2009. Our net daily earnings
      (deficit) for UOS Challenger averaged ($2,543) for the year ended December
      31, 2009, based on the date the AHTS vessel was placed in service through
      December 31, 2009. Included in this vessel’s revenue is a mobilization fee
      of approximately $650,000. Included in this vessel’s operating expenses
      are management fees paid to Hartmann Offshore totaling $316,819 for the
      year ended December 31, 2009. Also included are charges related to repairs
      resulting from damage to the AHTS vessel’s main winch sustained during
      regular operations, and compensation due to the charterer related to days
      the vessel was unavailable to the charterer while the repairs on the main
      winch were made, totaling $760,519 for the year ended December 31,
      2009.





·
            UOS
      Columbia – Our third AHTS vessel, UOS Columbia, was placed in service upon
      delivery on October 5, 2009 in the North Sea spot market. During its first
      sixty days of operations, it performed under two spot charters, one for
      one week and one for one day. On December 10, 2009, it began operating
      under the first of two short-term charters, where it performed towing
      services, completing this charter in mid-January. The vessel continues to
      operate under its second short-term charter, which began in early February
      for a three month term, with the potential for one three month extension
      and ninety one-day extensions. Our net daily earnings (deficit) for UOS
      Columbia averaged ($18,515), based on the date the AHTS vessel was placed
      in service through December 31, 2009. Included in this vessel’s revenue is
      a mobilization fee of approximately $300,000. Included in this vessel’s
      operating expenses are management fees paid to Hartmann Offshore totaling
      $30,091 for the year ended December 31, 2009. Also included in the results
      of operations is $810,118 of revenue from the sale of the fuel on board
      the vessel at the time of the vessel’s delivery into its charters, which
      is offset by the fuel expense of $1,075,232, with the net fuel cost
      contributing to the deficit.





·
            UOS
      Discovery – Our fourth AHTS vessel, UOS Discovery, was delivered on
      February 16, 2010, and is currently not under
  charter.





·
            UOS
      Endeavour – Our fifth AHTS vessel, UOS Endeavour, was delivered on March
      11, 2010, and is currently not under
charter.





·
            UOS
      Explorer – Our sixth AHTS vessel, UOS Explorer, was delivered on March 15,
      2010, and is currently not under
charter.





Our
commercial manager, UOS, is currently pursuing opportunities with charterers for
our idle vessels.  The remaining three AHTS vessels are currently scheduled
for delivery during April 2010, although delays in delivery of one or two months
are expected for the last three vessels.


38





The
current AHTS market reflects day rates which are significantly off the high day
rates experienced at the peak of the market during 2007.  This can be
traced to the weakening of the economy over the past 24 months, combined with
the contraction in the credit markets.  Both of these factors have
negatively impacted budgets for exploration and development, especially outside
of the major oil companies.  If economic expectations rise or the
price of oil increases significantly, we would expect day rates to
firm.  However, we do not expect significant strengthening of day
rates until the credit markets fully recover, allowing both the major oil
companies and the smaller second-tier oil companies to expand their exploration
and development budgets.





If the
current environment were to continue or worsen, and we were unable to achieve
adequate utilization of our vessels, the delivery of the additional vessels and
the associated operating costs and debt service will negatively impact our
financial results.


39


Results
of Operations




Years Ended December 31,2009
                    
                    
                    2008Time
      charter revenue
                    
                    $
                    19,415,498
                    
                    
                    $
                    —Operating
      expenses:Vessel
      operating expenses
                    
                    
                    19,484,824
                    
                    
                    
                    —Loss
      on impairment of deposit on asset acquisition
                    
                    
                    9,874,907
                    
                    
                    
                    —Professional
      fees
                    
                    
                    3,151,608
                    
                    
                    
                    1,499,873Brokerage
      and representation fees
                    
                    
                    725,980
                    
                    
                    
                    656,250Other
      operating expenses
                    
                    
                    847,757
                    
                    
                    
                    544,831Total
      operating expenses
                    
                    
                    34,085,076
                    
                    
                    
                    2,700,954Operating
      loss
                    
                    
                    (14,669,578
                    )
                    
                    
                    (2,700,954
                    )Other
      income (expense):Interest
      income
                    
                    
                    999,078
                    
                    
                    
                    2,768,138Interest
      expense
                    
                    
                    (3,660,121
                    )
                    
                    
                    (1,005,205
                    )Loss
      on interest rate swaps
                    
                    
                    (9,272,915
                    )
                    
                    
                    —Foreign
      currency transaction gain (loss)
                    
                    
                    335,094
                    
                    
                    
                    (2,129,747
                    )Equity
      in income (loss) of unconsolidated entities
                    
                    
                    (640,124
                    )
                    
                    
                    46,770Total
      other income (expense)
                    
                    
                    (12,238,988
                    )
                    
                    
                    (320,044
                    )Net
      loss
                    
                    
                    (26,908,566
                    )
                    
                    
                    (3,020,998
                    )Net
      loss attributable to the non-controlling interest
                    
                    
                    2,675,378
                    
                    
                    
                    247,818Net
      loss attributable to III to I Maritime Partners Cayman I,
    L.P.
                    
                    
                    (24,233,188
                    )
                    
                    
                    (2,773,180
                    )Less
      general partner's interest in net loss
                    
                    
                    (348,831
                    )
                    
                    
                    (48,712
                    )Limited
      partner interest in net loss
                    
                    $
                    (23,884,357
                    )
                    
                    $
                    (2,724,468
                    )Net
      loss per general partner unit:Basic
      and diluted
                    
                    $
                    (35.23
                    )
                    
                    $
                    (4.92
                    )Weighted
      average general partner units outstanding
                    
                    
                    9,900
                    
                    
                    
                    9,900Net
      loss per limited partner unit:Basic
      and diluted
                    
                    $
                    (35.23
                    )
                    
                    $
                    (4.92
                    )Weighted
      average limited partner units outstanding
                    
                    
                    677,864
                    
                    
                    
                    553,741


40





Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008





Revenues


Revenues
consist of charter revenue earned by our delivered AHTS vessels.





Revenues
increased approximately $19,415,000 for the year ended December 31, 2009
compared to the year ended December 31, 2008, when we had no revenue. This
increase represents revenue earned on our first three AHTS vessels, which began
operation under charters in March, June and October 2009,
respectively.





Vessel Operating
Expenses


Vessel
operating expenses consist of expenses related to the operation of our vessels,
and include depreciation but do not include interest expense related to the
Senior Loan or the RHKG Loan Agreements.





The
vessel operating expenses of approximately $19,485,000 for the year ended
December 31, 2009 represent operating costs for our first three AHTS vessels
placed in service on February 27, 2009, May 28, 2009 and October 5, 2009. We did
not have any vessel operating expenses prior to the first AHTS vessel being
placed in operation. Vessel operating expenses for the year ended December 31,
2009 include approximately $2,485,000 of charges related to vessel repairs, the
majority of which is related to the accidental loss of the main working wire of
UOS Challenger during operations, damage to the main winch of UOS Challenger
also sustained during operations, and damage to the propeller of UOS Atlantis
sustained in a collision with an underwater object while the vessel was in port.
We received a payment of $250,000 from a claim under the loss of hire insurance
for UOS Atlantis. We have filed claims related to the other incidents, but we
are not sufficiently far along in our claims process to accurately estimate the
amount of compensation, if any, that would be payable under the various
policies.





Loss on impairment of
deposit on asset acquisition


The loss
on impairment of deposit on asset acquisition of approximately $9,875,000 is due
to recognition of an impairment in the value of the chemical tanker option held
through Kronos in accordance with FASB ASC 360, Property, Plant and
Equipment. The impairment loss is indicative of our current belief that
we are unlikely to complete our acquisition of the tanker, and the deposit made
and capitalized costs will be forfeited. If we do formally forfeit our option to
acquire the tanker, we expect to recognize gain on the extinguishment of debt of
$5,300,000 in a future period. The net result of this would be a loss of
approximately $4,575,000, which in the end represents liquidating damages of
$3,000,000 plus our capitalized costs approximating $1,575,000.





Professional
Fees


Professional
fees consist of legal, accounting, audit, tax, management and consulting
fees.





The
increase in professional fees of approximately $1,652,000, or 110%, from
approximately $1,500,000 for the year ended December 31, 2008 compared to
approximately $3,152,000 for the year ended December 31, 2009, was due to an
increase in legal and consulting fees related to our consent solicitation,
amendment of our limited partnership agreement, restructuring of our Cyprus
Subsidiary, preparation for the filing of our initial registration statement and
other matters, including the formation of our wholly owned subsidiary, Kronos,
and responding to SEC inquiries regarding our initial registration statement and
legal and consulting work related to financing options for our additional
capital needs. These factors accounted for approximately $812,000 of the
increase. Increases in audit and consulting fees of approximately $320,000 were
related to the increased regulatory environment to which we are subject.
Additionally, the fees charged related to our administrative and professional
services agreement with Dental Community Management, Inc. (“DCMI”), which
maintains our books and records and handles all our business activities,
accounted for $620,000 of the increase. Their monthly fee was $25,000 through
April 2008, $60,000 per month from May to December 2008 and $100,000 per month
thereafter. The increases in the fee to DCMI relate to significant increases in
all areas of our business, including the complexity of the regulatory
environment under which we operate, the management services provided by DCMI
personnel in relation to our regulatory environment, and our business activities
as the AHTS vessels are placed in service. These differences were partially
offset by decreases to our financing fees of $100,000.


41





Brokerage and Representation
Fees


Brokerage
and representation fees consist of fees paid to providers of our ship brokerage,
representation and consulting services. The last payment under our current
agreement which is related to the acquisition of the AHTS vessels was due during
the fourth quarter of 2009.





Our
brokerage and representation fees for the year ended December 31, 2008 as
compared to that for the year ended December 31, 2009 increased by approximately
$70,000, due to our retaining a consultant to assist in negotiations surrounding
the acquisition of the remaining vessels.





Other Operating
Expenses


Other
operating expenses consist of office and administrative expenses, travel
expenses and bank fees that are not directly related to financing
arrangements.





The
increase in other operating expenses of approximately $303,000, or 56%, from
approximately $545,000 for the year ended December 31, 2008 to approximately
$848,000 for the year ended December 31, 2009, was due to an increase in
commissions related to the chartering of our vessels of $344,000, and an
increase in bank fees and miscellaneous and office costs of approximately
$100,000. These increases were offset by a decrease in travel and other
administrative costs of approximately $141,000.





Interest
Income


Interest
income is earned on balances in various operating and money market accounts in
which our funds are held. As funds are raised, they are deposited in operating
accounts in the United States and in interest bearing accounts in foreign
countries. Amounts necessary for operations and payment of upcoming AHTS vessel
construction installments are held in these accounts. In the past, as
construction payments came due, funds held were moved to the restricted cash
accounts and pledged as collateral for the loans that funded the AHTS vessel
construction payments to the shipyard, Fincantieri Cantieri Navali Italiani SpA
(“Fincantieri”). As the balance of these pledged funds grew, so too did the
interest earned on the funds. During year ended December 31, 2009, funds held in
these pledged accounts were utilized to repay the loans under the credit
facility (“Berenberg Facility”) with Berenberg Bank related to the AHTS vessel
construction payments, and our interest income decreased. Interest was also
earned on short-term loans to a related party.





Interest
income decreased approximately $1,769,000, or 64%, from approximately $2,768,000
for the year ended December 31, 2008 to approximately $999,000 for the year
ended December 31, 2009. The decrease was due to a decrease in funds held in
interest bearing pledged accounts due to repayment of the related loans with the
pledged funds, and a decrease in interest income from our related party notes
receivable, which were repaid during the second and third quarters of
2009.





Interest
Expense


Interest
expense was incurred on the senior loan facility (“Senior Loan”) with
Norddeutsche Landesbank Girozentrale (“Nord/LB”) which was entered into on
December 19, 2008, and two related party loans which were entered into during
the fourth quarter of 2008. In addition, loss on interest rate swaps has been
recognized related to our entering into interest rate swap agreements related to
the Senior Loan on our AHTS vessels. The underlying Senior Loan agreements are
at variable rates, while the swap agreements serve to fix the interest rates
through 2019.





The
increase in interest expense of approximately $2,655,000, from approximately
$1,005,000 for the year ended December 31, 2008 to approximately $3,660,000 for
the year ended December 31, 2009, was primarily due to the drawdowns on our
Senior Loan facility related to the delivery of our AHTS vessels, which were
delivered in February, May and October 2009. The amount included in expense is
the amount incurred less the amount allocated to our assets under construction.
Each of our assets under construction is allocated a portion of the total
interest incurred on all of our debt instruments for the period based on the
product of the weighted average accumulated expenditures and the weighted
average interest rate for the period. The agency and commitment fees related to
the Senior Loan, the guarantee fees due under the guarantee provided by Reederei
Hartmann, and interest expense related to a loan from a related party and
amortization expense on the deferred loan costs also contributed to the increase
in interest expense.


42





Loss on interest rate
swaps


The loss
on interest rate swaps of approximately $9,273,000 for the year ended December
31, 2009 is due to the recognition of loss related to the interest rate swap
agreements related to the Nord/LB senior loan facility for our nine AHTS
vessels. These instruments have not been designated for hedge accounting, and
therefore the entire change in the fair value of the positions from period to
period of approximately $9,273,000 is recorded in our results of operations as
loss on interest rate swaps. The agreements are effective from 2010 through
2019, and are currently recorded as a derivative liability totaling
approximately $9,530,000, due to the relatively low variable rates being
experienced as compared with the fixed rates under the swap
agreements.





Foreign Currency Transaction
Gain (Loss)


Foreign
currency transaction gain (loss) is the amount of gain or loss realized when the
cash balances held in EUR by our Cayman partnership are converted to our
functional currency, USD, on each balance sheet date. Also included are amounts
related to recording the current fair value of currency forward exchange
contracts which are not designated as cash flow hedges and the ineffective
portion of currency forward exchange contracts which are designated as cash flow
hedges.





The
change in our foreign currency transaction gain (loss) from the year ended
December 31, 2008 to the year ended December 31, 2009, was caused by a
continuation of a period of relatively high volatility in exchange rates. One
factor with respect to changes in the foreign currency transaction gain (loss)
was due to the revaluing of our EUR denominated bank accounts and restricted
cash balances held in foreign countries to USD using the current prevailing
exchange rate at the end of each month.





In
addition, our entrance into currency forward exchange contracts related to our
anticipated USD revenue, under which we locked in the future rates at which
amounts representing portions of our anticipated USD revenue will be converted
to EUR, were the primary factors resulting in the increase of $2,465,000 in the
net foreign currency transaction gain for the year ended December 31, 2009
compared to that for the year ended December 31, 2008.





Equity in Loss of
Unconsolidated Entities


Equity in
loss of unconsolidated entities represents our share of the income or loss
reported for the operations of the bulk carrier vessels in which we own a
minority interest.





The
increase of approximately $687,000 in the loss recognized from the year ended
December 31, 2008 compared to the year ended December 31, 2009 is due to
fluctuations in the activity of the vessels, which is fairly sensitive to the
current economic environment.





Non-controlling
Interest


Non-controlling
interest represents the amount of income or loss allocable to other parties
where their share has been included in our consolidated results of
operations.





The
comparative effect on our allocation of income or loss to the non-controlling
interest holders between the year ended December 31, 2008 and the year ended
December 31, 2009, was primarily due to the difference in income for the periods
presented.





Liquidity
and Capital Resources





As of
December 31, 2009, we had cash of $18,267,260. Since inception through December
31, 2009, we have raised approximately $66,671,485, net of syndication costs of
approximately $3,974,235, through the private placement of our limited partner
units. As discussed above, the funds from the offering were utilized primarily
to collateralize loans, the proceeds of which were used to pay the first two of
five installments to Fincantieri for the construction of our AHTS vessels, fund
the potential acquisition of the chemical tanker, and to pay for related
expenditures as shown in our consolidated financial statements. The payments to
Fincantieri were made via draws on our Berenberg Facility attributable to each
AHTS SPV which then paid Fincantieri. The pledged funds have now been utilized
to repay the loans under the Berenberg Facility. The net result of this is that
the majority of the funds raised were ultimately used to pay the first two of
five installments to Fincantieri for the construction of the AHTS
vessels.


43





Upon the
deliveries of UOS Atlantis, UOS Challenger, and UOS Columbia, funds were drawn
on the Senior Loan. The funds were used to effect the delivery of the vessels.
For the first two vessels, the outstanding balances on loans from Reederei
Hartmann were repaid, and the fifth and final installments on the vessels were
paid to Fincantieri. For UOS Columbia, the funds were used to pay the third,
fourth and fifth installments to Fincantieri. In each case, the remaining funds
were utilized to pay for outfitting costs for the AHTS vessels and to provide
operating reserves for the AHTS SPVs.





Operating Cash
Flows


Operating
activities used cash of approximately $2,658,000 for the year ended December 31,
2009, as compared to net cash provided of approximately $1,036,000 for the year
ended December 31, 2008, for an increase in net cash used of approximately
$3,694,000. Net cash used increased between periods due to increases in accounts
receivable due from charterers, and cash lost in operations. These increases
were partially offset by additional accrued expenses from the vessels in
operation, as well as additional accruals associated with our reorganization and
registration with the SEC.





Investing Cash
Flows


Investing
activities used approximately $88,154,000 for the year ended December 31, 2009,
as compared to $38,142,000 for the year ended December 31, 2008, for an increase
in net cash used of approximately $50,012,000. This was due primarily to the use
of approximately $104,116,000 for advances for vessel acquisitions and
construction costs in 2009 in excess of that used in 2008, the majority of which
was related to the deliveries of our three AHTS vessels in 2009. Additionally,
on board equipment totaling approximately $11,088,000 was purchased during the
year ended December 31, 2009. During the year ended December 31, 2008, proceeds
of approximately $3,000,000 were provided by the sale of an AHTS vessel to FLTC
Fund I. There were no corresponding dispositions during the year ended December
31, 2009. These factors were partially offset by a decrease in amounts due from
related parties between the two periods, and a decrease in restricted cash of
approximately $68,870,000 from the recording of the release by Berenberg Bank of
pledged cash for loans related to the nine AHTS vessels, resulting in the
recognition of cash provided by investing activities.





Financing Cash
Flows


Net cash
provided by financing activities was approximately $104,131,000 for the year
ended December 31, 2009 as compared to approximately $35,698,000 for the year
ended December 31, 2008. The difference is primarily related to the deliveries
of our three AHTS vessels in 2009 and the related proceeds drawn on the Senior
Loan of $150,701,000 and a loan from Hartmann Reederei related to the delivery
of the third vessel of $7,618,000. Additionally, during the year ended December
31, 2008, $3,783,000 was used for deferred loan fees, and in 2009, only $10,000
was used. These effects were partially offset by the net repayments on the
Berenberg Facility related to our nine AHTS vessels of $51,796,000 and repayment
of related party loans which funded the fourth installments to the shipyard for
UOS Atlantis and UOS Challenger totaling $11,328,000. In addition, principal
repayments to Nord/LB utilized cash of approximately $5,233,000.





Contributions
from partners were approximately $6,230,000 for the year ended December 31,
2009, as compared with approximately $16,355,000 for the year ended December 31,
2008.





Financing
Arrangements


Berenberg
Facility


In
November 2006, we entered into the Berenberg Facility with Berenberg Bank, a
German financial institution, allowing for borrowings up to $37,839,120 (EUR
26,400,000). The Berenberg Facility was amended in March and May 2007,
increasing the available borrowings to $72,094,990 (EUR 50,300,000) and
extending the maturity date to September 2010. The remaining terms of the
Berenberg Facility were not materially changed.





Under the
Berenberg Facility, we were required to maintain compensating balances as
security for the repayment of the borrowings under such facility. The
compensating balances were required to be equal to or greater than the amounts
drawn by our German Subsidiary and were used to pay deposits on the acquisition
and construction of our AHTS vessels. The Berenberg Facility was funded in
multiple tranches with each tranche being directly related to a single AHTS
vessel.


44


Interest
under the Berenberg Facility was calculated based on the one-month EURIBOR rate
plus a margin of 0.35%. The weighted-average effective interest rate as of
December 31, 2009 and December 31, 2008 was 0% and 3.97%, respectively. Interest
was due quarterly but was rolled into the principal amount instead of being
paid. Principal payments were due on each tranche upon the earlier of the
delivery date, sale of the related vessel or September 30, 2010.





The
compensating balances represented the original tranche balance plus interest
earned since the original deposit date. The tranche balance represented the
original loan plus all incurred interest which was rolled into the new loans
upon maturity which was usually three months. As the interest rate earned on the
compensating balances was less than the interest charged on the tranche balance,
the compensating balances did not fully offset the outstanding tranche
balances.





Upon the
deliveries of UOS Atlantis and UOS Challenger, the restricted cash related to
the compensating balances was used to repay the majority of the outstanding
loans related to the AHTS vessels with operating cash used to complete the
repayment. Additionally, in July 2009, we completed repayment of the remaining
tranches and accrued interest under the Berenberg Facility utilizing the
restricted cash balances combined with approximately $500,000 of cash on hand
and contributions from new limited partners. The repayments result in the
reduction and then the complete elimination of our restricted cash over the
course of the repayments, and a reduction in our current and long-term debt. As
of December 31, 2009, there were no borrowings and correspondingly no
compensating balances held as restricted cash. As of December 31, 2008,
borrowings of $56,255,375 (EUR 39,905,920) were outstanding, and the related
compensating balances were $55,967,374 (EUR 39,701,620). We do not intend to
utilize the Berenberg Facility in the future.





RHKG
Loan Agreements


In late
January 2010 and in March 2010, our German Subsidiary entered into four loan
agreements with Reederei Hartmann, which is the non-controlling interest holder
of our AHTS SPVs (the “RHKG Loan Agreements”). Each of the agreements is related
to a corresponding AHTS SPV, and provides for loans equal to the remaining
amount of capital outstanding from our German Subsidiary to the AHTS SPV to
which the agreement relates. The execution of the agreements and the subsequent
recognition of the contribution of capital by the AHTS SPV results in our
satisfying the capital contribution in the full amount called for under the
Company Agreement of the respective AHTS SPV.





These
four agreements relate to the AHTS SPVs Isle of Baltrum, Isle of Langeoog, Isle
of Amrum, and Isle of Wangerooge, and under these agreements, loans totaling
$31,604,334 (EUR 22,780,000) were made from Reederei Hartmann to our German
Subsidiary. In connection with Langeoog, Amrum and Wangerooge, the loan proceeds
were paid directly to the respective AHTS SPV, thereby fulfilling the remaining
capital contribution obligations of our German Subsidiary with respect to each
of those AHTS SPVs. The loan agreement for the AHTS SPV Isle of Baltrum differs
slightly from the others in that the event giving rise to our liability is the
assumption of the AHTS SPV’s liability to Reederei Hartmann in the amount of
$7,752,459 (EUR 5,315,000) as of October 2, 2009, in exchange for being credited
with making a capital contribution to Isle of Baltrum in such
amount.





Each of
the four RHKG Loan Agreements currently in place matures 5 years from the date
of signing, with maturity dates therefore falling between January and March 2015
for the agreements currently in place. The agreements each call for interest to
be calculated at 6% per annum, due annually at each anniversary date of signing.
There is no penalty for pre-payment of all or any portion of the loans prior to
the end of the respective loan periods. The terms of the agreements include the
granting of a security interest in our interest in the corresponding AHTS SPV,
and in the dividends from the AHTS SPV arising from the pro-rata percentage of
the loan amount as compared to our total share capital.





Under the
RHKG Loan Agreements, if additional financing is granted by Nord/LB to one of
the AHTS SPVs to which an RHKG Loan Agreement relates via an increase in the
amount guaranteed by SACE under the Senior Loan, the RHKG Loan Agreements state
that our German Subsidiary shall use its best endeavors to have the AHTS SPV
receiving the proceeds distribute funds from the financing to our German
Subsidiary sufficient to allow it to repay the RHKG Loan
Agreement.


45


We are
subject to various warranties, representations, and covenants under the RHKG
Loan Agreements, such as limitations on our entering into asset dispositions or
restructuring arrangements unreasonably detrimental to Reederei Hartmann’s
security interest in the AHTS SPVs, and the reserving of distributions received
from an involved AHTS SPV for repayment of the related RHKG Loan
Agreement.





In
connection with each of the loans from RHKG with respect Isle of Langeoog, Isle
of Amrum, and Isle of Wangerooge, RHKG obtained the funds for their loan to our
German Subsidiary pursuant to a loan on nearly identical terms from Fincantieri,
the shipyard constructing the vessels. It is anticipated that RHKG will enter
into similar loan agreements with our three remaining AHTS SPVs that have not
taken delivery of their respective AHTS vessels. However, no assurances can be
given that Fincantieri will continue to loan RHKG the funds necessary to secure
delivery of these final three vessels, or that RHKG will continue to loan our
German Subsidiary such funds on acceptable terms or at all.





Nord/LB
Facility


On
December 19, 2008, we entered into a $602,802,981 (EUR 420,570,000) senior loan
facility (“Senior Loan”) with Nord/LB as administrative agent and lender, with a
term of 12 years from the delivery of each ship. The proceeds from the loan were
initially used to fund preconstruction costs (“Pre-Delivery Facility”),
outstanding balances due to the shipyard at delivery and working capital
requirements of each AHTS SPV. A post-delivery credit facility (“Revolving
Credit Facility”) in the amount of $120,560,596 (EUR 84,114,000) can also be
used to extend the Senior Loan from 12 to 15 years. However, in no case can the
total loans be in excess of 75% of the aggregate investment costs of all
vessels, which is defined to include the construction price, building
supervision, financing, initial equipment and other costs, of all the ships
covered by the Senior Loan. Additionally, the Senior Loan conditions require,
among other things, that amounts sufficient to cover operating costs and all
amounts due and payable under the Senior Loan for a one year period be secured
by each AHTS SPV before any dividends can be considered.





The
Senior Loan is a fleet financing arrangement which covers all our AHTS vessels
plus three AHTS vessels being purchased by FLTC Fund I. The 12 AHTS vessels
serve as the collateral for the Senior Loan. In connection with the Senior Loan,
a commitment fee of 0.20% to 0.45% is due semi-annually in arrears as determined
by our bank internal rating class based on the unused Senior Loan balance and
the elapsed days within the year. An agency fee of $14,333 (EUR 10,000) per ship
is due each year payable at the end of each quarter until the delivery of the
applicable ship. After the delivery of the applicable AHTS vessel, the agency
fee, payable quarterly, is $7,167 (EUR 5,000) per year per vessel until the
Senior Loan is paid in full. There is also a financial guarantee for up to 70%
of the loan balance issued by SACE S.P.A. of Roma, Italy, which is the Italian
export credit and reinsurance agency.





Interest
on the borrowings is based upon the EURIBOR, the Euro Interbank Offered Rate.
For the portion of the Senior Loan not guaranteed by SACE S.P.A., the applicable
interest rate is EURIBOR plus 1.375% per annum plus a fixed funds cost
determined prior to each drawdown. For the portion of the Senior Loan that is
guaranteed by SACE S.P.A, the applicable interest rate is EURIBOR plus 1.375%
per annum. With respect to the Revolving Credit Facility, the applicable
interest rate is (i) EURIBOR plus 1.600% per annum or (ii) the lenders’ funding
costs, as conclusively to be agreed and determined by the lenders, plus 1.600%
per annum. Upon the fifth anniversary of the Senior Loan, each interest rate
will be subject to renegotiation. Interest incurred before the delivery of each
AHTS vessel will be rolled into the loan balance of the corresponding tranche of
the Senior Loan until ship delivery up to a maximum of $1,433,300 (EUR
1,000,000). If interest incurred exceeds $1,433,300 (EUR 1,000,000), the excess
interest will be due at each interest payment date which can be every three to
six months.





We
accepted a drawdown on the Senior Loan on February 25, 2009 related to the
delivery of UOS Atlantis totaling $44,689,067 (EUR 35,047,500). On May 28, 2009,
UOS Challenger was delivered to our AHTS SPV MS Norderney. In connection with
the delivery, we accepted a drawdown on the Senior Loan on May 25, 2009 totaling
$49,080,519 (EUR 35,047,500). On October 5, 2009, UOS Columbia was delivered to
our SPV Isle of Baltrum, and we accepted a drawdown totaling $51,120,284 (EUR
35,047,500) on the Senior Loan on October 2, 2009 related to the pending
delivery. The proceeds from the drawdowns were used to pay the outstanding
installments to Fincantieri totaling $33,394,067 (EUR 26,201,700), $37,098,837
(EUR 26,491,600), and $49,179,033 (EUR 33,716,600), respectively. With respect
to the first and second vessels, a portion of the proceeds was used to repay the
advances from Reederei Hartmann totaling $4,698,317 (EUR 3,686,400) and
$5,150,531 (EUR 3,677,900), respectively, plus accrued interest thereon. The
remaining cash from each of the drawdowns was used to fund operations and
provide cash reserves to the respective SPV for future
operations.


46


At
December 31, 2009, a total of $145,468,080 (EUR 101,491,719) was outstanding
under the Senior Loan with an effective interest rate of 2.791%. The outstanding
balance will be due in full in February 2021. During the year ended December 31,
2009, we incurred interest of $2,546,281 (EUR 1,825,815) related to the
drawdowns on the Senior Loan.





Amounts
drawn on the Pre-Delivery Facility of the Senior Loan require either that each
AHTS SPV is fully funded based on the capital as called for in the AHTS SPV
company agreements, or provision of a guarantee acceptable to Nord/LB to provide
assurance of repayment of the Pre-Delivery Facility. A guarantee from Reederei
Hartmann, our non-controlling interest holder and the 25% owner of the three
AHTS SPVs of FLTC Fund I (“Hartmann Guarantee”) in the amount of $45,932,786
(EUR 32,046,875) was outstanding at December 31, 2009. There were no guarantees
outstanding at December 31, 2008.





As of
December 31, 2009, the terms of the Hartmann Guarantee were being renegotiated
between Reederei Hartmann and Nord/LB. The main subject of the negotiations was
the form of collateral to be provided under the guarantee by Reederei Hartmann
to Nord/LB. Nord/LB had delayed draws on the Pre-Delivery Facility under the
Senior Loan, resulting in our being unable to make timely progress payments to
Fincantieri. Due to the delay, a number of progress payments which were
otherwise due to be paid to Fincantieri under the shipbuilding contracts with
respect to the remaining vessels to be delivered had not been paid. As a result,
we were not in compliance with the terms of the remaining shipbuilding contracts
and Fincantieri would have had the right to cease construction activities on the
remaining vessels. However, Fincantieri acknowledged the delay and indicated to
us that it does not intend to cease construction pending resolutions of these
matters. In addition, Fincantieri has not taken any action under the
shipbuilding contracts to demand payment. As a result of these missed payments,
we were not in compliance with certain covenants of our Senior Loan with Nord/LB
as of December 31, 2009, however such non-compliance did not represent and event
of default under the loan document. Nord/LB is aware that the payments have not
been made, and has not taken any action under the Senior Loan related to the
non-compliance.





The
resolution to this situation is ongoing, and involves the granting of loans from
Reederei Hartmann to our German Subsidiary under the RHKG Loan Agreements
described above and the amendment of the shipbuilding contracts to postpone the
installment payments due under the contracts until delivery of the applicable
AHTS vessel and to provide for interest due to Fincantieri on the outstanding
installment payments due at a rate based on the three-month EURIBOR plus 2%,
currently 3.00%. We are also pursuing potential additional financing from
Nord/LB via an increase of the amount guaranteed by SACE under the Senior Loan,
but the outcome of this effort is unknown as of the date of filing. If obtained,
we anticipate that this financing would allow us to repay the RHKG Loan
Agreements, either in full or partially, via a distribution from the AHTS SPV to
our German Subsidiary, which would then use those funds to effect repayment of
all or part of the RHKG Loan Agreement balances. If we are unable to obtain this
additional financing, or are unable to further achieve a distribution to our
German Subsidiary allowing us to repay the RHKG Loan Agreements or a portion
thereof, it could impact the timing of distributions to investors due to likely
differences in terms between the RHKG Loan Agreements and any potential
additional Nord/LB financing. The RHKG Loan Agreements call for a five year
repayment term and the reserving of dividends from the AHTS SPV’s for this
purpose. The current Nord/LB financing has a significantly longer payment term
of ten to twelve years, and the terms regarding restrictions on our use of
dividends from the AHTS SPVs are less prohibitive than those under the RHKG Loan
Agreements. However, there can be no assurances that the terms of any additional
advances under the potential additional Nord/LB financing will be the same as
the current terms.





UOS
Discovery was delivered to our AHTS SPV Isle of Langeoog on February 16, 2010.
Just prior to the delivery, we funded capital totaling $7,339,130 (EUR
5,350,000) to Isle of Langeoog, using proceeds from the RHKG Loan Agreement for
Isle of Langeoog. In anticipation of the delivery, we accepted a drawdown on the
Senior Loan on February 15, 2010 totaling $47,790,771 (EUR 35,047,500). Due to
the ongoing negotiations mentioned above between us and Fincantieri, at the time
of delivery, the third and fourth installments under the shipbuilding contract
had not yet been paid under the Pre-Delivery Facility. Therefore, the proceeds
from the drawdown were used to pay the third, fourth and fifth installments to
Fincantieri totaling $45,873,986 (EUR 33,641,820), and accrued interest on the
third and fourth installments. The remaining proceeds were used to provide cash
reserves to the respective SPV for remaining outfitting costs and future
operations.


47


Additionally,
on March 11 and March 15, 2010, the UOS Endeavour and the UOS Explorer were
delivered to our AHTS SPVs Isle of Amrum and Isle of Wangerooge, respectively.
Just prior to delivery, we funded capital to each of the two AHTS SPVs totaling
$8,246,150 (EUR 6,050,000) and $8,266,595 (EUR 6,065,000), respectively, using
proceeds from the respective RHKG Loan Agreements for Isle of Amrum and Isle of
Wangerooge. In anticipation of the deliveries, we accepted drawdowns on the
Senior Loan to each AHTS SPV on March 10 and March 12, 2010, respectively,
related to the upcoming deliveries each totaling $47,629,553 (EUR 35,047,500)
and $47,871,380 (EUR 35,047,500), respectively. As the third and fourth
installments under the shipbuilding contracts had not yet been paid, the
proceeds from each of the drawdowns were used to pay the third, fourth and fifth
installments to Fincantieri totaling $50,233,960 (EUR36,963,915) and $52,283,121
(EUR38,277,415), respectively, and accrued interest due on the delayed
installments. The remaining proceeds were used to provide cash reserves to the
respective SPV for remaining outfitting costs and future
operations.





A
guarantee commission of 1.375% per annum is due to Nord/LB on the loans provided
during the pre-delivery stage of each ship up to a loan balance of $350,208,000
(EUR 240,000,000). The guarantee commission is due and payable each quarter that
construction payments are outstanding up to and including the date the
construction payments are made. As no construction payments have been
outstanding under the Pre-Delivery Facility, no related guarantee commissions
have been incurred.





We are
subject to various covenants associated with the Senior Loan, associated, for
example, with the payment of dividends, the amount of capital infusions from
outside investors into the AHTS SPVs, limits on additional financing,
restrictions of cargo and weapons, structure and duration of charters related to
the ships and the establishment of cash accounts with Nord/LB for the cash
generated from operations of each AHTS vessel until the Senior Loan is paid in
full.





Chemical
Tanker Transaction/Schulte Group Facility/Kronos


On
November 13, 2007, III to I IMS Holdings, LLC (“IMS Holdings”), the sole
shareholder of our general partner, entered into a Memorandum of Agreement
(“MOA”) with the Schulte Group relating to the acquisition of the chemical
tanker. Pursuant to the MOA, IMS Holdings placed an order for the chemical
tanker through the Schulte Group for the purchase price of $41,500,000 to be
paid in five equal installments. The Schulte Group agreed to loan IMS Holdings
up to $8,300,000 for the first installment payment (“Schulte Group Facility”)
and to facilitate a bank guarantee for the second installment payment of
$8,300,000. The Schulte Group has formed Anthos Shipping Co. Limited (“Anthos”),
a Cyprus SPV, to own the chemical tanker. The equity of Anthos will be assigned
to Kronos upon repayment of the loan, retirement of the bank guarantee
facilitated by the Schulte Group and payment of all fees due to the Schulte
Group. Kronos was not formed at the time the MOA was signed; therefore, the
chemical tanker transaction was undertaken through an affiliate of IMS Holdings
on behalf of Kronos. As of December 31, 2009 and December 31, 2008, $8,300,000
had been paid toward the option to purchase the chemical tanker.





IMS
Holdings repaid $3,000,000 on the Schulte Group Facility through its affiliate
to the Schulte Group by January 15, 2008, in compliance with the terms of the
MOA. As of December 31, 2008, we had advanced $4,278,164, including accrued
interest, to IMS Holdings to allow IMS Holdings to provide funds to its
affiliate to make the required payments to the Schulte Group under the MOA and
other expenses related to the option to purchase the chemical tanker. An
addendum to the MOA was executed in July 2008 to extend the loan through
November 30, 2008, extend the time period allowed for IMS Holdings to secure
financing and increase the amount of possible liquidated damages. As of December
31, 2008, no agreement had been reached on a further extension of the terms of
the MOA, and IMS Holdings was technically in default on their loan and required
to pay liquidating damages.





Effective
April 2009, we entered into an agreement whereby all of the rights retained by
IMS Holdings’ affiliate, IMS Capital Partners, LLC (“IMS Capital Partners”) and
IMS Holdings with respect to the chemical tanker pursuant to the MOA between IMS
Holdings and Schulte Group were transferred to Kronos, the new obligor under an
amended version of the MOA (“Amended MOA”) between Kronos and Conway Shipping I,
Ltd. (“Conway”), an affiliate of the Schulte Group. As consideration for and to
give effect to this transfer, we assigned the receivables from IMS Holdings
through which the transaction was undertaken to IMS Capital Partners in exchange
for the consent of IMS Capital Partners to the execution of the Amended MOA.
This amount was credited by Kronos as additional paid in capital, and Kronos
accepted the rights to the chemical tanker pursuant to the Amended MOA. The
outcome left Kronos as the sole holder of all rights and obligations with
respect to the potential acquisition of the chemical tanker and resulted in IMS
Capital Partners and IMS Holdings each holding directly offsetting note
obligations. By entering into a Note Cancellation Agreement, the note
obligations between IMS Holdings and IMS Capital Partners were
terminated.


48





The
Amended MOA was entered into on April 25, 2009. It extended the term of the loan
and bank guarantee through July 30, 2010, increased the interest rate and the
possible liquidated damages, required us to pay a lump sum amount of $200,000 as
a fee for providing the extension of the bank guarantee, waived any prior
default and clarified certain other terms of the original MOA. The interest on
the Schulte Group Facility is based on the three-month US LIBOR rate plus a
margin of 4.50%. Interest is due quarterly. As part of the changes, the parties
to the MOA were formally changed to be between Kronos in place of IMS Holdings
and Conway in place of the Schulte Group. As a result of the amended MOA, the
payable to Schulte Group and the offsetting deposits on the chemical tanker
transaction were recorded on the books of Kronos. At December 31, 2009, a total
of $5,300,000 was outstanding under the Schulte loan agreement at an effective
interest rate of 5.52%. During the year ended December 31, 2009, we incurred
interest of $297,023 related to the loan.





In light
of the global downturn in the economy and the resulting decrease in charter
rates for chemical tankers, and product tankers in general, we are currently
re-evaluating our intentions with respect to the chemical tanker, and believe it
is unlikely that we will complete the acquisition of the tanker unless the
shipyard constructing the vessel agrees to significant concessions, to include
timing of construction installments, and an adjustment to the overall contract
price. We have therefore recorded an impairment to the deposit on asset
acquisition on our balance sheet to reduce the carrying value of the asset to
zero. This results in the recognition of a loss on impairment of $9,874,907. If
we do formally forfeit our option to acquire the tanker, we expect to recognize
gain on the extinguishment of debt of $5,300,000 in a future period. The net
result of this would be a loss of approximately $4,574,907, which in the end
represents liquidating damages of $3,000,000 plus our capitalized costs
approximating $1,574,907.





If the
chemical tanker were acquired, it would be through assignment of the equity of
Anthos to Kronos upon the fulfillment of the obligations of the MOA. Under the
current agreement, Kronos would fulfill the terms of the MOA when the second
installment were due to the shipyard, currently scheduled in June 2010. Upon the
assignment of the equity in Anthos to Kronos, Anthos would become a wholly owned
subsidiary of Kronos, and its operations would be reflected on our consolidated
financial statements.





The table
below includes the assets and liabilities recorded on our consolidated balance
sheet related to the option to purchase the equity in Anthos, associated debt
with Deutsche Schiffsbank and other expenses of Kronos.





December 31,
                  
                  
                  December 31,2009
                  
                  
                  2008Cash
      and cash equivalents
                  
                  $
                  956
                  
                  
                  $
                  —Related
      party receivable
                  
                  
                  —
                  
                  
                  
                  4,278,164Deferred
      loan fees
                  
                  
                  —
                  
                  
                  
                  222,316Total
      assets
                  
                  
                  956
                  
                  
                  
                  4,500,480Accounts
      payable and other accrued liabilities
                  
                  
                  97,297
                  
                  
                  
                  223,547Due
      to related party
                  
                  
                  137,117
                  
                  
                  
                  144,308Schulte
      Group note payable
                  
                  
                  5,300,000
                  
                  
                  
                  —Total
      liabilities
                  
                  
                  5,534,414
                  
                  
                  
                  367,855Net
      assets
                  
                  $
                  (5,533,458
                  )
                  
                  $
                  4,132,625


49


Deutsche
Schiffsbank Facility


On
November 20, 2008, Kronos entered into a $30,000,000 credit facility (“Deutsche
Schiffsbank Facility”) with Deutsche Schiffsbank. The Deutsche Schiffsbank
Facility also provided for a related guarantee facility of up to $16,320,000
under which Deutsche Schiffsbank would issue two separate guarantees in favor of
the sellers of the chemical tanker, Nantong Mingde Heavy Industry Stock Co.,
Ltd. and Jiangxi Topsky Technology Co., Ltd. (“Nantong Mingde”). The Deutsche
Schiffsbank Facility is to be drawn in multiple advances with the proceeds used
to fund the construction and acquisition of the chemical tanker. Anthos is the
current owner of the contract to purchase the chemical tanker. Pursuant to the
terms of the MOA, we would take ownership of Anthos upon fulfilling the terms of
the MOA. Each pre-delivery advance shall be repaid in full upon delivery of the
chemical tanker to Anthos, but no later than March 31, 2012. Additionally, each
delivery advance shall be repaid in 40 installments of $500,000 each with a
balloon installment in the amount of $10,000,000 payable at the time of the
final $500,000 installment which can be no later than March 31,
2022.





Interest
on the Deutsche Schiffsbank Facility shall be paid in arrears on the last day of
each applicable interest period. In the event the interest period is longer than
six months, interest shall be paid every six months during such interest period
and on the last day of any such interest period. Interest on the borrowings is
based upon LIBOR, the London Interbank Offered Rate, plus 1.4% per annum during
each interest period.





Pursuant
to the terms of the Deutsche Schiffsbank Facility, an arrangement fee of
$120,000 was earned and due as of the acceptance of the financing commitment.
Additionally, in relation to the advances and the guarantee facility, a
commitment fee at the rate of 0.3% per annum on the daily undrawn amount of such
advance and unutilized amount of the guarantee facility accrues from the date of
the Deutsche Schiffsbank Facility to and including the date of payment thereof.
Such fee is payable quarterly in arrears and on the last day of the commitment
period applicable to such advance. Further, a guarantee commission is payable
quarterly in arrears at a rate equal to 1.4% per annum on the daily average
maximum amount of the liabilities and obligations of Deutsche Schiffsbank under
or pursuant to the guarantees to be issued by Deutsche Schiffsbank in favor of
the sellers of the chemical tanker.





From the
date of transfer of ownership in Anthos to Kronos through the date of payment of
the second installment for the chemical tanker to Nantong Mingde pursuant to the
building contract, the Deutsche Schiffsbank Facility will be secured by a cash
collateral account with a balance of at least $7,560,000. Additionally, prior to
the delivery of the chemical tanker, the Deutsche Schiffsbank Facility shall be
secured by an assignment of the chemical tanker building contract, the related
refund guarantee issued by Bank of China Limited in favor of Anthos, a pledge of
the equity of Kronos and a guarantee by Anthos. Upon delivery of the chemical
tanker, the Deutsche Schiffsbank Facility will be secured by a mortgage on the
chemical tanker including the related deed of covenants and deed of share
charges.





We are
subject to various covenants associated with the Deutsche Schiffsbank Facility,
under which we must obtain consent of Deutsche Schiffsbank to carry out
transactions including, but not limited to, the following:





·
            payment
      of dividends by Kronos;


·
            capital
      infusions from outside investors into Kronos or its
      subsidiaries;


·
            additional
      financing and/or encumbrances on Kronos;
and


·
            making
      loans and advances from Kronos.





As we are
re-evaluating our intentions, and currently do not expect to complete the
acquisition of the chemical tanker unless the shipyard constructing the tanker
were to grant significant concessions, we are unlikely to utilize the Deutsche
Schiffsbank Facility.





Acquisitions and
Dispositions


During
January 2008, we sold to FLTC Fund I our interest in three AHTS vessels in
exchange for cash approximating the carrying value of our investments;
therefore, no gain or loss was recognized on these transactions.




We
currently have an agreement to purchase a chemical tanker, which if purchased,
would be held through Kronos. As we currently do not expect to complete this
acquisition, we have recorded an impairment to the option to purchase the
tanker. Please refer to the information above under Item 1. Business under the
caption Chemical/ Product
Tanker Ships in the section entitled Our Ships.


50


Ongoing Capital
Expenditures


We had
commitments to purchase the six remaining AHTS vessels under construction as of
December 31, 2009. The cost of each vessel is denominated in EUR, and amounts in
USD related to future payments are determined using the exchange rate as of
December 31, 2009. The estimated cost of each of the remaining six AHTS vessels
ranges from $53,989,544 (EUR 37,668,000) to $61,051,414 (EUR 42,595,000), for a
total commitment for the remaining vessels of $355,692,028 (EUR 248,163,000).
Under the AHTS shipbuilding contracts, installments are due in five stages based
upon certain milestones being met during construction. Approximately 30% of the
total construction costs require deposits, some of which are funded with equity
while others will be funded from the Senior Loan or its Pre-Delivery Facility.
Amounts drawn on the Pre-Delivery Facility require either (i) that each AHTS SPV
is fully funded based on the capital as called for in the applicable SPV
agreements or (ii) the provision of a guarantee acceptable to Nord/LB. As of
December 31, 2009, we have incurred expenses of $881,006 (EUR 631,727) related
to the guarantee. The Hartmann Guarantee in the amount of $45,932,786 (EUR
32,046,875) was outstanding at December 31, 2009.





As
mentioned above under Nord/LB
Facility,as of December 31, 2009, the terms of the Hartmann Guarantee
were being renegotiated between Reederei Hartmann and Nord/LB. The main subject
of the negotiations was the form of collateral to be provided under the
guarantee by Reederei Hartmann to Nord/LB. Nord/LB had delayed draws on the
Pre-Delivery Facility under the Senior Loan, resulting in our being unable to
make timely progress payments to Fincantieri. Due to the delay, a number of
progress payments which were otherwise due to be paid to Fincantieri under the
shipbuilding contracts with respect to the remaining vessels to be delivered had
not been paid. As a result, we were not in compliance with the terms of the
remaining shipbuilding contracts and Fincantieri would have had the right to
cease construction activities on the remaining vessels. However, Fincantieri
acknowledged the delay and indicated to us that it does not intend to cease
construction pending resolutions of these matters. The resolution to this
situation is ongoing, and involves the granting of loans from Reederei Hartmann
to our German Subsidiary under RHKG Loan Agreements above,
and the amendment of the shipbuilding contracts to postpone the installment
payments due under the contracts until delivery of the applicable AHTS vessel
and to provide for interest due to Fincantieri on the outstanding installment
payments due. We have since drawn on the Senior Loan under these arrangements,
resulting in the deliveries of UOS Discovery, UOS Endeavour, and UOS Explorer in
February and March 2010.





In
addition to our obligations to Fincantieri, there are agreements between the
AHTS SPVs and Hartmann Offshore for vessel construction oversight and commercial
and technical management during construction. As of December 31, 2009 and
December 31, 2008, we incurred $291,543,002 and $80,860,590, respectively, in
connection with the AHTS vessel acquisition.





The table
below provides details of our remaining capital expenditure obligation for each
vessel as of December 31, 2009, including the potential acquisition of the
chemical tanker. The figures below include the amounts due to the shipyard,
estimated vessel outfitting upon delivery and amounts owed for vessel
construction oversight and commercial and technical management during
construction as described above. The amounts below include amounts payable by us
and our non-controlling interest holders in each SPV as well as amounts
anticipated to be funded through our credit facilities.





Less than
                    
                    
                    
                    
                    
                    
                    
                    
                    OverSPVName
                    
                    VesselName
                    
                    Total
                    
                    
                    1 year
                    
                    
                    2-3 Years
                    
                    
                    4-5 Years
                    
                    
                    5 YearsAnchor
      Handling Tug Supply Vessels6163
      –  Isle of Langeoog
                    
                    UOS
      Discovery
                    
                    $
                    52,050,003
                    
                    
                    $
                    52,050,003
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —6168
      –  Isle of Amrum
                    
                    UOS
      Endeavour
                    
                    $
                    56,806,122
                    
                    
                    $
                    56,806,122
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —6169
      –  Isle of Sylt
                    
                    UOS
      Enterprise
                    
                    $
                    56,806,122
                    
                    
                    $
                    56,806,122
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —6171
      –  Isle of Wangerooge
                    
                    UOS
      Explorer
                    
                    $
                    58,653,216
                    
                    
                    $
                    58,653,216
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —6172
      –  Isle of Neuwerk
                    
                    UOS
      Freedom
                    
                    $
                    58,896,590
                    
                    
                    $
                    58,896,590
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —6173
      –  Isle of Usedom
                    
                    UOS
      Liberty
                    
                    $
                    59,157,738
                    
                    
                    $
                    59,157,738
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —Chemical
      TankerMD2007-11-12
                    
                    
                    
                    $
                    40,705,068
                    
                    
                    $
                    14,272,093
                    
                    
                    $
                    26,432,975
                    
                    
                    $
                    —
                    
                    
                    $
                    —


51


Additionally,
each AHTS SPV entered into a contract with the German Subsidiary, whereby the
German Subsidiary or its assignee would provide financial services including,
but not limited to, the procurement of equity during the building period of the
relevant AHTS vessel. Under such agreements, the German Subsidiary would have
received fees of $716,650 (EUR 500,000) payable in four equal installments, each
due at (i) the beginning of steel cutting, (ii) installation of the main
engines, (iii) launching of the vessel and (iv) delivery of the completed
vessel. The German Subsidiary subcontracted the requirement to provide these
services and the right to receive these payments to Suresh Capital Consulting
& Finance Ltd., Maritime Funding Group LLC and Churada Investments Limited
which are affiliates of SCMH. The table below provides the amounts outstanding
under these agreements as of December 31, 2009.





Less than
                    
                    
                    
                    
                    
                    
                    
                    
                    OverSPVName
                    
                    VesselName
                    
                    Total
                    
                    
                    1 year
                    
                    
                    2-3 Years
                    
                    
                    4-5 Years
                    
                    
                    5 YearsAnchor
      Handling Tug Supply Vessels6163
      –  Isle of Langeoog
                    
                    UOS
      Discovery
                    
                    $
                    179,163
                    
                    
                    $
                    179,163
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —6168
      –  Isle of Amrum
                    
                    UOS
      Endeavour
                    
                    
                    179,163
                    
                    
                    
                    179,163
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —6169
      –  Isle of Sylt
                    
                    UOS
      Enterprise
                    
                    
                    179,163
                    
                    
                    
                    179,163
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —6171
      –  Isle of Wangerooge
                    
                    UOS
      Explorer
                    
                    
                    179,163
                    
                    
                    
                    179,163
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —6172
      –  Isle of Neuwerk
                    
                    UOS
      Freedom
                    
                    
                    179,163
                    
                    
                    
                    179,163
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —6173
      –  Isle of Usedom
                    
                    UOS
      Liberty
                    
                    
                    358,325
                    
                    
                    
                    358,325
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Total
      fees outstanding
                    
                    
                    
                    $
                    1,254,140
                    
                    
                    $
                    1,254,140
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —





Discussion of Short- and
Long-Term Liquidity Needs


Our
short- and long-term liquidity needs relate primarily to the funding of our
capital expenditure obligations on our vessels. In the case of our AHTS vessels,
we anticipate that these capital expenditure obligations will be funded through
the fulfilling of our capital contribution obligations to our AHTS SPV’s, some
of which may be funded through the proceeds of the RHKG Loan Agreements
discussed above. We anticipate that the remaining capital expenditure
obligations, which represent the majority of our capital expenditure
obligations, will be funded through our Nord/LB Senior Loan.





Through
December 31, 2009, we have funded payments related to the first two of the five
installments on all of our nine AHTS vessels marking the completion of the
initial funding stage, which was funded primarily with equity from limited
partners’ contributions. Additionally, these contributions funded the third
installment on our first two AHTS vessels, which were delivered in February and
May 2009. Through the RHKG Loan Agreement entered into in regards to Isle of
Baltrum, we funded our full capital contribution to our AHTS SPV Isle of
Baltrum.





In order to fund our
remaining commitments to Fincantieri, we entered into the Senior Loan discussed
above under the captionFinancing
Arrangements.
As mentioned above underNord/LB
Facility,as
of December 31, 2009, the terms of the Hartmann Guarantee were being
renegotiated between Reederei Hartmann and Nord/LB..Upon delivery of
each AHTS vessel, we will draw on the Senior Loan in the amount of $50,233,582
(EUR 35,047,500). The proceeds will be used to pay the third and fourth
installments under the shipbuilding contract and the accrued interest thereon if
the installment payments are outstanding, or to repay the Pre-Delivery Facility
for the AHTS vessel for any amounts drawn, fund the fifth installment to
Fincantieri and, where amounts are available, fund the outfitting of each
vessel. The schedule below reflects the anticipated deficit in each AHTS SPV
upon delivery for the remaining six AHTS vessels under construction based on the
remaining capital expenditure obligation for the vessel as compared to the
anticipated Senior Loan Proceeds as of December 31, 2009.


52





RemainingCapital
                    
                    
                    
                    
                    
                    Reserves orExpenditure
                    
                    
                    Senior Loan
                    
                    
                    (Deficit) in SPVSPVName
                    
                    Vessel Name
                    
                    Obligation
                    
                    
                    Proceeds
                    
                    
                    atDelivery(1)6163
      –  Isle of Langeoog
                    
                    UOS
      Discovery
                    
                    $
                    52,050,003
                    
                    
                    $
                    50,233,582
                    
                    
                    $
                    (1,816,421
                    )6168
      –  Isle of Amrum
                    
                    UOS
      Endeavour
                    
                    
                    56,806,122
                    
                    
                    
                    50,233,582
                    
                    
                    
                    (6,572,540
                    )6169
      –  Isle of Sylt
                    
                    UOS
      Enterprise
                    
                    
                    56,806,122
                    
                    
                    
                    50,233,582
                    
                    
                    
                    (6,572,540
                    )6171
      –  Isle of Wangerooge
                    
                    UOS
      Explorer
                    
                    
                    58,653,216
                    
                    
                    
                    50,233,582
                    
                    
                    
                    (8,419,634
                    )6172
      –  Isle of Neuwerk
                    
                    UOS
      Freedom
                    
                    
                    58,896,590
                    
                    
                    
                    50,233,582
                    
                    
                    
                    (8,663,008
                    )6173
      –  Isle of Usedom
                    
                    UOS
      Liberty
                    
                    
                    59,157,738
                    
                    
                    
                    50,233,582
                    
                    
                    
                    (8,924,156
                    )$
                    342,369,791
                    
                    
                    $
                    301,401,492





(1)
            The
      schedule above does not include the effect of the contributions of our
      share capital obligation via the RHKG Loan Agreements to the AHTS SPV’s
      Isle of Langeoog, Isle of Amrum, and Isle of Wangerooge, as they occurred
      after December 31, 2009. Through those contributions, the anticipated
      deficit in those SPVs was funded.





We
continue to raise funds through private placement of our limited partner units,
both to new and existing investors. Additionally, we have entered into the RHKG
Loan Agreements described above, through which we funded in February and March
2010 the deficits noted above for our AHTS SPVs Isle of Langeoog, Isle of Amrum,
and Isle of Wangerooge. The proceeds from future fundraising efforts through the
continued offering of limited partner units, and from potential additional RHKG
Loan Agreements if we are able to secure additional financing on terms
acceptable to us, will be used to fund our operations and to complete the
funding of our equity commitments under the agreements which govern the SPV
entities in which the vessels are held, which equity will fund the delivery of
the vessels and provide reserves for the operations of each SPV.





Under the
AHTS SPV formation documents (“Company Agreements”), we have committed to
contribute capital to these entities totaling $150,496,500 (EUR 105,000,000)
(“Capital Commitment”). This amount reflects an increase in our share capital
commitment for the Isle of Usedom SPV from $14,512,163 (EUR 10,125,000) to
$40,849,050 (EUR 28,500,000) in order to comply with the terms of the Senior
Loan. Through contributions made to each SPV to fund installments to
Fincantieri, we had funded $67,092,773 (EUR 46,810,000) as of December 31,
2009.





Were ATL
Offshore GmbH (“ATL”), which serves as the general partner of each AHTS SPV and
is a member of the Hartmann Group, to call in the remaining unfunded share
capital in order to meet obligations of the SPV, we would be required pursuant
to the Company Agreements to fund the capital call up to our maximum share of
the Capital Commitment. If we were unable to fund the capital call from
additional limited partner contributions or other means, such as additional
credit facilities, our fellow limited partner, Reederei Hartmann, could fund our
unfunded capital under the Company Agreements for each AHTS SPV. As stated
above, in connection with the delivery of vessels to our AHTS SPVs Isle of
Baltrum, Isle of Langeoog, Isle of Amrum and Isle of Wangerooge, we entered into
the RHKG Loan Agreements to secure funding for our remaining capital commitments
to those AHTS SPVs. The addendum to the Share Transfer Agreement executed on
February 10, 2010 calls for such funding by Reederei Hartmann to give rise to a
loan from Reederei Hartmann to our German Subsidiary in connection with the
delivery of our remaining three AHTS vessels, resulting in the funding of our
capital via the loan proceeds for those AHTS SPVs. The terms of the loans are as
discussed under RHKG Loan
Agreements above, and include the granting of a security interest in our
interest in the respective AHTS SPV, and restrictions on the use of dividends
from the AHTS SPV for repayment of the RHKG Loan Agreement. In the event that
Reederei Hartmann is unable or unwilling to fund our unfunded capital to effect
the delivery of the three remaining AHTS vessels, ATL would likely seek to raise
capital from other sources, which could dilute our ownership, or ATL could seek
to sell all or part of a vessel or vessels. Our limited partners are not subject
to additional capital calls under our Agreement of Limited
Partnership.


53





The table
below provides a schedule of unfunded capital commitments for each AHTS SPV as
of December 31, 2009, and also includes the information from the table above
regarding the deficit resulting from the difference between our remaining
capital expenditure obligation and the anticipated Senior Loan
proceeds:





AnticipatedRemaining
                            
                            
                            Reserves orCapital Contribution
                            
                            
                            (Deficit) in SPV
                            
                            Anticipated VesselSPV Name
                            
                            Vessel Name
                            
                            Commitment(1)
                            
                            
                            atDelivery(2)
                            
                            DeliveryDate6160
      –  MS Juist
                            
                            UOS
      Atlantis
                            
                            $
                            2,142,784
                            
                            
                            
                            —
                            
                            February 27, 2009 (delivered)6161
      –  MS Norderney
                            
                            UOS
      Challenger
                            
                            
                            3,253,591
                            
                            
                            
                            —
                            
                            May
      28, 2009 (delivered)6162
      –  Isle of Baltrum
                            
                            UOS
      Columbia
                            
                            
                            —
                            
                            
                            
                            —
                            
                            October
      2, 2009 (delivered)6163
      –  Isle of Langeoog
                            
                            UOS
      Discovery
                            
                            
                            7,668,155
                            
                            
                            
                            (1,816,421
                            )
                            February
      2010
                            (3)6168
      –  Isle of Amrum
                            
                            UOS
      Endeavour
                            
                            
                            10,807,082
                            
                            
                            
                            (6,572,540
                            )
                            March
      2010
                            (4)6169
      –  Isle of Sylt
                            
                            UOS
      Enterprise
                            
                            
                            11,237,072
                            
                            
                            
                            (6,572,540
                            )
                            April
      20106171
      –  Isle of Wangerooge
                            
                            UOS
      Explorer
                            
                            
                            10,907,413
                            
                            
                            
                            (8,419,634
                            )
                            March
      2010
                            (4)6172
      –  Isle of Neuwerk
                            
                            UOS
      Freedom
                            
                            
                            10,821,415
                            
                            
                            
                            (8,663,008
                            )
                            April
      20106173
      –  Isle of Usedom
                            
                            UOS
      Liberty
                            
                            
                            46,739,913
                            
                            
                            
                            (8,924,156
                            )
                            April
      2010$
                            103,577,425





(1)
            Pursuant
      to the AHTS SPV Agreements, the non-controlling interest holders are
      committed to contribute 25% of this
amount.


(2)
            The
      schedule above does not include the effect of the contributions of our
      share capital via the RHKG Loan Agreements to the AHTS SPV’s Isle of
      Langeoog, Isle of Amrum, and Isle of Wangerooge, as they occurred after
      December 31, 2009.


(3)
            This
      vessel was delivered in February
2010.


(4)
            These
      vessels were delivered in March
2010.





The
remaining capital contributions will be utilized by the AHTS SPVs for operations
during the construction period, to fund the deficits noted above which relate to
the delivery and outfitting of each AHTS vessel upon delivery, and provide
working capital to the AHTS SPVs, a portion of which is necessary in order to
fulfill the conditions under the Senior Loan (“Senior Loan Conditions”). The
capital in excess of the amount required for operations, outfitting and
compliance with the Senior Loan Conditions will be called if it is necessary for
ATL to call in the capital in order to meet obligations of the AHTS SPV. The
factors which would affect such a decision would include the excess loan
proceeds available from the funding of the Senior Loan upon delivery of each
AHTS vessel, if any, our success in obtaining any additional financing from
Nord/LB discussed above, charter coverage, current market day rates, operational
requirements such as anticipated dry dockings and unexpected repair costs as
well as other factors deemed relevant by ATL regarding each vessel.





In
summary, through December 31, 2009, we had contributed capital totaling
$67,092,773 (EUR 46,810,000) to the AHTS SPVs primarily with contributions from
the sale of limited partner units, which provided funds for the first two
installments to Fincantieri and operations to date for the AHTS SPVs. The first
three AHTS vessels had been delivered, and the remaining capital obligations of
the AHTS SPVs for the vessels totaled $344,878,066 (EUR 240,618,200). We
anticipated receiving $301,401,491 (EUR 210,285,000) in loan proceeds through
the Senior Loan. The remaining obligations of each AHTS SPV will be funded by
both us and Reederei Hartmann from additional capital contributions to the AHTS
SPVs, as called for under the Company Agreements.





Subsequent
to December 31, 2009, our AHTS SPVs Isle of Langeoog, Isle of Amrum and Isle of
Wangerooge took delivery of three additional vessels, the UOS Discovery, UOS
Endeavour, and UOS Explorer, respectively. Just prior to delivery, we entered
into RHKG Loan Agreements related to the three AHTS SPVs, through which we fully
funded our outstanding capital contributions totaling $23,851,875 (EUR
17,465,000). Considering these contributions, our remaining capital contribution
obligation to the AHTS SPV’s approximates $58,371,143 (EUR 40,725,000) in order
to maintain our 75% ownership of all nine AHTS SPVs. Funding this amount would
represent full funding of our obligation under the current Company Agreements
for each AHTS SPV.


54


We do not
anticipate making distributions in the future until the funding stage is
completed and the vessels have been delivered to the applicable AHTS SPVs.
Additionally, the combined terms of the Share Transfer Agreement as amended and
the RHKG Loan Agreements require the German Subsidiary to reserve distributions
from the AHTS SPV’s for repayment of the RHKG Loan Agreements, and additionally
require that distributions either outside the scope of the RHKG Loan Agreements
or beyond amounts required to repay the RHKG Loans be maintained in an escrow
account for purpose of funding capital contributions with respect to the other
AHTS SPVs until all such SPVs are fully funded. Our ability to make
distributions will therefore be heavily influenced by whether we are able to
repay the RHKG Loans through the additional Nord/LB financing discussed above or
otherwise, the dividend restrictions currently in the Senior Loan, together with
any changes in connection with any additional Nord/LB financing, if obtained,
and ultimately on day rates achieved and the results of operations of our
vessels, which will impact our ability to repay our debt and the amounts
available for distribution after those repayments and payment of all
expenses.





Critical
Accounting Estimates





The
preparation of financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Our significant accounting policies, which are reviewed by management
on a regular basis, are described in Note 1 Nature of Partnership’s Business and
Summary of Significant Accounting Policies in our Notes to Consolidated
Financial Statements.





We deem
an accounting policy to be critical if it requires an accounting estimate to be
made based on assumptions about matters that are uncertain at the time the
estimate is made, and if different estimates that reasonably could have been
used, or changes in the accounting estimates that are reasonably likely to occur
periodically, could materially impact the financial statements. Management
believes the following critical accounting policies reflect its more significant
estimates and assumptions used in the preparation of our Consolidated Financial
Statements.





Revenue
Recognition


Our
revenue is earned primarily from time chartering of vessels to charterers based
upon daily rates of hire. Our AHTS SPVs participate in the UOS AHTS Pool under
which they pool their Voyage Results, which is their revenue less voyage
expenses. Revenue from charters is generally recorded when services are
rendered, estimates are reasonably determinable and collection is reasonably
assured. Revenue is recognized net of price adjustments and other potential
adjustments based upon the daily charter rate for the reporting period. Our
pooling arrangement under the UOS AHTS Pool will not have any bearing on our
revenue until such time as one of the vessels owned by FLTC Fund I is delivered
and begins to participate in the UOS AHTS Pool, which is expected in May 2010.
After such time, our revenue will be recorded taking into account potential pool
adjustments for the period. The period in which management estimates revenues
have been earned and the extent to which those revenues are deemed collectible,
and estimates of any adjustments to revenues, could have a material effect on
the net recognized revenue in any given period.





Valuation of Derivative
Financial Instruments


We
account for derivatives and derivatives classified as hedges in accordance with
FASB ASC 815, Derivatives and
Hedges. All our derivative and hedge positions are stated at fair value
within either current derivative assets, derivative assets, current derivative
liabilities or long-term derivative liabilities on our consolidated balance
sheet. Realized and unrealized gains and losses related to our foreign currency
exchange contracts not classified as hedges are reported in our consolidated
statements of operations in foreign currency transaction gain (loss), while
those related to foreign currency exchange contracts designated for hedge
accounting are included in foreign currency transaction gain (loss) on the
consolidated statement of operations with the effective portion of the fair
value gains or losses recorded as part of accumulated other comprehensive income
on the consolidated balance sheet. The gain or loss related to our interest rate
swap contracts, none of which are classified as hedges, is reported in loss on
interest rate swaps.





In order
to value the derivatives, management must make estimates regarding the future
values of interest and currency exchange rates. Management relies on published
forward estimates of EURIBOR rates and currency exchange rates when estimating
the fair value of its derivatives. These estimates could materially change from
what was available at the balance sheet date.


55


We
evaluate the risk of counterparty default by monitoring the financial condition
of the financial institutions and counterparties involved and primarily
conducting business with well-established financial institutions. We do not
currently anticipate nonperformance by any of our counterparties.





Fixed
Assets


Vessels
are stated at cost less accumulated depreciation. Vessel costs include
acquisition costs directly attributable to the vessel and expenditures made to
prepare the vessel for its initial voyage. Vessels are depreciated on a
straight-line basis over their estimated useful lives which have been determined
to be 20 years from the initial delivery date from the shipyard.





The
estimated useful life was determined based on the historical useful lives of
like-kind vessels. The actual useful life could be more or less than estimated,
and this could result in the vessels being stated at values materially above or
below their actual value. Factors that could result in a shorter useful life,
and thus an actual value of less than the stated value, include the unexpected
emergence of new technology making our vessels obsolete sooner than expected, or
changes in maritime or environmental law which are unpredictable but could
result in a shorter than expected useful life for our vessels. If the useful
life is materially less than that estimated for depreciation purposes, it could
result in our having to record an impairment to the value of the asset. A
similar situation could arise if a vessel which we have an intention to sell is
found to have a fair value less cost to sell lower than its stated value at the
time it is reclassified as held for sale, due to a shorter useful life than that
estimated in computing depreciation. In this case we would be required to record
an allowance against the asset at the time it is reclassified as held for sale
for the difference between the carrying value and the fair value less cost to
sell.





Impairment of Long-Lived
Assets


We assess
long-lived assets for recoverability in accordance with FASB ASC 360, Property, Plant and
Equipment, which requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets is
measured by comparing the carrying amount of an asset, which is based on cost
less depreciation taken to date, to future undiscounted net cash flows expected
to be generated by the asset. These evaluations for impairment are significantly
impacted by estimates of revenues, costs, expenses and other factors. As such,
the outcome of the evaluation analysis is subject to management’s estimates,
which could differ from actual. This could potentially cause us to fail to
record an impairment, when actual circumstances later result in realization of a
loss on the asset, or to record an impairment when none actually exists. If
these assets are considered to be impaired, the impairment to be recognized is
calculated as the excess of the asset’s carrying value over its fair
value. As of
December 31, 2009, we are re-evaluating our intentions with respect to the
chemical tanker, and believe it is unlikely that we will complete the
acquisition of the tanker unless the shipyard constructing the vessel agrees to
significant concessions, to include timing of construction installments, and an
adjustment to the overall contract price.  We have therefore recorded
an impairment to the deposit on asset acquisition on our balance sheet to reduce
the carrying value of this asset to zero, resulting in the recognition of a loss
on impairment of $9,874,907.  No indicators of potential impairment
were noted for the year ended December 31, 2008.




New
Accounting Pronouncements





FASB Accounting Standards
Codification


(Accounting
Standards Update (“ASU”) 2009-01)





In June
2009, the FASB issued ASU 2009-01, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles, which approves the Accounting Standards
Codification, or ASC, as the single source of authoritative United States
accounting and reporting standards applicable for all non-governmental entities.
The ASC, which changes the referencing of financial standards, is effective for
interim or annual financial periods ending after September 15, 2009. As the ASC
is not intended to change or alter existing U.S. GAAP, it did not have any
impact on our consolidated financial position or results of operations. We
adopted Update 2009-01 as of September 30, 2009.





Derivatives and Hedging
Activities


(Included
in ASC 815 “Derivatives and Hedging,” previously SFAS No. 161 “Disclosures about
Derivative Instruments and Hedging Activities, an Amendment of SFAS No.
133”)


56


In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of SFAS No. 133 which
amended and expanded the disclosure requirements of SFAS No. 133 to include
disclosure of the objectives and strategies related to an entity’s use of
derivative instruments, disclosure of how an entity accounts for its derivative
instruments and disclosure of the financial impact including the effect on cash
flows associated with derivative activity. We adopted SFAS No. 161 as of January
1, 2009 on a prospective basis; accordingly, disclosures related to interim
periods prior to the date of adoption have not been presented. The adoption had
no impact on our consolidated financial statements, besides the additional
disclosures. See Note 5 for additional information.





Disclosure about Fair Value
of Financial Instruments


(Included
in ASC 825 “Financial Instruments,” previously FSP FAS 107-1 and APB 28-1
“Interim Disclosure about Fair Value of Financial Instruments”)





In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosure about Fair Value
of Financial Instruments (“FSP 107-1/APB 28-1”). FSP 107-1/APB 28-1
requires interim disclosures regarding the fair values of financial instruments
that are within the scope of FAS 107, Disclosures about the Fair Value of
Financial Instruments. Additionally, FSP 107-1/APB 28-1 requires
disclosure of the methods and significant assumptions used to estimate the fair
value of financial instruments on an interim basis as well as changes of the
methods and significant assumptions from prior periods. FSP 107-1/APB 28-1 does
not change the accounting treatment for these financial instruments. We adopted
this standard in the second quarter of 2009 and the required disclosures are
included in Note 7.





Subsequent
Events


(Included
in ASC 855 “Subsequent Events,” previously SFAS No. 165 “Subsequent
Events”)




In May of
2009, the FASB issued new authoritative accounting guidance under ASC Topic 855,
“Subsequent Events,” establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. ASC Topic 855 defines
(i) the period after the balance sheet date during which a reporting entity’s
management should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, (ii) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements, and (iii) the disclosures an
entity should make about events or transactions that occurred after the balance
sheet date. The new authoritative accounting guidance under ASC Topic 855 became
effective for the partnership’s consolidated financial statements for periods
ending after June 15, 2009 and did not have a significant impact on the
partnership’s consolidated financial statements.





Non-controlling
Interest


(Included
in ASC 810 “Consolidation,” previously SFAS No. 160, Non-controlling Interests
in Consolidated Financial Statements - An Amendment of ARB No. 51”)





In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51. SFAS No.
160 establishes new accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary. This
accounting standard is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008. We adopted SFAS No.
160 as of January 1, 2009. The adoption of SFAS No. 160 did not have a material
impact on our consolidated financial statements, but it did change the
presentation of the consolidated balance sheet, income statement and other
comprehensive income. The presentation changes have been made for all periods
presented.


57


Item
8. Financial Statements and Supplementary Data





Page
                  NumberReport
      of Independent Registered Public Accounting Firm
                
                59Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                
                60Consolidated
      Statements of Operations for years ended December 31, 2009 and
      2008
                
                61Consolidated
      Statements of Partners’ Equity for the years ended December 31, 2009
      and  2008
                
                62Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008
                
                63Consolidated
      Statements of Comprehensive Income (Loss) for the years ended December 31,
      2009 and 2008
                
                64Notes
      to Consolidated Financial Statements
                
                65


58


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Partners


III to I
Maritime Partners Cayman I, L.P. and Subsidiaries





We have
audited the accompanying consolidated balance sheets of III to I Maritime
Partners Cayman I, L.P. and Subsidiaries as of December 31, 2009 and 2008, and
the related consolidated statements of operations, partners’ equity, cash flows
and comprehensive income (loss) for each of the two years then ended. 
These financial statements are the responsibility of the Partnership’s
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board of the United States of America.  Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of III to I Maritime Partners
Cayman I, L.P. and Subsidiaries as of December 31, 2009 and 2008, and the
results of their operations and their cash flows for each of the two years then
ended in conformity with U.S. generally accepted accounting
principles.





/s/
      MCGLADREY & PULLEN, LLP


Dallas,
Texas


March 31,
2010


59


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES




CONSOLIDATED
BALANCE SHEETS




December 31,
                                                                    
                                                                    
                                                                    December 31,2009
                                                                    
                                                                    
                                                                    2008ASSETSCash
                                                                    
                                                                    $
                                                                    18,267,260
                                                                    
                                                                    
                                                                    $
                                                                    2,222,196Cash
      held in escrow
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    314,500Related
      party receivables
                                                                    
                                                                    
                                                                    1,949,363
                                                                    
                                                                    
                                                                    
                                                                    5,940,945Due
      from charterers
                                                                    
                                                                    
                                                                    3,263,009
                                                                    
                                                                    
                                                                    
                                                                    —Other
      receivables
                                                                    
                                                                    
                                                                    28,788
                                                                    
                                                                    
                                                                    
                                                                    198,133Prepaid
      assets
                                                                    
                                                                    
                                                                    214,490
                                                                    
                                                                    
                                                                    
                                                                    100,000Current
      derivative assets
                                                                    
                                                                    
                                                                    2,773,820
                                                                    
                                                                    
                                                                    
                                                                    —Other
      current assets
                                                                    
                                                                    
                                                                    1,142,499
                                                                    
                                                                    
                                                                    
                                                                    491,335Current
      assets
                                                                    
                                                                    
                                                                    27,639,229
                                                                    
                                                                    
                                                                    
                                                                    9,267,109Vessels
                                                                    
                                                                    
                                                                    168,478,062
                                                                    
                                                                    
                                                                    
                                                                    —Vessel
      construction in progress
                                                                    
                                                                    
                                                                    111,152,161
                                                                    
                                                                    
                                                                    
                                                                    80,049,335On
      board equipment
                                                                    
                                                                    
                                                                    11,912,779
                                                                    
                                                                    
                                                                    
                                                                    811,255291,543,002
                                                                    
                                                                    
                                                                    
                                                                    80,860,590Less
      accumulated depreciation
                                                                    
                                                                    
                                                                    (5,003,164
                                                                    )
                                                                    
                                                                    
                                                                    —Vessels
      and equipment, net
                                                                    
                                                                    
                                                                    286,539,838
                                                                    
                                                                    
                                                                    
                                                                    80,860,590Investment
      in unconsolidated entities
                                                                    
                                                                    
                                                                    2,977,432
                                                                    
                                                                    
                                                                    
                                                                    3,575,462Restricted
      cash
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    55,967,374Deferred
      loan fees, net
                                                                    
                                                                    
                                                                    3,554,818
                                                                    
                                                                    
                                                                    
                                                                    3,771,774Derivative
      assets, net of current portion
                                                                    
                                                                    
                                                                    2,797,433
                                                                    
                                                                    
                                                                    
                                                                    —Other
      assets
                                                                    
                                                                    
                                                                    207
                                                                    
                                                                    
                                                                    
                                                                    1,426Total
      assets
                                                                    
                                                                    $
                                                                    323,508,957
                                                                    
                                                                    
                                                                    $
                                                                    153,443,735LIABILITIES
      AND PARTNERS' EQUITYAccounts
      payable and other accrued liabilities
                                                                    
                                                                    $
                                                                    15,400,959
                                                                    
                                                                    
                                                                    $
                                                                    2,653,705Vessel
      construction installments payable
                                                                    
                                                                    
                                                                    65,019,372
                                                                    
                                                                    
                                                                    
                                                                    10,381,453Accrued
      interest payable
                                                                    
                                                                    
                                                                    173,608
                                                                    
                                                                    
                                                                    
                                                                    322,220Due
      to related party
                                                                    
                                                                    
                                                                    852,663
                                                                    
                                                                    
                                                                    
                                                                    850,828Unaccepted
      equity contributions
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    314,500Current
      derivative liabilities
                                                                    
                                                                    
                                                                    4,522,274
                                                                    
                                                                    
                                                                    
                                                                    —Current
      portion of long-term debt
                                                                    
                                                                    
                                                                    17,858,391
                                                                    
                                                                    
                                                                    
                                                                    34,927,967Current
      liabilities
                                                                    
                                                                    
                                                                    103,827,267
                                                                    
                                                                    
                                                                    
                                                                    49,450,673Long-term
      derivative liabilities
                                                                    
                                                                    
                                                                    5,007,963
                                                                    
                                                                    
                                                                    
                                                                    —Notes
      payable to related party
                                                                    
                                                                    
                                                                    477,500
                                                                    
                                                                    
                                                                    
                                                                    1,250,000Long-term
      debt, net of current portion
                                                                    
                                                                    
                                                                    140,527,679
                                                                    
                                                                    
                                                                    
                                                                    21,327,408Total
      liabilities
                                                                    
                                                                    
                                                                    249,840,409
                                                                    
                                                                    
                                                                    
                                                                    72,028,081Commitments
      and contingenciesIII
      to I Maritime Partners Cayman I, L.P. partners' equity:General
      partner
                                                                    
                                                                    
                                                                    514,138
                                                                    
                                                                    
                                                                    
                                                                    942,557Class
      A limited partners (units issued and outstanding:December
      31, 2009 - 612,244, December 31, 2008 - 556,725)
                                                                    
                                                                    
                                                                    36,459,320
                                                                    
                                                                    
                                                                    
                                                                    53,153,690Class
      B limited partners (units issued and outstanding:December
      31, 2009 - 84,313, December 31, 2008 - 84,313)
                                                                    
                                                                    
                                                                    4,789,036
                                                                    
                                                                    
                                                                    
                                                                    8,026,114Class
      D limited partners (units issued and outstanding:December
      31, 2009 - 2,000, December 31, 2008 - 0)
                                                                    
                                                                    
                                                                    (105,253
                                                                    )
                                                                    
                                                                    
                                                                    —Accumulated
      other comprehensive income
                                                                    
                                                                    
                                                                    6,456,857
                                                                    
                                                                    
                                                                    
                                                                    123,166III
      to I Maritime Partners Cayman I, L.P. partners' equity
                                                                    
                                                                    
                                                                    48,114,098
                                                                    
                                                                    
                                                                    
                                                                    62,245,527Non-controlling
      interest
                                                                    
                                                                    
                                                                    25,554,450
                                                                    
                                                                    
                                                                    
                                                                    19,170,127Total
      partners' equity
                                                                    
                                                                    
                                                                    73,668,548
                                                                    
                                                                    
                                                                    
                                                                    81,415,654Total
      liabilities and partners' equity
                                                                    
                                                                    $
                                                                    323,508,957
                                                                    
                                                                    
                                                                    $
                                                                    153,443,735





See Notes
to Consolidated Financial Statements.


60


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF OPERATIONS




Years Ended December 31,2009
                                
                                
                                2008Time
      charter revenue
                                
                                $
                                19,415,498
                                
                                
                                $
                                —Operating
      expenses:Vessel
      operating expenses
                                
                                
                                19,484,824
                                
                                
                                
                                —Loss
      on impairment of deposit on asset acquisition
                                
                                
                                9,874,907
                                
                                
                                
                                —Professional
      fees
                                
                                
                                3,151,608
                                
                                
                                
                                1,499,873Brokerage
      and representation fees
                                
                                
                                725,980
                                
                                
                                
                                656,250Other
      operating expenses
                                
                                
                                847,757
                                
                                
                                
                                544,831Total
      operating expenses
                                
                                
                                34,085,076
                                
                                
                                
                                2,700,954Operating
      loss
                                
                                
                                (14,669,578
                                )
                                
                                
                                (2,700,954
                                )Other
      income (expense):Interest
      income
                                
                                
                                999,078
                                
                                
                                
                                2,768,138Interest
      expense
                                
                                
                                (3,660,121
                                )
                                
                                
                                (1,005,205
                                )Loss
      on interest rate swaps
                                
                                
                                (9,272,915
                                )
                                
                                
                                —Foreign
      currency transaction gain (loss)
                                
                                
                                335,094
                                
                                
                                
                                (2,129,747
                                )Equity
      in income (loss) of unconsolidated entities
                                
                                
                                (640,124
                                )
                                
                                
                                46,770Total
      other income (expense)
                                
                                
                                (12,238,988
                                )
                                
                                
                                (320,044
                                )Net
      loss
                                
                                
                                (26,908,566
                                )
                                
                                
                                (3,020,998
                                )Net
      loss attributable to thenon-controlling
      interest
                                
                                
                                2,675,378
                                
                                
                                
                                247,818Net
      loss attributable to III to I MaritimePartners
      Cayman I, L.P.
                                
                                
                                (24,233,188
                                )
                                
                                
                                (2,773,180
                                )Less
      general partner's interest in net loss
                                
                                
                                (348,831
                                )
                                
                                
                                (48,712
                                )Limited
      partner interest in net loss
                                
                                $
                                (23,884,357
                                )
                                
                                $
                                (2,724,468
                                )Net
      loss per general partner unit:Basic
      and diluted
                                
                                $
                                (35.23
                                )
                                
                                $
                                (4.92
                                )Weighted
      average general partner units outstanding
                                
                                
                                9,900
                                
                                
                                
                                9,900Net
      loss per limited partner unit:Basic
      and diluted
                                
                                $
                                (35.23
                                )
                                
                                $
                                (4.92
                                )Weighted
      average limited partner units outstanding
                                
                                
                                677,864
                                
                                
                                
                                553,741




See Notes
to Consolidated Financial Statements.
  61




III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF PARTNERS’ EQUITY




III to I Maritime Partners Cayman I, L.P.AccumulatedClass A
                          
                          
                          Class B
                          
                          
                          Class D
                          
                          
                          OtherGeneral
                          
                          
                          Limited
                          
                          
                          Limited
                          
                          
                          Limited
                          
                          
                          Comprehensive
                          
                          
                          Non-controllingPartner
                          
                          
                          Partners
                          
                          
                          Partners
                          
                          
                          Partners
                          
                          
                          Income (Loss)
                          
                          
                          Interest
                          
                          
                          TotalBalance
      at January 1, 2008
                          
                          $
                          1,020,841
                          
                          
                          $
                          44,681,597
                          
                          
                          $
                          5,507,244
                          
                          
                          $
                          —
                          
                          
                          $
                          163,683
                          
                          
                          $
                          12,953,730
                          
                          
                          $
                          64,327,095Contributions,
      net of syndication costs
                          
                          
                          (29,572
                          )
                          
                          
                          11,301,184
                          
                          
                          
                          2,874,247
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          8,129,972
                          
                          
                          
                          22,275,831Receivable
      from partners
                          
                          
                          —
                          
                          
                          
                          (460,000
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (460,000
                          )Distributions
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (739,518
                          )
                          
                          
                          (739,518
                          )Sale
      to affiliate
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (173,668
                          )
                          
                          
                          (173,668
                          )Net
      loss
                          
                          
                          (48,712
                          )
                          
                          
                          (2,369,091
                          )
                          
                          
                          (355,377
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (247,818
                          )
                          
                          
                          (3,020,998
                          )Foreign
      currency translation adjustment
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (40,517
                          )
                          
                          
                          (752,571
                          )
                          
                          
                          (793,088
                          )Balance
      at December 31, 2008
                          
                          
                          942,557
                          
                          
                          
                          53,153,690
                          
                          
                          
                          8,026,114
                          
                          
                          
                          —
                          
                          
                          
                          123,166
                          
                          
                          
                          19,170,127
                          
                          
                          
                          81,415,654Contributions,
      net of syndication costs
                          
                          
                          (31,274
                          )
                          
                          
                          3,706,146
                          
                          
                          
                          (266,330
                          )
                          
                          
                          (3,846
                          )
                          
                          
                          —
                          
                          
                          
                          8,166,398
                          
                          
                          
                          11,571,094Payment
      on receivable from partners
                          
                          
                          —
                          
                          
                          
                          460,000
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          460,000Distributions
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (689,986
                          )
                          
                          
                          (689,986
                          )Transfer
      of non-controlling interest inCyprus
      Subsidiary
                          
                          
                          (48,314
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (48,314
                          )
                          
                          
                          —
                          
                          
                          
                          96,628
                          
                          
                          
                          —Net
      loss
                          
                          
                          (348,831
                          )
                          
                          
                          (20,860,516
                          )
                          
                          
                          (2,970,748
                          )
                          
                          
                          (53,093
                          )
                          
                          
                          —
                          
                          
                          
                          (2,675,378
                          )
                          
                          
                          (26,908,566
                          )Forward
      currency exchange contracts
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          3,824,423
                          
                          
                          
                          1,274,808
                          
                          
                          
                          5,099,231Foreign
      currency translation adjustment
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          2,509,268
                          
                          
                          
                          211,853
                          
                          
                          
                          2,721,121Balance
      at December 31, 2009
                          
                          $
                          514,138
                          
                          
                          $
                          36,459,320
                          
                          
                          $
                          4,789,036
                          
                          
                          $
                          (105,253
                          )
                          
                          $
                          6,456,857
                          
                          
                          $
                          25,554,450
                          
                          
                          $
                          73,668,548




See Notes
to Consolidated Financial Statements.




62


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF CASH FLOWS




Years EndedDecember 31,2009
                                  
                                  
                                  2008Operating
      activities:Net
      loss
                                  
                                  $
                                  (26,908,566
                                  )
                                  
                                  $
                                  (3,020,998
                                  )Adjustments
      to reconcile net loss to net cashprovided
      by operating activities:Depreciation
                                  
                                  
                                  4,869,284
                                  
                                  
                                  
                                  1,276Amortization
      of debt issue costs
                                  
                                  
                                  50,645
                                  
                                  
                                  
                                  21,544Foreign
      currency transaction loss
                                  
                                  
                                  1,788,739
                                  
                                  
                                  
                                  2,129,747Net
      gain on forward currency exchange contracts
                                  
                                  
                                  (2,100,973
                                  )
                                  
                                  
                                  —Net
      loss on interest rate swap
                                  
                                  
                                  9,272,915
                                  
                                  
                                  
                                  —Settlement
      of hedge instruments
                                  
                                  
                                  (51,924
                                  )
                                  
                                  
                                  —Equity
      in loss (income) of unconsolidated entities
                                  
                                  
                                  640,124
                                  
                                  
                                  
                                  (46,770
                                  )Loss
      on impairment of deposit on asset acquisition
                                  
                                  
                                  9,874,907
                                  
                                  
                                  
                                  —Payment
      of interest on Berenberg Facility
                                  
                                  
                                  (5,401,173
                                  )
                                  
                                  
                                  (84,785
                                  )Changes
      in assets and liabilities:Due
      from charterers
                                  
                                  
                                  (3,263,009
                                  )
                                  
                                  
                                  —Other
      receivables
                                  
                                  
                                  171,992
                                  
                                  
                                  
                                  (198,133
                                  )Prepaid
      and other assets
                                  
                                  
                                  (757,426
                                  )
                                  
                                  
                                  (227,594
                                  )Accounts
      payable and accrued liabilities
                                  
                                  
                                  9,310,633
                                  
                                  
                                  
                                  2,139,549Accrued
      interest payable
                                  
                                  
                                  (153,968
                                  )
                                  
                                  
                                  322,220Net
      cash (used in) provided by operating activities
                                  
                                  
                                  (2,657,800
                                  )
                                  
                                  
                                  1,036,056Investing
      activities:Net
      related party receivable
                                  
                                  
                                  (147,364
                                  )
                                  
                                  
                                  (4,395,510
                                  )Distribution
      from unconsolidated entities
                                  
                                  
                                  —
                                  
                                  
                                  
                                  332,305Advances
      for vessel acquisitions
                                  
                                  
                                  (124,173,802
                                  )
                                  
                                  
                                  (20,057,917
                                  )Advances
      for capitalized vessel construction costs
                                  
                                  
                                  (8,712,267
                                  )
                                  
                                  
                                  (3,229,749
                                  )Purchase
      of on board equipment
                                  
                                  
                                  (11,087,942
                                  )
                                  
                                  
                                  (811,255
                                  )Proceeds
      from sale to affiliate
                                  
                                  
                                  —
                                  
                                  
                                  
                                  2,922,775Decrease
      (increase) in restricted cash
                                  
                                  
                                  55,967,374
                                  
                                  
                                  
                                  (12,902,482
                                  )Net
      cash used in investing activities
                                  
                                  
                                  (88,154,001
                                  )
                                  
                                  
                                  (38,141,833
                                  )Financing
      activities:Proceeds
      from Berenberg Facility
                                  
                                  
                                  2,655,082
                                  
                                  
                                  
                                  17,893,238Repayments
      on Berenberg Facility
                                  
                                  
                                  (54,451,067
                                  )
                                  
                                  
                                  (2,903,272
                                  )Proceeds
      from senior loan with Nord/LB
                                  
                                  
                                  150,700,745
                                  
                                  
                                  
                                  —Repayments
      on senior loan with Nord/LB
                                  
                                  
                                  (5,232,663
                                  )
                                  
                                  
                                  —Net
      proceeds from borrowing on Hartmann Loans
                                  
                                  
                                  7,617,990
                                  
                                  
                                  
                                  —Deferred
      loan fees
                                  
                                  
                                  (9,527
                                  )
                                  
                                  
                                  (3,782,997
                                  )Proceeds
      from related party note payable
                                  
                                  
                                  —
                                  
                                  
                                  
                                  1,250,000Repayment
      of related party note payable
                                  
                                  
                                  (11,327,751
                                  )
                                  
                                  
                                  —Net
      accounts payable to related party
                                  
                                  
                                  (9,991
                                  )
                                  
                                  
                                  865,158Contributions
      from partners
                                  
                                  
                                  6,229,772
                                  
                                  
                                  
                                  16,355,000Unaccepted
      equity contributions
                                  
                                  
                                  (314,500
                                  )
                                  
                                  
                                  314,500Syndication
      costs
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (1,683,641
                                  )Contributions
      from non-controlling interests
                                  
                                  
                                  8,963,135
                                  
                                  
                                  
                                  8,129,972Distributions
      to non-controlling interests
                                  
                                  
                                  (689,986
                                  )
                                  
                                  
                                  (739,518
                                  )Net
      cash provided by financing activities
                                  
                                  
                                  104,131,239
                                  
                                  
                                  
                                  35,698,440Effect
      of exchange rate changes on cash
                                  
                                  
                                  2,725,626
                                  
                                  
                                  
                                  (2,358,668
                                  )Net
      increase (decrease) in cash
                                  
                                  
                                  16,045,064
                                  
                                  
                                  
                                  (3,766,005
                                  )Cash,
      beginning of year
                                  
                                  
                                  2,222,196
                                  
                                  
                                  
                                  5,988,201Cash,
      end of year
                                  
                                  $
                                  18,267,260
                                  
                                  
                                  $
                                  2,222,196Non-cash
      financing and investing activities:Vessel
      construction installments financed through accounts
payable
                                  
                                  $
                                  65,019,372
                                  
                                  
                                  $
                                  10,381,453Deposits
      on asset acquisition financed through assumption of
payable
                                  
                                  $
                                  5,300,000
                                  
                                  
                                  $
                                  —Syndications
      costs financed through accounts payable
                                  
                                  $
                                  2,847,312
                                  
                                  
                                  $
                                  —




See Notes
to Consolidated Financial Statements.


63


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)




Years Ended December 31,2009
                      
                      
                      2008Net
      loss
                      
                      $
                      (26,908,566
                      )
                      
                      $
                      (3,020,998
                      )Foreign
      currency exchange forward contracts
                      
                      
                      5,099,231
                      
                      
                      
                      —Foreign
      currency translation adjustment
                      
                      
                      2,721,121
                      
                      
                      
                      (793,088
                      )Comprehensive
      loss
                      
                      $
                      (19,088,214
                      )
                      
                      $
                      (3,814,086
                      )




See Notes
to Consolidated Financial Statements.




64


III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES




NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





1. 
    Nature of Partnership’s Business and Summary of Significant
Accounting Policies





References
herein to III to I Maritime Partners Cayman I, L.P. (“Cayman I”) include III to
I Maritime Partners Cayman I, L.P. and its consolidated subsidiaries.  In
accordance with the Securities and Exchange Commission’s (“SEC”) “Plain English”
guidelines, these financial statements have been written in the first
person.  In this document, the words “we,” “our,” “ours” and “us” refer
only to III to I Maritime Partners Cayman I, L.P. and its consolidated
subsidiaries or to III to I Maritime Partners Cayman I, L.P. or an individual
subsidiary and not to any other person.





The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and include the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.





Nature
of the Business





Cayman I,
a Cayman Islands limited partnership, was formed October 18, 2006.  Cayman
I and its consolidated subsidiaries were formed for the primary purpose of
acquiring, managing and operating maritime vessels.  Our primary focus is
on anchor-handling tug supply (“AHTS”) vessels, but we also purchased a
non-controlling interest in two multipurpose bulk carrier vessels
(“mini-bulkers”) and entered into an agreement to purchase a chemical
tanker.  We are also authorized to engage in other activities if III to I
International Maritime Solutions Cayman Inc., a Cayman Islands corporation
(“General Partner”), believes such activities will benefit our core business of
shipping operations.  We are authorized to issue Class A, Class B, Class C
and Class D limited partner units as well as general partner units.  To
date we have issued Class A, Class B and Class D limited partner units and
general partner units.  As of December 31, 2009, delivery of three of our
AHTS vessels had occurred from the shipyard, Fincantieri Cantieri Navali
Italiani SpA (“Fincantieri”) in Italy, and we had contracts to purchase six
additional new AHTS vessels currently under construction by Fincantieri. 
Delivery of our first three AHTS vessels, UOS Atlantis, UOS Challenger and UOS
Columbia, occurred on February 27, 2009, May 28, 2009 and October 5, 2009,
respectively, with the AHTS vessels immediately placed in service.  With
these three vessels delivered and operating under charters, our operations have
begun to shift focus from development stage to vessel operations, therefore we
are no longer a development stage company as defined by the topic Development Stage Entities of
Financial Accounting Standards Board Accounting Standards Codification (“FASB
ASC”), FASB ASC 915.





Initially,
we owned approximately 96% of the units of I-A Suresh Capital Maritime Partners
Limited, a limited liability company formed under the laws of Cyprus (our
“Cyprus Subsidiary”).  On April 28, 2009, having received the proper
approval from our limited partners, we underwent a reorganization in order to
simplify our ownership structure, streamline the calculation of allocations and
distributions by incorporating economic rights in our Partnership Agreement that
formerly resided in the organizational documents of our Cyprus Subsidiary and
simplify the financial statements by eliminating the non-controlling interest
component related to the Cyprus Subsidiary.  As part of the reorganization
approval, the reorganization was effective on April 1, 2009.  Pursuant to
the reorganization, one of the non-controlling unitholders in our Cyprus
Subsidiary contributed its units in the Cyprus Subsidiary for newly created
Class D units of Cayman I.  The newly created Class D units are structured
to represent, in total, substantially the same allocation rights in the results
of operations and similar rights of control as the interest in the Cyprus
Subsidiary which was the consideration for their issuance.  Our general
partner, the other non-controlling unitholder, contributed its units in the
Cyprus Subsidiary in exchange for the contribution by the other unitholder and
the adoption of the Second Amended and Restated Agreement of Limited
Partnership.  As a result of the reorganization, we now own 100% of our
Cyprus Subsidiary.





In
accordance with FASB ASC 810, Consolidation -Non-controlling Interest in a
Subsidiary, we have treated the acquisition of the non-controlling
interest in our Cyprus Subsidiary as an equity transaction, and have recorded a
decrease in the equity of the Class D unitholders and of the general partner
equal to the negative carrying value of the non-controlling interest
attributable to the acquired interests effective April 1, 2009.  The table
below reflects the carrying value of our General Partner, Class D and
non-controlling interests as of December 31, 2009 and March 31, 2009.  The
excess of the fair value of the Class D units over the negative carrying value
has also been allocated solely to the Class D limited partners, resulting in no
affect on the financial statements of such excess.




65




III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




Class DGeneral
                                
                                
                                Limited
                                
                                
                                Non-controllingPartner
                                
                                
                                Partners
                                
                                
                                InterestBalance
      at March 31, 2009
                                
                                $
                                864,290
                                
                                
                                $
                                —
                                
                                
                                $
                                17,350,044Transfer
      of non-controlling interest inCyprus
      Subsidiary
                                
                                
                                (48,314
                                )
                                
                                
                                (48,314
                                )
                                
                                
                                96,628Contributions,
      net of syndication costs
                                
                                
                                (31,274
                                )
                                
                                
                                (3,846
                                )
                                
                                
                                8,166,398Distributions
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (71,025
                                )Net
      loss
                                
                                
                                (270,564
                                )
                                
                                
                                (53,093
                                )
                                
                                
                                (2,528,153
                                )Forward
      currency exchange contract
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                1,274,808Foreign
      currency translation adjustment
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                1,265,750Balance
      at December 31, 2009
                                
                                $
                                514,138
                                
                                
                                $
                                (105,253
                                )
                                
                                $
                                25,554,450




Suresh
Capital Maritime Partners Germany GmbH (“German Subsidiary”), a German limited
liability company and a wholly owned subsidiary of the Cyprus Subsidiary, was
formed for the purpose of acquiring, managing and operating our maritime
vessels.





Through
December 31, 2009, we have incurred $9,735,969 in deposits, interest, and
capitalized costs and $233,801 in deferred loan fees in connection with our
potential acquisition of a chemical tanker, of which $94,863 was reclassed to
interest expense per FASB ASC 825 Financial Instruments and the
remainder was impaired and is included in loss on impairment of deposit on asset
acquisition..  If acquired, the chemical tanker would be held in a separate
special purpose entity (“SPV”) owned by our wholly-owned subsidiary, Kronos
Shipping I, Ltd. (“Kronos”).  The chemical tanker would transport bulk
cargos such as chemicals, clean petroleum products and vegoils.  As of the
current date, we are re-evaluating our intentions with respect to the chemical
tanker, and believe it is unlikely that we will complete the acquisition of the
tanker unless the shipyard constructing the vessel agrees to significant
concessions, to include timing of construction installments, and an adjustment
to the overall contract price.  See Note 2. Maritime Vessels, for
additional information regarding the potential chemical tanker
acquisition.





In May
2007, we acquired a 75% limited partnership interest in 12 SPVs, each a
Kommanditgesellschaft (“KG”), German limited partnerships, in order to secure a
position in 12 AHTS vessels available from the Fincantieri Shipyards in Italy
with expected deliveries through 2010.  The remaining 25% of each SPV is
owned by Reederei Hartmann GmbH & Co. KG (“Reederei Hartmann”), a Hartmann
Group company, and affiliates of Reederei Hartmann.  Additionally, Hartmann
Offshore GmbH (“Hartmann Offshore”), a Hartmann Group company, was retained to
provide management services for our AHTS vessels.  Each SPV holds a
shipbuilding contract for one AHTS vessel which will be operated through the
respective SPV upon delivery.  Each SPV was formed for the purpose of
acquiring, managing and operating a single maritime vessel.  In December
2007 and January 2008, we transferred our interest in three of the 12 AHTS SPVs
to our affiliate, FLTC Fund I.





During
2007, we also acquired a 49% interest in two additional SPVs, each of which
acquired and operates one mini-bulker.  The operations of each mini-bulker
are managed by Reederei Hesse GmbH & Co. KG (“Reederei Hesse”) with the
remaining 51% ownership held by affiliates of the manager and the Hartmann
Group.  See Note 3 for additional information.





66




III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




Profits
and losses are allocated in accordance with the Second Amended and Restated
Agreement of Limited Partnership (“Partnership Agreement”).  Distributions,
based on available cash flows, are made to the beneficial owners in accordance
with the Partnership Agreement.  The Partnership Agreement entitles our
general partner to a portion of all amounts which would otherwise be
distributable to our Class A limited partners from distributions of cash flow
provided by operations (but not from distributions of capital proceeds), which
portion is equal to (i) ten percent until the limited partners have received
returns up to the amount of their capital contributions, (ii) twenty percent
until the limited partners have received returns equal to their capital
contributions and (iii) thirty percent thereafter.





Our
ownership was as follows:





General
      Partner
                                                              
                                                              
                                                              Class
      A Limited Partners
                                                              
                                                              
                                                              Class
      B Limited Partners
                                                              
                                                              
                                                              Class
      D Limited PartnersUnits
                                                              
                                                              
                                                              Ownership
                                                                Interest
                                                              
                                                              
                                                              Units
                                                              
                                                              
                                                              Ownership
                                                                Interest
                                                              
                                                              
                                                              Units
                                                              
                                                              
                                                              Ownership
                                                                Interest
                                                              
                                                              
                                                              Units
                                                              
                                                              
                                                              Ownership
                                                                Interest
                                                              
                                                              
                                                              Total
      UnitsOctober
      18, 2006
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              %
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              %
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              %
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              %
                                                              
                                                              
                                                              —Additions
                                                              
                                                              
                                                              9,750
                                                              
                                                              
                                                              
                                                              6.94
                                                              
                                                              
                                                              
                                                              121,065
                                                              
                                                              
                                                              
                                                              86.12
                                                              
                                                              
                                                              
                                                              9,763
                                                              
                                                              
                                                              
                                                              6.94
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              
                                                              
                                                              
                                                              140,578December
      31, 2006
                                                              
                                                              
                                                              9,750
                                                              
                                                              
                                                              
                                                              6.94
                                                              
                                                              
                                                              
                                                              121,065
                                                              
                                                              
                                                              
                                                              86.12
                                                              
                                                              
                                                              
                                                              9,763
                                                              
                                                              
                                                              
                                                              6.94
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              
                                                              
                                                              
                                                              140,578Additions
                                                              
                                                              
                                                              150
                                                              
                                                              
                                                              
                                                              0.04
                                                              
                                                              
                                                              
                                                              308,265
                                                              
                                                              
                                                              
                                                              87.56
                                                              
                                                              
                                                              
                                                              43,650
                                                              
                                                              
                                                              
                                                              12.40
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              
                                                              
                                                              
                                                              352,065December
      31, 2007
                                                              
                                                              
                                                              9,900
                                                              
                                                              
                                                              
                                                              2.01
                                                              
                                                              
                                                              
                                                              429,330
                                                              
                                                              
                                                              
                                                              87.15
                                                              
                                                              
                                                              
                                                              53,413
                                                              
                                                              
                                                              
                                                              10.84
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              
                                                              
                                                              
                                                              492,643Additions
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              
                                                              
                                                              
                                                              127,395
                                                              
                                                              
                                                              
                                                              80.48
                                                              
                                                              
                                                              
                                                              30,900
                                                              
                                                              
                                                              
                                                              19.52
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              
                                                              
                                                              
                                                              158,295December
      31, 2008
                                                              
                                                              
                                                              9,900
                                                              
                                                              
                                                              
                                                              1.52
                                                              
                                                              
                                                              
                                                              556,725
                                                              
                                                              
                                                              
                                                              85.53
                                                              
                                                              
                                                              
                                                              84,313
                                                              
                                                              
                                                              
                                                              12.95
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              
                                                              
                                                              
                                                              650,938Additions
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              
                                                              
                                                              
                                                              55,519
                                                              
                                                              
                                                              
                                                              96.52
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.00
                                                              
                                                              
                                                              
                                                              2,000
                                                              
                                                              
                                                              
                                                              3.48
                                                              
                                                              
                                                              
                                                              57,519December
      31, 2009
                                                              
                                                              
                                                              9,900
                                                              
                                                              
                                                              
                                                              1.40
                                                              %
                                                              
                                                              
                                                              612,244
                                                              
                                                              
                                                              
                                                              86.42
                                                              %
                                                              
                                                              
                                                              84,313
                                                              
                                                              
                                                              
                                                              11.90
                                                              %
                                                              
                                                              
                                                              2,000
                                                              
                                                              
                                                              
                                                              0.28
                                                              %
                                                              
                                                              
                                                              708,457




Significant
Accounting Policies





Principles of
Consolidation


The
accompanying consolidated financial statements present our consolidated
financial position, results of operations and cash flows in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”).  Significant intercompany balances and transactions have been
eliminated.  We consolidate investments in entities in which we have a
controlling interest.  Investments in unconsolidated entities where we have
the ability to exercise significant influence over operating and financial
policies (generally 20% to 50% ownership) are accounted for using the equity
method.





Business
Geographics


Non-U.S.
operations accounted for 100% of our revenues and net income or loss. 
Vessels will regularly move between countries in international waters.  It
is therefore impractible to assign revenues or earnings from operations by
geographical area.





Segment
Reporting


Our AHTS
vessels, which are currently the only vessels which we consolidate in our
operations, serve the same type of customer, participate equally in a common
revenue sharing pool and have similar operations and maintenance requirements,
operate in the same regulatory environment and are subject to similar economic
characteristics.  Based on this, we have determined that we operate in one
reportable segment.





Use of
Estimates


The
preparation of financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.  Actual results could differ from
those estimates.





Concentrations of Credit
Risk


We
maintain deposit accounts with U.S. financial institutions that, at times,
exceed the federally insured limits and with foreign financial
institutions.  Management believes the financial strength of the U.S. and
foreign financial institutions minimizes the credit risk related to our
deposits.  We have not experienced any losses from this credit
risk.





67
 
  III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




Cash


We
consider all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.  Our cash balance will from time to
time include amounts which may be subject to the conditions under the agreement
with Norddeutsche Landesbank Girozentrale (“Nord/LB”) for the senior loan
facility (“Senior Loan”).  The Nord/LB senior loan conditions for each SPV
prohibit us from making distributions unless payment of any delivered vessels’
operating costs and all amounts due and payable under the Senior Loan are
secured for a 12 month period.





Cash Held in
Escrow


We
maintain balances in an escrow account, which are restricted from release until
conditions of the escrow agreement have been met.  The escrow account is
used to hold investor deposits until subscription agreements have been accepted
by the depositor, at which time the conditions of the escrow are
fulfilled.





Due from
Charterers


Customer
obligations due under normal trade terms are recorded as due from
charters.  An allowance for doubtful accounts would represent our estimate
of the amount of probable credit losses existing in our accounts
receivable.  We have a limited number of customers with individually large
amounts due at any given date.  Any unanticipated change in any one of
these customers’ credit worthiness or other matters affecting the collectability
of amounts due from such customers could have a material effect on the results
of operations in the period in which such changes or events occur.  We
regularly review all aged accounts receivables for collectability and establish
an allowance as necessary for individual customer balances.  As of December
31, 2009 and 2008, we had recorded no allowance for doubtful
accounts.





Derivatives


We
account for derivatives and derivatives classified as hedges in accordance with
FASB ASC 815, Derivatives and
Hedging.  All our derivative and hedge positions are stated at fair
value within current derivative assets, derivative assets, current derivative
liabilities or long-term derivative liabilities on our consolidated balance
sheet.





Realized
and unrealized gains and losses related to our foreign currency exchange
contracts not classified as hedges are reported in our consolidated statements
of operations in foreign currency transaction gain (loss).  Realized and
unrealized gains and losses related to foreign currency exchange contracts
designated for hedge accounting are included in foreign currency transaction
gain (loss) on the consolidated statement of operations to the extent they are
ineffective, with the effective portion of the fair value gains or losses
recorded as part of accumulated other comprehensive income (loss) on the
consolidated balance sheet.  The gain or loss related to our interest rate
swap contracts, none of which are classified as hedges, is reported in loss on
interest rate swaps.





Vessels and
Equipment


Vessels
are stated at cost less accumulated depreciation.  Vessel costs include
acquisition costs directly attributable to the vessel and expenditures made to
prepare the vessel for its initial voyage.  On board equipment represents
all the equipment required to operate a vessel.  Vessels and on board
equipment are depreciated on a straight-line basis over their estimated useful
lives which have been determined to be 20 years and 10 years, respectively, from
the initial delivery date from the shipyard.





The costs
of significant replacements, renewals or betterments will be capitalized over
the shorter of the vessel’s and equipment’s remaining useful lives or the lives
of the renewals or betterments.  The non-depreciated cost of any asset
component being replaced will be written off as part of vessel operating
expenses.  Expenditures for routine maintenance and repairs are expensed as
incurred.





Vessel
construction in progress represents the cost of acquiring contracts to build
vessels, installments paid to the shipyards, certain other payments made to
third parties and capitalized interest costs incurred during the construction of
each vessel until the vessel is substantially complete and ready for its
intended use.





68
 
  III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




Impairment of Long-Lived
Assets


We assess
long-lived assets for recoverability in accordance with FASB ASC 360, Property, Plant and
Equipment, which requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  Recoverability of
assets is measured by comparing the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset.  These
evaluations for impairment are significantly impacted by estimates of revenues,
costs, expenses and other factors.  If these assets are considered to be
impaired, the impairment to be recognized is calculated as the excess of the
asset’s carrying value over its fair value. As of
December 31, 2009, we are re-evaluating our intentions with respect to the
chemical tanker, and believe it is unlikely that we will complete the
acquisition of the tanker unless the shipyard constructing the vessel agrees to
significant concessions, to include timing of construction installments, and an
adjustment to the overall contract price.  We have therefore recorded
an impairment to the deposit on asset acquisition on our balance sheet to reduce
the carrying value of this asset to zero, resulting in the recognition of a loss
on impairment of $9,874,907.  No indicators of potential impairment
were noted for the year ended December 31, 2008.




Deferred Loan
Fees


Costs
incurred in connection with the issuance of debt have been capitalized and are
being amortized on a straight-line basis to interest expense over the life of
the related debt agreements, which does not create a significant difference from
the effective interest method.  Deferred loan fees at December 31, 2009 and
December 31, 2008 amounted to $3,554,818 and $3,771,774, respectively, net of
accumulated amortization of $63,482 and $11,223, respectively.





Non-controlling
Interest


The
non-controlling interest in our consolidated balance sheet reflects the original
investment by non-controlling unitholders in the consolidated subsidiaries along
with their proportional share of the earnings or losses of the subsidiaries,
which are consolidated in our financial statements, less any distributions
received from our consolidated subsidiaries.  The non-controlling interest
also receives a portion of the cumulative foreign currency translation
adjustment and syndication costs.





Syndication
Costs


Syndication
costs are costs or fees incurred for financial services including, but not
limited to, the procurement of equity at any level within Cayman I.  Such
costs are netted against partners’ equity in proportion to the ownership of each
class of partner.  See Note 6 for additional information.





Revenue
Recognition


Our
revenue is earned primarily from time chartering of vessels to charterers
based upon daily rates of hire. A time charter is a lease arrangement under
which we provide a vessel to a charterer and we are responsible for all crewing,
insurance and other operating expenses.  Time charters may be long term
charters for six months to several years, or short-term charters, typically
called “spot charters” measured in days or weeks.  Our AHTS SPVs
participate in a pool arrangement with three SPVs owned by FLTC Fund I (“UOS
AHTS Pool”) under which they pool their revenue less voyage expenses (“Voyage
Results”).  Revenue from charters, including any mobilization fees, is
generally recorded when services are rendered, estimates are reasonably
determinable and collection is reasonably assured.  Revenue is recognized
net of price adjustments and other potential adjustments based upon the daily
charter rate for the reporting period.  Our pooling arrangement under the
UOS AHTS Pool will not have any bearing on our revenue until such time as one of
the vessels owned by FLTC Fund I is delivered and begins to participate in the
UOS AHTS Pool, which is expected in May 2010.  After such time, our revenue
will be recorded taking into account potential pool adjustments for the
period.





Other
revenue (i.e. Fuel Revenue, Oil & Lube Revenue, etc) is reported gross
according to FASB ASC 605 Revenue Recognition
(605.45.45).  We are the primary obligor in the arrangement.  Whether
a supplier or our entity is responsible for providing the product or service
desired by the charterer is a strong indicator of our entity’s role in the
transaction. If we are responsible for fulfillment, including the acceptability
of the products or services ordered or purchased by the charterer, that fact is
a strong indicator that we have risks and rewards of a principal in the
transaction and that we should record revenue gross based on the amount billed
to the charterer. Representations (written or otherwise) made by our entity
during marketing and the terms of the sales contract generally will provide
evidence as to whether we or the supplier is responsible for fulfilling the
ordered product or service. Responsibility for arranging transportation for the
product ordered by a charterer is not responsibility for fulfillment. 
Unmitigated general inventory risk is a strong indicator that we have risks and
rewards as a principal in the transaction and, therefore, revenue should be
recorded gross based on the amount billed to the charterer.




69
 
  III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




Foreign Currency
Translation


The
functional currency of the majority of our subsidiaries is the Euro
(“EUR”).  Assets and liabilities of foreign currency-denominated financial
statements are translated into the U.S. dollar (“USD”), our functional currency,
at the exchange rate as of the balance sheet date.  Revenues, costs and
expenses are translated at the weighted-average exchange rate for the reporting
period.  Exchange gain and loss adjustments resulting from the translation
of the financial statements are reflected in other comprehensive income (loss)
in accordance with FASB ASC 830, Foreign Currency
Matters.





During
the years ended December 31, 2009 and 2008, we incurred foreign currency
transaction gain (loss) of $335,094 and ($2,129,747), respectively. These
amounts include the effect of changes in the valuation of the forward currency
exchange contracts as well as translation of our deposit balances held in EUR to
USD at the reporting dates.





Included
in other accumulated comprehensive income (loss) are the changes in foreign
currency translation adjustments representing a gain of $2,632,434 and $123,166
for the years ended December 31, 2009 and 2008, respectively, which resulted
from the translation of our financial statements from the functional currency of
EUR to the reporting currency of USD.





We
exclude foreign currency transaction gains and losses resulting from
intercompany foreign currency transactions that are long-term in nature from the
determination of net income.





Income
Taxes


We are
not subject to U.S. federal or state income taxes.  Our taxable income and
losses are reported on the income tax returns of the respective partners. 
Based on the current structure and activity of the Cyprus Subsidiary and on
current tax laws in Cyprus, the Cyprus Subsidiary is subject to income tax in
Cyprus.  The German Subsidiary is treated as a German corporation for tax
purposes and is subject to German corporate income taxes.





German
income taxes are accounted for under FASB ASC 740, Income Taxes, which requires
an assets and liabilities approach to financial accounting and reporting for
deferred income taxes.  Deferred income taxes and liabilities are computed
for differences between financial statement and tax bases of assets and
liabilities that result in taxable or deductible amounts in the future based on
enacted laws and rates applicable to the periods in which the differences are
expected to affect taxable income.  Valuation allowances may be established
to reduce deferred taxes to the amount expected to be realized.  We had no
deferred taxes as of December 31, 2009 and 2008.





In June
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109, which is now under
FASB ASC 740, Income
Taxes.  This interpretation clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements by
prescribing a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return.  This interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.





We are
subject to foreign income taxes in Cyprus and Germany.  Accordingly, all
tax years since inception are still subject to audit by the taxing authorities
in those jurisdictions.  Our AHTS SPVs are subject to the tonnage tax
regime in Germany, which results in the AHTS SPVs being taxed on the net tonnage
of the AHTS vessels rather than the income generated in the AHTS
SPV.





Our
policy is to recognize potential interest and penalties related to income tax
matters in income tax expense.  We believe we have appropriate support for
the income tax positions taken and to be taken on our income tax returns and
that our accruals for tax liabilities are adequate for all open years based on
an assessment of many factors, including past experience and interpretations of
tax law applied to the facts of each matter.




70
 
  III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





Recent
Accounting Pronouncements





FASB Accounting Standards
Codification


(Accounting
Standards Update (“ASU”) 2009-01)





In June
2009, the FASB issued ASU 2009-01, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles, which approves the Accounting Standards
Codification, or ASC, as the single source of authoritative United States
accounting and reporting standards applicable for all non-governmental
entities.  The ASC, which changes the referencing of financial standards,
is effective for interim or annual financial periods ending after September 15,
2009.  As the ASC is not intended to change or alter existing U.S. GAAP, it
did not have any impact on our consolidated financial position or results of
operations.  We adopted Update 2009-01 as of September 30,
2009.





Derivatives and Hedging
Activities


(Included
in ASC 815 “Derivatives and Hedging,” previously SFAS No. 161 “Disclosures about
Derivative Instruments and Hedging Activities, an Amendment of SFAS No.
133”)





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of SFAS No. 133 which
amended and expanded the disclosure requirements of SFAS No. 133 to include
disclosure of the objectives and strategies related to an entity’s use of
derivative instruments, disclosure of how an entity accounts for its derivative
instruments and disclosure of the financial impact including the effect on cash
flows associated with derivative activity.  We adopted SFAS No. 161 as of
January 1, 2009 on a prospective basis; accordingly, disclosures related to
interim periods prior to the date of adoption have not been presented.  The
adoption had no impact on our consolidated financial statements, besides the
additional disclosures.  See Note 5 for additional
information.





Disclosure about Fair Value
of Financial Instruments


(Included
in ASC 825 “Financial Instruments,” previously FSP FAS 107-1 and APB 28-1
“Interim Disclosure about Fair Value of Financial Instruments”)





In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosure about Fair Value
of Financial Instruments (“FSP 107-1/APB 28-1”).  FSP 107-1/APB 28-1
requires interim disclosures regarding the fair values of financial instruments
that are within the scope of FAS 107, Disclosures about the Fair Value of
Financial Instruments.  Additionally, FSP 107-1/APB 28-1 requires
disclosure of the methods and significant assumptions used to estimate the fair
value of financial instruments on an interim basis as well as changes of the
methods and significant assumptions from prior periods.  FSP 107-1/APB 28-1
does not change the accounting treatment for these financial instruments. 
We adopted this standard in the second quarter of 2009 and the required
disclosures are included in Note 7.





Subsequent
Events


(Included
in ASC 855 “Subsequent Events,” previously SFAS No. 165 “Subsequent
Events”)




In May of
2009, the FASB issued new authoritative accounting guidance under ASC
Topic 855, “Subsequent Events,” establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. ASC Topic 855
defines (i) the period after the balance sheet date during which a
reporting entity’s management should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements,
(ii) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements,
and (iii) the disclosures an entity should make about events or
transactions that occurred after the balance sheet date. The new authoritative
accounting guidance under ASC Topic 855 became effective for the
Partnership’s consolidated financial statements for periods ending after
June 15, 2009 and did not have a significant impact on the Partnership’s
consolidated financial statements.





71
 
  III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





Non-controlling
Interest


(Included
in ASC 810 “Consolidation,” previously SFAS No. 160, Non-controlling Interests
in Consolidated Financial Statements - An Amendment of ARB No. 51”)





In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51. 
SFAS No. 160 establishes new accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary.  This accounting standard is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008.  We adopted SFAS No. 160 as of January 1, 2009.  The adoption of
SFAS No. 160 did not have a material impact on our consolidated financial
statements, but it did change the presentation of the consolidated balance
sheet, income statement and other comprehensive income.  The presentation
changes have been made for all periods presented.





2. 
    Maritime Vessels





We
committed to purchase nine AHTS vessels.  As of December 31, 2009, the
construction of the first three AHTS vessels was complete and operations had
begun.  The estimated cost of each AHTS vessel ranges from $53,259,995 (EUR
37,159,000) to $61,051,414 (EUR 42,595,000) for a total commitment for the nine
vessels of $516,488,222 (EUR 360,349,000).  Under the contracts,
installments are due upon certain milestones being met during the
construction.  Approximately 30% of the total construction costs require
deposits, some of which are funded with equity while others have been or will be
funded through draws on our credit facility with Berenberg Bank, loans from
Reederei Hartmann and our Senior Loan.  Amounts drawn on our Senior Loan
require either that each AHTS SPV is fully funded based on the capital as called
for in the AHTS SPV company agreements, or provision of a guarantee acceptable
to Nord/LB.  A guarantee from Reederei Hartmann, our non-controlling
interest holder and the 25% owner of the three AHTS SPVs of FLTC Fund I,
(“Hartmann Guarantee”) in the amount of $45,932,786 (EUR 32,046,875) was
outstanding at December 31, 2009.  No such guarantee was outstanding at
December 31, 2008.





As of
December 31, 2009, the terms of the Hartmann Guarantee were being
renegotiated between Reederei Hartmann and Nord/LB.  The main subject
of the negotiations was the form of collateral to be provided under the
guarantee by Reederei Hartmann to Nord/LB.  Please refer to the full
discussion regarding this issue in Note 4.  As of December 31, 2009 and
December 31, 2008, we incurred $291,543,002 and $80,860,590, respectively, in
connection with the acquisition of the AHTS vessels.  The remaining six
AHTS vessels are scheduled to be delivered from February 2010 through April
2010.  Each of our assets under construction is allocated a portion of the
total interest incurred on all of our debt instruments for the period based on
the product of the weighted average accumulated expenditures and the weighted
average interest rate for the period.  The remaining balance of the
interest incurred is expensed.  See Note 4 for additional
information.





In
addition to our AHTS vessels, we entered into an agreement related to the
potential acquisition of a chemical tanker.  On November 13, 2007, III to I
IMS Holdings, LLC (“IMS Holdings”), the sole shareholder of our general partner,
entered into a Memorandum of Agreement (“MOA”) with the Schulte Group relating
to the acquisition of the chemical tanker.  Pursuant to the MOA, IMS
Holdings placed an order for the chemical tanker through the Schulte Group for
the purchase price of $41,500,000 to be paid in five equal installments. 
The Schulte Group agreed to loan IMS Holdings up to $8,300,000 for the first
installment payment and to facilitate a bank guarantee for the second
installment payment of $8,300,000.  The Schulte Group formed Anthos
Shipping Co. Limited (“Anthos”), a Cyprus SPV, to own the chemical tanker. 
The equity of Anthos is to be assigned to Kronos upon repayment of the loan,
retirement of the bank guarantee and payment of all fees due to the Schulte
Group.  Kronos was not formed at the time the MOA was signed; therefore,
the chemical tanker transaction was undertaken through an affiliate of IMS
Holdings, IMS Capital Partners, LLC (“IMS Capital Partners”) on behalf of
Kronos.





72
 
  III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




Effective
April 2009, we entered into an agreement whereby all of the rights retained by
IMS Capital Partners and IMS Holdings with respect to the chemical tanker
pursuant to the MOA between IMS Holdings and Schulte Group were transferred to
Kronos, the new obligor under an amended version of the MOA between Kronos and
Conway Shipping I, Ltd (“Amended MOA”).  As consideration for and to give
effect to this transfer, we assigned the receivables from IMS Holdings, through
which the transaction was undertaken, to IMS Capital Partners in exchange for
the consent of IMS Capital Partners to the execution of the Amended MOA. 
This amount was credited by Kronos as additional paid in capital, and Kronos
accepted the rights to the chemical tanker pursuant to the Amended MOA. 
The outcome left Kronos as the sole holder of all rights and obligations with
respect to the potential acquisition of the chemical tanker and resulted in IMS
Capital Partners and IMS Holdings each holding directly offsetting note
obligations.  By entering into a Note Cancellation Agreement, the note
obligations between IMS Holdings and IMS Capital Partners were terminated. 
Through December 31, 2009, we have incurred costs of $9,735,969 in deposits,
interest, and capitalized costs and $233,801 in deferred loan fees in connection
with the potential acquisition of the chemical tanker through Anthos, of which
$94,863 was reclassed to interest expense per FASB ASC 825 Financial Instruments and the
remainder was impaired and is included in loss on impairment of deposit on asset
acquisition.





In light
of the global downturn in the economy and the resulting decrease in charter
rates for chemical tankers, and product tankers in general, we are currently
re-evaluating our intentions with respect to the chemical tanker, and believe it
is unlikely that we will complete the acquisition of the tanker unless the
shipyard constructing the vessel agrees to significant concessions, to include
timing of construction installments, and an adjustment to the overall contract
price.  We have therefore recorded an impairment to the deposit on asset
acquisition on our balance sheet to reduce the carrying value of the asset to
zero.  This results in the recognition of a loss on impairment of
$9,874,907.  If we do formally forfeit our option to acquire the tanker, we
expect to recognize gain on the extinguishment of debt of $5,300,000 in a future
period.  The net result of this would be a loss of approximately
$4,574,907, which represents liquidating damages of $3,000,000 plus our
capitalized costs approximating $1,574,907.





The table
below provides details of our remaining capital expenditure obligation for each
vessel as of December 31, 2009, including the potential acquisition of the
chemical tanker.  The figures below include the amounts due to the
shipyard, estimated vessel outfitting upon delivery and amounts owed for vessel
construction oversight and commercial and technical management during
construction as described above.  The amounts below include amounts payable
by us and our non-controlling interest holders in each SPV as well as amounts
anticipated to be funded through our credit facilities.





Less
      than
                      
                      
                      
                      
                      
                      
                      
                      
                      OverSPV
      Name
                      
                      Vessel
      Name
                      
                      Total
                      
                      
                      1
      year
                      
                      
                      2-3
      Years
                      
                      
                      4-5
      Years
                      
                      
                      5
      YearsAnchor
      Handling Tug Supply Vessels6163
      – Isle of Langeoog
                      
                      UOS
      Discovery
                      
                      $
                      52,050,003
                      
                      
                      $
                      52,050,003
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      —6168
      – Isle of Amrum
                      
                      UOS
      Endeavour
                      
                      $
                      56,806,122
                      
                      
                      $
                      56,806,122
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      —6169
      – Isle of Sylt
                      
                      UOS
      Enterprise
                      
                      $
                      56,806,122
                      
                      
                      $
                      56,806,122
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      —6171
      – Isle of Wangerooge
                      
                      UOS
      Explorer
                      
                      $
                      58,653,216
                      
                      
                      $
                      58,653,216
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      —6172
      – Isle of Neuwerk
                      
                      UOS
      Freedom
                      
                      $
                      58,896,590
                      
                      
                      $
                      58,896,590
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      —6173
      – Isle of Usedom
                      
                      UOS
      Liberty
                      
                      $
                      59,157,738
                      
                      
                      $
                      59,157,738
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      —Chemical
      TankerMD2007-11-12
                      
                      
                      
                      $
                      40,705,068
                      
                      
                      $
                      14,272,093
                      
                      
                      $
                      26,432,975
                      
                      
                      $
                      —
                      
                      
                      $
                      —




3. 
    Investment in Unconsolidated Entities





During
2007, we purchased a 49% interest in two additional SPVs, Hesse Schiffahrts GmbH
& Co. MS “Markasit” KG and ATL Reederei GmbH & Co. MS “Larensediep” KG,
each holding a single mini-bulker.  The equity investment made in each SPV
was $2,022,450 (EUR 1,500,000) and $2,161,650 (EUR 1,500,000), respectively, at
the prevailing exchange rate at the time the commitments were funded. 
Permanent financing at the SPV level amounting to approximately 70% of the
vessel cost for each vessel was put in place upon vessel delivery.  The
mini-bulkers are merchant ships specially designed to transport bulk cargo such
as grains, fertilizer, quick lime, soda ash, forest and paper products and
cement in their cargo holds.  The mini-bulkers began operations in August
and December 2007 and currently operate in liner services between the Baltic
area and Northern Spain, Portugal, Mediterranean Sea, Greece, Turkey and Israel
where the operator has established long-term partners.





These
investments are accounted for under the equity method.  As such, assets,
liabilities and results of operations are not consolidated with our
operations.  Rather, the net investment in the mini-bulker SPVs is
presented on our consolidated balance sheet in investment in unconsolidated
entities as a single line item and includes our equity contributions,
distributions and interest in the income or loss of each SPV.





73
 
  III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




The
following presents summarized financial information for the unconsolidated
entities, in dollars:





December 31,
                                    
                                    
                                    December 31,2009
                                    
                                    
                                    2008Assets
                                    
                                    $
                                    24,901,430
                                    
                                    
                                    $
                                    26,294,940Liabilities
                                    
                                    $
                                    18,722,777
                                    
                                    
                                    $
                                    19,323,326Equity
                                    
                                    
                                    6,178,653
                                    
                                    
                                    
                                    6,971,614Total
      liabilities and equity
                                    
                                    $
                                    24,901,430
                                    
                                    
                                    $
                                    26,294,940Twelve
      Months Ended December 31,2009
                                    
                                    
                                    2008For
      the PeriodRevenue
                                    
                                    $
                                    6,897,672
                                    
                                    
                                    $
                                    12,571,923Expenses
                                    
                                    
                                    (8,204,048
                                    )
                                    
                                    
                                    (12,456,762
                                    )Net
      loss
                                    
                                    $
                                    (1,306,376
                                    )
                                    
                                    $
                                    115,161Interest
      in net loss of unconsolidated entities
                                    
                                    $
                                    (640,124
                                    )
                                    
                                    $
                                    46,770




The
functional currency of the mini-bulker SPVs is the EUR.  The financial
statements above were translated from EUR to USD with the balance sheet
translated at the exchange rate at the balance sheet date and the income
statement translated at the weighted-average exchange rate for the period. 
The equity accounts were translated at historical rates.  The investment in
unconsolidated entities on our consolidated balance sheet was translated at the
exchange rate at the balance sheet date.





The
difference of $50,108 between the amount at which the investment is reflected on
our consolidated balance sheet as of December 31, 2009, $2,977,432, and 49% of
the equity as shown on the financial information above, $3,027,540, is related
to the difference in the rates utilized to translate the equity accounts and the
investment in unconsolidated entities on our consolidated balance sheet at
December 31, 2009.





For the
year ended December 31, 2008, the difference of ($159,371) between the amount at
which the investment is reflected on our consolidated balance sheet as of
December 31, 2008, $3,575,462, and 49% of the equity as shown on the financial
information above, $3,416,091, is related to the difference in the rates
utilized to translate the equity accounts and the investment in unconsolidated
entities on our consolidated balance sheet at December 31, 2008.




74




III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS


4. 
    Long-Term Debt and Pledged Cash




December 31,
                          
                          
                          December 31,2009
                          
                          
                          2008Berenberg
      Facility
                          
                          $
                          —
                          
                          
                          $
                          56,255,375RHKG
      Loan Agreements
                          
                          
                          7,617,990
                          
                          
                          
                          —Nord/LB
      Facility
                          
                          
                          145,468,080
                          
                          
                          
                          —Schulte
      Group Facility
                          
                          
                          5,300,000
                          
                          
                          
                          —Total
      debt
                          
                          
                          158,386,070
                          
                          
                          
                          56,255,375Current
      portion of long-term debt
                          
                          
                          (17,858,391
                          )
                          
                          
                          (34,927,967
                          )Total
      debt classified as long-term
                          
                          $
                          140,527,679
                          
                          
                          $
                          21,327,408





Berenberg
Facility


In
November 2006, we entered into a credit facility (“Berenberg Facility”) with
Berenberg Bank, a German financial institution, allowing for borrowings up to
$37,839,120 (EUR 26,400,000).  Proceeds from borrowings were primarily used
for the acquisition of AHTS vessels.  The Berenberg Facility was available
in multiple tranches with each tranche being directly related to a single AHTS
vessel, but secured by restricted cash.  The Berenberg Facility was amended
in March and May 2007, increasing the available borrowings to $72,094,990 (EUR
50,300,000) and extending the maturity date to September 2010.  The
remaining terms of the Berenberg Facility were not materially
changed.





Under the
Berenberg Facility, interest was calculated based on the one-month EURIBOR rate
plus a margin of 0.35%.  The weighted-average effective interest rate as of
December 31, 2008 was 3.97%.  Interest was due quarterly but was rolled
into the principal amount instead of being paid.  Principal payments were
due on each tranche upon the earlier of the delivery date, sale of the related
vessel or September 30, 2010.





Under the
Berenberg Facility, we were required to maintain compensating balances as
security for the repayment of the borrowings under such facility.  The
compensating balances were required to be equal to or greater than the initial
amounts drawn by our German Subsidiary and used to pay deposits on construction
of our AHTS vessels.  The compensating balances represented the original
tranche balance plus interest earned since the original deposit date.  The
tranche balance represented the original loan plus all incurred interest which
was rolled into the new loans upon maturity which was usually three
months.  As the interest rate earned on the compensating balances was less
than the interest charged on the tranche balance, the compensating balances did
not fully offset the outstanding tranche balances.  During the second and
third quarters of 2009, the Berenberg Facility loans were repaidutilizing
the restricted cash balances which were pledged against the loans, supplemented
with contributions from our limited partners.  As of December 31, 2009,
there were no borrowings or compensating balances.  As of December 31,
2008, borrowings of $56,255,375 (EUR 39,905,920), were outstanding and the
related compensating balance was $55,967,374 (EUR 39,701,620).  We do not
intend to utilize the Berenberg Facility in the future.





Deutsche Schiffsbank
Facility/ Schulte Group Facility


On
November 20, 2008, Kronos entered into a $30,000,000 credit facility (“Deutsche
Schiffsbank Facility”) with Deutsche Schiffsbank Aktiengesellschaft (“Deutsche
Schiffsbank”), in preparation for the potential acquisition of a chemical
tanker.  The Deutsche Schiffsbank Facility also provided for a related
guarantee facility of up to $16,320,000 under which Deutsche Schiffsbank will
issue two separate guarantees in favor of the sellers of the chemical tanker,
Nantong Mingde Heavy Industry Stock Co., Ltd. and Jiangxi Topsky Technology Co.
Ltd. (“Nantong Mingde”).  The Deutsche Schiffsbank Facility is to be drawn
in multiple advances with proceeds used to fund the construction and acquisition
of the chemical tanker.  Anthos is the current owner of the contract to
purchase the chemical tanker.  We anticipate taking ownership of Anthos
upon fulfilling the terms of the Amended MOA.  Each pre-delivery advance
shall be repaid in full upon delivery of the chemical tanker to Anthos, but no
later than March 31, 2012.  Additionally, each delivery advance shall be
repaid in 40 quarterly installments of $500,000 with a balloon installment in
the amount of $10,000,000 payable at the time of the final $500,000 installment,
which can be no later than March 31, 2022.





75




III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




Interest
on the Deutsche Schiffsbank Facility shall be paid in arrears on the last day of
each applicable interest period.  In the event the interest period is
longer than six months, interest shall be paid every six months during such
interest period and on the last day of any such interest period.  Interest
on the borrowings is based upon LIBOR, the London Interbank Offered Rate, plus
1.4% per annum during each interest period.





Pursuant
to the terms of the Deutsche Schiffsbank Facility, an arrangement fee of
$120,000 was earned and due as of the acceptance of the financing
commitment.  This fee was paid by one of our affiliates and is recorded on
our consolidated balance sheet at December 31, 2009 as part of due to related
party.  Additionally, in relation to the advances and the guarantee
facility, a commitment fee of 0.3% per annum on the daily undrawn amount of such
advance and unutilized amount of the guarantee facility accrues from the date of
the Deutsche Schiffsbank Facility to and including the date of payment
thereof.  Such fee is payable quarterly in arrears and on the last day of
the commitment period applicable to such advance.  Further, a guarantee
commission is payable quarterly in arrears at a rate equal to 1.4% per annum on
the daily average maximum amount of the liabilities and obligations of Deutsche
Schiffsbank under or pursuant to the guarantees to be issued by Deutsche
Schiffsbank in favor of the sellers of the chemical tanker.  There were no
guarantees outstanding at December 31, 2009 and 2008.





On
November 13, 2007, IMS Holdings, the sole shareholder of our general partner,
entered into the MOA with the Schulte Group relating to the acquisition of the
chemical tanker.  Pursuant to the MOA, IMS Holdings placed an order for the
chemical tanker through the Schulte Group for the purchase price of $41,500,000
to be paid in five equal installments.  The Schulte Group agreed to loan
IMS Holdings up to $8,300,000 for the first installment payment (“Schulte Group
Facility”) and to facilitate a bank guarantee for the second installment payment
of $8,300,000.





IMS
Holdings repaid $3,000,000 of the Schulte Group Facility through its affiliate
by January 15, 2008, in compliance with the terms of the MOA.  We advanced
approximately $3,800,000 to IMS Holdings to allow IMS Holdings to provide funds
to make the required payments to the Schulte Group under the MOA.  An
addendum to the MOA was executed in July 2008 to extend the loan through
November 30, 2008, extend the time period allowed for IMS Holdings to secure
financing and increase the amount of possible liquidated damages.  As of
December 31, 2008, no agreement had been reached on a further extension of the
terms of the MOA, and IMS Holdings was technically in default on their loan and
required to pay liquidating damages.  An amended and restated MOA was
entered into on April 25, 2009, which extends the term of the loan and bank
guarantee through July 30, 2010, increases the interest rate and the possible
liquidated damages, requires us to pay a lump sum amount of $200,000 as a fee
for providing the extension of the bank guarantee, waives any prior default and
clarifies certain other terms of the original MOA.  The interest on the
Schulte Group Facility is based on the three-month US LIBOR rate plus a margin
of 4.50%.  The effective interest rate as of December 31, 2009 was
5.52%.  Interest is due quarterly.  As part of the changes, the
parties to the MOA were formally changed to be between Kronos in place of IMS
Holdings and Conway Shipping Co. Ltd (“Conway”) in place of the Schulte
Group.





In the
future, we may sell or assign the chemical tanker or the rights to acquire it,
or may elect to cancel our option to acquire the chemical tanker, whereby we
would be subject to liquidated damages through the forfeiture of all amounts
advanced under the MOA.





In light
of the global downturn in the economy and the resulting decrease in charter
rates for chemical tankers, and product tankers in general, we are currently
re-evaluating our intentions with respect to the chemical tanker, and believe it
is unlikely that we will complete the acquisition of the tanker unless the
shipyard constructing the vessel agrees to significant concessions, to include
timing of construction installments, and an adjustment to the overall contract
price.  We have therefore recorded an impairment to the deposit on asset
acquisition on our balance sheet to reduce the carrying value of the asset to
zero.  This results in the recognition of a loss on impairment of
$9,874,907.  If we do formally cancel our option to acquire the tanker, we
expect to recognize gain on the extinguishment of debt of $5,300,000 in a future
period.  The net result of this would be a loss of approximately
$4,574,907, which represents the liquidating damages mentioned above of
$3,000,000 plus our capitalized costs approximating $1,574,907.





76




III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




If
acquired, the chemical tanker would be held in Anthos, which would be owned by
Kronos.  From the date of transfer of ownership in Anthos to Kronos through
the date of payment of the second installment for the chemical tanker to Nantong
Mingde pursuant to the building contract, the Deutsche Schiffsbank Facility will
be secured by a cash collateral account with a balance of at least
$7,560,000.  If no time lapse between the two events exists, the cash
collateral account would not be required.  Additionally, prior to the
delivery of the chemical tanker, the Deutsche Schiffsbank Facility shall be
secured by an assignment of the chemical tanker building contract, the related
refund guarantee issued by Bank of China Limited in favor of Anthos, a pledge of
the equity of Kronos and a guarantee by Anthos.  Upon delivery of the
chemical tanker, the Deutsche Schiffsbank Facility will be secured by a mortgage
on the chemical tanker including the related deed of covenants and deed of share
charges.





We are
subject to various covenants associated with the Deutsche Schiffsbank Facility,
under which we must obtain consent of Deutsche Schiffsbank to carry out
transactions including, but not limited to:





·
            payment
      of dividends by Kronos;


·
            capital
      infusions from outside investors into Kronos or its
      subsidiaries;


·
            additional
      financing and/or encumbrances on
Kronos;


·
            making
      loans and advances from Kronos; and


·
            establishment
      of cash accounts with Deutsche Schiffsbank to serve as security from the
      time that ownership in Anthos is transferred to Kronos until the second
      installment has been paid on the vessel, if a time lapse between the two
      events exists.





As we are
re-evaluating our intentions, and currently do not expect to complete the
acquisition of the chemical tanker unless the shipyard constructing the tanker
were to grant significant concessions, we are unlikely to utilize the Deutsche
Schiffsbank Facility.





Nord/LB
Facility


On
December 19, 2008, we entered into a $602,802,981 (EUR 420,570,000) Senior Loan
with Nord/LB as administrative agent, with a term of 12 years from the delivery
of each AHTS vessel.  The proceeds from the loan were initially to be used
to fund preconstruction costs (“Pre-Delivery Facility”), outstanding balances
due to the shipyard at delivery and working capital requirements of each AHTS
SPV.  A post-delivery credit facility (“Revolving Credit Facility”) in the
amount of $120,560,596 (EUR 84,114,000) can also be used to extend the Senior
Loan from 12 to 15 years.  However, in no case can the total loans be in
excess of 75% of the aggregate costs of all ships covered by the Senior
Loan.





The
Senior Loan is a fleet financing arrangement which covers all our AHTS vessels
plus the three AHTS vessels being purchased by FLTC Fund I.  The 12 ships
serve individually and collectively as the collateral for the Senior Loan. 
In connection with the Senior Loan, a commitment fee of 0.20% to 0.45% is due
semi-annually in arrears as determined by our bank internal rating class based
on the unused Senior Loan balance and the elapsed days within the year.  An
agency fee of $14,333 (EUR 10,000) per ship is due each year payable at the end
of each quarter until the delivery of the applicable ship.  After the
delivery of the applicable AHTS vessel, the agency fee, payable quarterly, will
be $7,167 (EUR 5,000) per year per vessel until the Senior Loan is paid in
full.





Amounts
drawn on the Pre-Delivery Facility of the Senior Loan require either that each
AHTS SPV is fully funded based on the capital as called for in the AHTS SPV
company agreements, or provision of a guarantee acceptable to Nord/LB to provide
assurance of repayment of the Pre-Delivery Facility.  As of December 31,
2009, we have incurred expenses of $881,006 (EUR 631,727) related to the
guarantee.  The Hartmann Guarantee in the amount of $45,932,786 (EUR
32,046,875) was outstanding at December 31, 2009.  There were no guarantees
outstanding at December 31, 2008.





77




III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




As of
December 31, 2009, the terms of the Hartmann Guarantee were being
renegotiated between Reederei Hartmann and Nord/LB.  The main subject
of the negotiations was the form of collateral to be provided under the
guarantee by Reederei Hartmann to Nord/LB.  Nord/LB had delayed draws on
the Pre-Delivery Facility under the Senior Loan, resulting in our being unable
to make timely progress payments to Fincantieri.  Due to the delay, a
number of progress payments which were otherwise due to be paid to Fincantieri
under the shipbuilding contracts with respect to the remaining vessels to be
delivered had not been paid.  As a result, we were not in compliance with
the terms of the remaining shipbuilding contracts and Fincantieri would have had
the right to cease construction activities on the remaining vessels. 
However, Fincantieri acknowledged the delay and indicated to us that it does not
intend to cease construction pending resolutions of these matters.  In
addition, Fincantieri has not taken any action under the shipbuilding contracts
to demand payment.  As a result of these missed payments, we were not in
compliance with certain covenants of our Senior Loan with Nord/LB as of December
31, 2009, however such non-compliance did not represent an event of default
under the loan document.  Nord/LB is aware that the payments have not been
made, and has not taken any action under the Senior Loan related to the
non-compliance.





The
resolution to this situation is ongoing, and involves the granting of loans from
Reederei Hartmann to our German Subsidiary under the RHKG Loan Agreements
described below and the amendment of the shipbuilding contracts to postpone the
installment payments due under the contracts until delivery of the applicable
AHTS vessel and to provide for interest due to Fincantieri on the outstanding
installment payments due at a rate based on the three-month EURIBOR plus 2%,
currently 3.00%.  We are also pursuing potential additional financing from
Nord/LB via an increase of the amount guaranteed by SACE under the Senior Loan,
but the outcome of this effort is unknown as of the date of filing.  If
obtained, we anticipate that this financing would allow us to repay the RHKG
Loan Agreements, either in full or partially, via a distribution from the AHTS
SPV to our German Subsidiary, which would then use those funds to effect
repayment of all or party of the RHKG Loan Agreement balances.  If we are
unable to obtain this additional financing, or are unable to further achieve a
distribution to our German Subsidiary allowing us to repay the RHKG Loan
Agreements or a portion thereof, it could impact the timing of distributions to
investors.  The RHKG Loan Agreements call for a five year repayment term
and the reserving of dividends from the AHTS SPV’s for this purpose.  The
current Nord/LB financing has a significantly longer payment term of ten to
twelve years, and the terms regarding restrictions on our use of dividends from
the AHTS SPVs are less prohibitive than those under the RHKG Loan
Agreements.  However, there can be no assurances that the terms of any
additional advances under the potential additional Nord/LB financing will be the
same as the current terms.





There is
also a financial guarantee for up to 70% of the loan balance issued by SACE
S.P.A. of Roma, Italy, which is the Italian export credit and reinsurance
agency.  Interest on the borrowings is based upon the EURIBOR, the Euro
Interbank Offered Rate.  For the portion of the Senior Loan not guaranteed
by SACE S.P.A., the applicable interest rate is EURIBOR plus 1.375% per annum
plus a fixed funds cost to be determined prior to each drawdown.  For the
portion of the Senior Loan that is guaranteed by SACE S.P.A, the applicable
interest rate is EURIBOR plus 1.375% per annum.  With respect to the
Revolving Credit Facility, the applicable interest rate is (i) EURIBOR plus
1.600% per annum or (ii) the lenders’ funding costs, as conclusively to be
agreed and determined by the lenders, plus 1.600% per annum.  Upon the
fifth anniversary of the Senior Loan, each interest rate will be subject to
renegotiation.  Interest incurred before the delivery of each AHTS vessel
will be rolled into the loan balance of the corresponding tranche of the Senior
Loan until ship delivery up to a maximum of $1,433,300 (EUR 1,000,000).  If
interest incurred exceeds $1,433,300 (EUR 1,000,000), the excess interest will
be due at each interest payment date which can be every three to six
months.





A
guarantee commission of 1.375% per annum is due to Nord/LB on the loans provided
during the pre-delivery stage of each ship up to a loan balance of $343,992,000
(EUR 240,000,000).  The guarantee commission is due and payable each
quarter that construction payments are outstanding up to and including the date
the construction payments are made.





We are
subject to various covenants associated with the Senior Loan such as the payment
of dividends, amount of capital infusions from outside investors into the AHTS
SPVs, limits on additional financing, restrictions of cargo and weapons,
structure and duration of charters related to the ships and establishment of
cash accounts with Nord/LB for the cash generated from operations of each AHTS
vessel until the Senior Loan is paid in full.





On
January 31, 2009, in order to comply with the conditions of the Senior Loan, we
passed a Resolution increasing the total share capital of one of our AHTS SPVs,
Isle of Usedom, from $17,378,550 (EUR 13,500,000) to $48,917,400 (EUR
38,000,000) based on the exchange rate at January 31, 2009.  This resulted
in an increase in our capital commitment to Isle of Usedom from $14,512,163 (EUR
10,125,000) to $40,849,050 (EUR 28,500,000), based on current exchange
rates.





78




III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




We
accepted a drawdown on the Senior Loan on February 25, 2009 related to the
delivery of UOS Atlantis totaling $44,689,067 (EUR 35,047,500).  The
proceeds were used to pay the fifth and final installment to Fincantieri
totaling $33,394,067 (EUR 26,201,700) and to repay the advance from Reederei
Hartmann totaling $4,698,317 (EUR 3,686,400) plus accrued interest thereon on
February 27, 2009.





On May
26, 2009, UOS Challenger was delivered to our AHTS SPV, MS Norderney.  We
accepted a drawdown on the Senior Loan on May 25, 2009 related to the upcoming
delivery totaling $49,080,519 (EUR 35,047,500).  The proceeds were used to
pay the fifth and final installment to Fincantieri totaling $37,098,837 (EUR
26,491,600) and to repay the advance from Reederei Hartmann totaling $5,150,531
(EUR 3,677,900) plus accrued interest thereon on May 26, 2009.





On
October 5, 2009, UOS Columbia was delivered to our AHTS SPV, MS Baltrum. 
We accepted a drawdown on the Senior Loan on October 2, 2009 related to the
delivery totaling $51,120,284 (EUR 35,047,500).  The proceeds were used to
pay the outstanding installments to Fincantieri totaling $49,179,033 (EUR
33,716,600).





At
December 31, 2009, a total of $145,468,080 (EUR 101,491,719) was outstanding
under the Senior Loan with an effective interest rate of 2.791%.  The
outstanding balance will be due in full in February 2021.  During the year
ended December 31, 2009, we incurred interest expense of $2,546,281 (EUR
1,825,815), related to the drawdowns on the Senior Loan.





RHKG Loan
Agreements


In late
January 2010 and in March 2010, our German Subsidiary entered into four loan
agreements with Reederei Hartmann, which is the non-controlling interest holder
of our AHTS SPVs (the “RHKG Loan Agreements”).  Each of the agreements is
related to a corresponding AHTS SPV, and provides for loans equal to the
remaining amount of capital outstanding from our German Subsidiary to the AHTS
SPV to which the agreement relates.  The execution of the agreements and
the subsequent recognition of the contribution of capital by the AHTS SPV
results in our satisfying the capital contribution in the full amount called for
under the Company Agreement of the respective AHTS SPV.





One of
these agreements relates to the AHTS SPV Isle of Baltrum.  Under that
agreement, the loan made to the AHTS SPV by Reederei Hartmann totaling
$7,752,459 (EUR 5,315,000) was assumed by our German Subsidiary effective as of
October 2, 2009.  The execution of the agreement and the subsequent
recognition of the contribution of capital to Baltrum results in our satisfying
the capital contribution in the full amount called for under the Company
Agreement.





The RHKG
Loan Agreements mature 5 years from the date of signing.  The agreements
call for interest to be calculated at 6% per annum, due annually at each
anniversary date of signing.  There is no penalty for pre-payment of all or
any portion of the loans prior to the end of the respective loan periods. 
The terms of the agreements include the granting of a security interest in our
interest in the corresponding AHTS SPV, and in the dividends from the AHTS SPV
arising from the pro-rata percentage of the loan amount as compared to our total
share capital.





Under the
RHKG Loan Agreements, if additional financing is granted by Nord/LB to the
respective AHTS SPV via an increase in the amount guaranteed by SACE under the
Senior Loan, the RHKG Loan Agreements state that our German Subsidiary shall use
its best endeavors to have the respective AHTS SPV distribute funds from the
financing to our German Subsidiary sufficient to allow it to repay the
respective RHKG Loan Agreement.





We are
subject to various warranties, representations, and covenants under the RHKG
Loan Agreements, such as limitations on our entering into asset dispositions or
restructuring arrangements unreasonably detrimental to Reederei Hartmann’s
security interest in the respective AHTS SPV, and the reserving of distributions
received from the respective AHTS SPV for repayment of the RHKG Loan
Agreements.




79





III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES




NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





A summary
of the total interest incurred, capitalized and expensed is shown
below:





Years EndedDecember 31,2009
                      
                      
                      2008Interest
      capitalized to vessel construction in progress:Beginning
      of period
                      
                      $
                      3,448,928
                      
                      
                      $
                      1,017,307Interest
      incurred
                      
                      
                      6,402,954
                      
                      
                      
                      3,565,263Currency
      translation change related to beginning balance
                      
                      
                      57,739
                      
                      
                      
                      (43,651
                      )Interest
      related to property and other assets held for sale
                      
                      
                      —
                      
                      
                      
                      (84,786
                      )Interest
      expense
                      
                      
                      (3,660,121
                      )
                      
                      
                      (1,005,205
                      )Amount
      reclassed to delivered vessels
                      
                      
                      (1,668,031
                      )
                      
                      
                      —End
      of period
                      
                      $
                      4,581,469
                      
                      
                      $
                      3,448,928Interest
      paid
                      
                      $
                      2,047,167
                      
                      
                      $
                      1,091,424Interest
      added to principal on borrowings on Berenberg Facility
                      
                      $
                      —
                      
                      
                      $
                      2,560,058





The
future scheduled minimum payments of our debt facilities are as
follows:





Lender
                        
                        Borrower
                        
                        Total
                        
                        
                        2010
                        
                        
                        2011
                        
                        
                        2012
                        
                        
                        2013
                        
                        
                        2014 and
                          thereafterRHKG
                        
                        SCMP
      GmbH
                        
                        $
                        7,617,990
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        7,617,990Nord/LB
                        
                        UOS
      Atlantis
                        
                        
                        47,093,983
                        
                        
                        
                        4,186,130
                        
                        
                        
                        4,186,132
                        
                        
                        
                        4,186,133
                        
                        
                        
                        4,186,132
                        
                        
                        
                        30,349,456Nord/LB
                        
                        UOS
      Challenger
                        
                        
                        48,140,515
                        
                        
                        
                        4,186,130
                        
                        
                        
                        4,186,132
                        
                        
                        
                        4,186,132
                        
                        
                        
                        4,186,132
                        
                        
                        
                        31,395,989Nord/LB
                        
                        UOS
      Columbia
                        
                        
                        50,233,582
                        
                        
                        
                        4,186,131
                        
                        
                        
                        4,186,132
                        
                        
                        
                        4,186,132
                        
                        
                        
                        4,186,132
                        
                        
                        
                        33,489,055Conway,
      formerly Schulte
                        
                        Kronos
      Shipping , LTD
                        
                        
                        5,300,000
                        
                        
                        
                        5,300,000
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —$
                        158,386,070
                        
                        
                        $
                        17,858,391
                        
                        
                        $
                        12,558,396
                        
                        
                        $
                        12,558,397
                        
                        
                        $
                        12,558,396
                        
                        
                        $
                        102,852,490




80


III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES




NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





The table
below summarizes the fees paid on our outstanding debt agreements:





Years EndedDecember 31,Type of Fee and Related Debt
                      
                      Accounting Treatment
                      
                      2009
                      
                      
                      2008Conway
      Shipping Ltd, formally referred to as the Schulte Group:Guarantee
      commission
                      
                      Expensed
      - interest expense
                      
                      $
                      94,863
                      
                      
                      $
                      140,669Guarantee
      commission
                      
                      Capitalized  -
      deposit on asset acquisition
                      
                      $
                      202,160
                      
                      
                      $
                      —Deutsche
      Schiffsbank Facility:Commitment
      fee
                      
                      Expensed
      - interest expense
                      
                      $
                      —
                      
                      
                      $
                      10,500Arrangement
      fee
                      
                      Capitalized  -
      deferred loan fee
                      
                      $
                      —
                      
                      
                      $
                      120,000Legal
      and structuring fees
                      
                      Capitalized  -
      deferred loan fee
                      
                      $
                      9,527
                      
                      
                      $
                      104,273Senior
      Loan:Commitment
      fee
                      
                      Expensed
      - interest expense
                      
                      $
                      848,835
                      
                      
                      $
                      654,882Agency
      fee
                      
                      Expensed
      - interest expense
                      
                      $
                      120,112
                      
                      
                      $
                      132,417Guarantee
      commission
                      
                      Expensed
      - interest expense
                      
                      $
                      881,006
                      
                      
                      $
                      —Arrangement
      fee
                      
                      Capitalized  -
      deferred loan fee
                      
                      $
                      —
                      
                      
                      $
                      3,171,825Legal
      and structuring fees
                      
                      Capitalized  -
      deferred loan fee
                      
                      $
                      —
                      
                      
                      $
                      386,898





5.
Derivative Instruments





We are
exposed to global market risks, including the effect of changes in interest
rates and foreign currency fluctuations. Foreign currency denominated debt and
derivative instruments are used to mitigate the impact of these changes. We do
not use derivatives or hedges with a level of complexity or with a risk higher
than the exposures to be hedged and do not hold or issue derivatives for trading
purposes.





On March
6, 2009 and March 11, 2009, respectively, two of our AHTS SPVs, MS Juist and MS
Norderney, entered into forward currency exchange contracts for a portion of
their future expected USD charter revenue, to hedge the currency risk related to
expenses and debt redemption that are denominated in EUR. The original notional
amount of these forward currency exchange contracts was $10,800,000 and
$7,500,000, respectively. The contract for MS Juist covers the one year period
beginning May 26, 2009 and the contract for MS Norderney covers the period from
May 20, 2009 through November 26, 2009. These contracts are not designated for
hedge accounting under FASB ASC 815, Derivatives and
Hedging.





On March
27, 2009, one of our AHTS SPVs, MS Juist, entered into an interest rate swap
agreement, which begins February 2010 and expires February 2019 with a notional
value of $46,047,450 (EUR 32,126,875) at December 31, 2009, in order to hedge
the risk of rising interest rates related to the Senior Loan, which is based on
the three-month EURIBOR rate. On May 25, 2009, the remaining eight of our nine
AHTS SPVs entered into similar interest rate swap agreements, which begin in
March 2010 and expire from May 2019 to April 2020. The total notional value of
these agreements is $388,263,726 (EUR 270,887,969) at December 31, 2009,
bringing the total notional value under the nine interest rate swap agreements
to $434,311,176 (EUR 303,014,844) at December 31, 2009. Through these
agreements, we have fixed our debt service cost related to our AHTS SPVs for the
period covered by the agreement at rates between 3.465% and 3.885% plus the
applicable margin and funding costs. By entering into these interest rate swap
agreements, we are protecting against interest rate fluctuations on the variable
three-month EURIBOR rate component of the outstanding borrowings under our
Senior Loan which matures in February 2021. The interest rate swaps contain no
credit-risk-related contingent features and are not collateralized. These
instruments are not designated for hedge accounting under FASB ASC 815, Derivatives and
Hedging.


81





III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES




NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





On May 11
and May 22, 2009, our AHTS SPVs entered into forward currency exchange contracts
for a portion of their future expected USD charter revenue, to hedge the
currency risk related to expenses and debt redemption that are denominated in
EUR. The forward currency exchange contracts, which have been designated for
hedge accounting under FASB ASC 815, Derivatives and Hedging, had
a notional value totaling $113,400,000. The contracts run from December 2009
through December 2011.





Derivative
instruments, including those classified as hedges, are reported as either assets
or liabilities at their individual fair values and the amounts are classified as
short term where appropriate. The offset is dependent upon the nature of the
derivative, and whether or not it is designated as a hedge. The change in the
fair value of our interest rate swaps, none of which are classified as hedges,
is included in loss on interest rate swaps on the consolidated statement of
operations. Changes in the value of forward currency exchange contracts not
classified as hedges are offset to foreign currency transaction gain (loss) on
the consolidated statement of operations. Changes in the fair value of forward
currency exchange contracts classified as hedges are recognized as gains or
losses. Such gains or losses are included in foreign currency transaction gain
(loss) on the consolidated statement of operations to the extent that testing
shows them to be ineffective, with the effective portion of the fair value gains
or losses recorded as part of accumulated other comprehensive income on the
consolidated balance sheet. For purposes of testing our derivatives classified
as hedges, no portion of the contracts was excluded from testing.





The fair
value of our derivative instruments as of December 31, 2009 is as
follows:





Fair Value
                    
                    
                    Fair Value
                    
                    
                    Fair Value
                    
                    
                    Fair Valueof Short-Term
                    
                    
                    of Derivative
                    
                    
                    of Short-Term
                    
                    
                    of DerivativeDerivative
                    
                    
                    Assets, net of
                    
                    
                    Derivative
                    
                    
                    Liabilities, net ofDerivatives by hedge designation
                    
                    Assets
                    
                    
                    short-term portion
                    
                    
                    Liabilities
                    
                    
                    short-term portionDesignated
      as hedging instruments:Forward
      currency exchange contracts
                    
                    $
                    2,271,928
                    
                    
                    $
                    2,797,433
                    
                    
                    $
                    —
                    
                    
                    $
                    —Not
      designated as hedging instruments:Forward
      currency exchange contracts
                    
                    
                    501,892
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Interest
      rate swap agreements
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    4,522,274
                    
                    
                    
                    5,007,963Total
      derivatives
                    
                    $
                    2,773,820
                    
                    
                    $
                    2,797,433
                    
                    
                    $
                    4,522,274
                    
                    
                    $
                    5,007,963





For the
year ended December 31, 2009, we recognized net gains and (losses) on derivative
instruments as follows:





For the Years EndedDerivatives by hedge designation
                    
                    Classification of gains (losses)
                    
                    December 31, 2009
                    
                    
                    December 31, 2008Designated
      as hedging instruments:Cash
      flow hedges:Forward
      currency exchange contracts
                    
                    Foreign
      currency transaction gain (loss)
                    
                    $
                    22,860
                    
                    
                    $
                    —Not
      designated as hedging instruments:Forward
      currency exchange contracts
                    
                    Foreign
      currency transaction gain (loss)
                    
                    $
                    2,100,973
                    
                    
                    $
                    —Interest
      rate swap agreements
                    
                    Loss
      on interest rate swaps
                    
                    $
                    (9,874,907
                    )
                    
                    $
                    —





For the
year ended December 31, 2009, the foreign currency transaction loss related to
forward currency exchange contracts designated as Cash Flow Hedges was $22,860,
of which a loss of $29,064 is related to the fair value of the ineffective
portion of the forward currency exchange contracts, offset by a gain of $51,924
related to the first matured contract. The first contract matured in December
2009. As the contracts mature, the fair value amounts related to the effective
portion of the foreign currency forward exchange contracts, which are currently
recorded as Accumulated Other Comprehensive Income, will be recorded to Hedge
Foreign Currency Transaction gain (loss). The current effective portion of
$2,231,819 (EUR 1,557,119) is expected to be reclassified into net income within
the next twelve months.


82





III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES




NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





For the
year ended December 31, 2009, the total foreign currency transaction gain is
$2,100,973. Of this amount, $1,612,633 is related to forward currency exchange
contracts not designated as hedging instruments which have matured, and the
residual amount of $488,340 is due to the fair value of the remaining
contracts.





6.
            Related
      Party Transactions





In April
2008, we entered into an agreement, effective January 1, 2008, to retain Dental
Community Management, Inc. (“DCMI”), an entity owned in part by Jason M. Morton,
a director and the Chief Financial Officer of our General Partner, to perform
administrative and professional services (“Services Agreement”). The Services
Agreement was amended and restated in June 2008 and January 2009. Pursuant to
the most recent amendment and restated Services Agreement, the term of such
agreement ends on December 31, 2013 with automatic one-year renewal periods
thereafter. Under the Services Agreement, DCMI provides us various general and
administrative services, such as technical, commercial, regulatory, financial,
accounting, treasury, tax and legal staffing and related support services. In
exchange for such services, we paid a monthly non-accountable administrative fee
of $25,000 through April 2008 and $60,000 from May to December 2008. The monthly
fee increased to $100,000 beginning January 1, 2009.





In
November 2006, we entered into a management agreement (“Management Agreement”)
with Suresh Capital Maritime Holdings, LLC (“SCMH”), which until April 1, 2009,
held an approximate 2% ownership in our Cyprus Subsidiary. The Management
Agreement provided for a three year management fee of $4,200,000, payable in 12
quarterly installments of $350,000 each. The initial installment was paid in
October 2006. The remaining installments were due at the beginning of each
quarter commencing January 2007 and ending July 2009.





Effective
January 1, 2007, the terms of the Management Agreement were amended. We entered
into a letter agreement with SCMH (“Letter Agreement”) which replaced the
Management Agreement. The Letter Agreement provided for us to advance funds as a
loan, which are unsecured, totaling $3,237,500 to SCMH on a quarterly basis. The
Letter Agreement provided for repayment of the advances with interest at a rate
equal to 5% per annum. As of December 31, 2009 and 2008, the amount receivable
from SCMH in connection with the Letter Agreement was $1,842,324 and $1,661,782,
respectively, including accrued interest of $209,340 and $118,798, respectively.
During the years December 31, 2009 and 2008, we recognized interest income of
$90,542 and $74,053, respectively.





Effective
January 1, 2009, we entered into an Amended and Restated Shareholders’ Agreement
in our Cyprus Subsidiary. As a result of this agreement, the Letter Agreement
with SCMH was terminated.





As of
December 31, 2008, we had $4,278,164, including accrued interest of $283,164,
due from IMS Holdings resulting from short-term advances we made to IMS Holdings
relating to the acquisition of the chemical tanker prior to the formation of
Kronos (the “Partnership Notes”). Each advance bore interest at 8% with a final
maturity date of December 2018. As of June 24, 2009, the amount due from IMS
Holdings was $4,238,983, including accrued interest of $361,983. The cost basis
of the investment in the chemical tanker on the financial statements of IMS
Capital Partners was $4,138,946. Therefore, $4,138,946 of the note receivable
balance was transferred to IMS Capital Partners in exchange for the consent of
IMS Capital Partners to the execution of the Amended MOA, under which Kronos was
the obligor. Therefore, as of December 31, 2009, we had a residual amount due of
$106,039, including accrued interest income of $6,002 from IMS Holdings related
to these short-term advances. See Note 2, Maritime Vessels, for additional
information regarding our option to purchase the chemical tanker.





During
October 2008, we were advanced $1,000,000 in the form of a loan from III:I
Emerging Market Partners Real Estate Investment Fund I, L.P. (“EMP Fund I”), an
affiliate of our General Partner. This loan, which is unsecured, bears interest
at a rate of 12% and matures in October 2010. In connection with this loan, we
paid a $20,000 commitment fee to EMP Fund I upon execution of the promissory
note. This fee was included in interest expense on our consolidated statement of
operations. The loan balance at December 31, 2009 and 2008 was $536,838 and
$1,001,041, including $59,338 and $1,041 of accrued interest, respectively.
During the years ended December 31, 2009 and 2008, we incurred interest of
$88,387 and $21,041, respectively.




83





III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES




NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





During
December 2008, we were advanced $250,000 in the form of a loan from III to I
Financial Management Research, L.P., an affiliate of our General Partner. This
loan, which is unsecured, bears interest at a rate of 12% and matures in
December 2018. As of December 31, 2009, the loan is paid in full. The loan
balance at December 31, 2008 was $251,233, including accrued interest of $1,233.
During the years ended December 31, 2009 and 2008, we incurred interest of
$11,319 and $1,233, respectively, related to this loan.




In May
2007, the AHTS SPVs entered into a ship management agreement with Hartmann
Offshore, an affiliate of Reederei Hartmann, the non-controlling interest owner
of the AHTS SPVs. The fees are included in vessel operation expenses. As of
December 31, 2009, we incurred $752,271 (EUR 539,417). There were no fees
incurred in 2008, as we did not have vessels in operation.





The AHTS
SPVs pay technical and commercial management fees to Hartmann Offshore. These
fees are included in vessel construction in progress or vessels on our
consolidated balance sheet, and as of December 31, 2009 and 2008 were $5,195,713
(EUR 3,625,000) and $2,290,763 (EUR 1,625,000), respectively.





The AHTS
SPVs pay construction fees to Hartmann Offshore. These fees are included in
vessel construction in progress or vessels on our consolidated balance sheet,
and as of December 31, 2009 and 2008 were $2,149,950 (EUR 1,500,000) and
$352,425 (EUR 250,000), respectively.





Each AHTS
SPV entered into a contract with the German Subsidiary, whereby the German
Subsidiary or its assignee will provide financial services including, but not
limited to, the procurement of equity during the building period of the relevant
AHTS vessel. Under such agreements, the German Subsidiary would have received
fees of $716,650 (EUR 500,000) payable in four equal installments, each due at
(i) the beginning of steel cutting, (ii) installation of the main engines, (iii)
launching of the vessel and (iv) delivery of the completed vessel. The German
Subsidiary subcontracted the requirement to provide these services and the right
to receive these payments to Suresh Capital Consulting & Finance Ltd.,
Maritime Funding Group LLC and Churada Investments Limited, all of which are
affiliates of SCMH. As of December 31, 2009 and 2008, we incurred $3,896,784
(EUR 2,718,750) and $1,718,072 (EUR 1,218,750), respectively, in syndication
costs. These costs are translated using historical rates and they are included
as an offset to non-controlling interest and partners’ equity on our
consolidated balance sheet.





The table
below provides the amounts outstanding under these agreements as of December 31,
2009.





Less than
                      
                      
                      
                      
                      
                      
                      
                      
                      OverSPV Name
                      
                      Vessel Name
                      
                      Total
                      
                      
                      1 year
                      
                      
                      2-3 Years
                      
                      
                      4-5 Years
                      
                      
                      5 YearsAnchor
      Handling Tug Supply Vessels6163
      –  Isle of Langeoog
                      
                      UOS
      Discovery
                      
                      $
                      179,163
                      
                      
                      $
                      179,163
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      —6168
      –  Isle of Amrum
                      
                      UOS
      Endeavour
                      
                      
                      179,163
                      
                      
                      
                      179,163
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —6169
      –  Isle of Sylt
                      
                      UOS
      Enterprise
                      
                      
                      179,163
                      
                      
                      
                      179,163
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —6171
      –  Isle of Wangerooge
                      
                      UOS
      Explorer
                      
                      
                      179,163
                      
                      
                      
                      179,163
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —6172
      –  Isle of Neuwerk
                      
                      UOS
      Freedom
                      
                      
                      179,163
                      
                      
                      
                      179,163
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —6173
      –  Isle of Usedom
                      
                      UOS
      Liberty
                      
                      
                      358,325
                      
                      
                      
                      358,325
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Total
      fees outstanding
                      
                      
                      
                      $
                      1,254,140
                      
                      
                      $
                      1,254,140
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      —





7.
            Fair
      Value of Financial Instruments





Fair
value is defined under FASB ASC 820, Fair Value Measurements and
Disclosures as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to
measure fair value under FASB ASC 820, Fair Value Measurements and
Disclosures must maximize the use of the observable inputs and minimize
the use of unobservable inputs. The standard established a fair value hierarchy
based on three levels of inputs, of which the first two are considered
observable and the last unobservable.


84





III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES




NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





·
            Level
      1 - Quoted prices in active markets for identical assets or liabilities.
      These are typically obtained from real-time quotes for transactions in
      active exchange markets involving identical
  assets.


·
            Level
      2 - Quoted prices for similar assets and liabilities in active markets;
      quoted prices included for identical or similar assets and liabilities
      that are not active; and model-derived valuations in which all significant
      inputs and significant value drivers are observable in active markets.
      These are typically obtained from readily-available pricing sources for
      comparable instruments.


·
            Level
      3 - Unobservable inputs, where there is little or no market activity for
      the asset or liability. These inputs reflect the reporting entity’s own
      assumptions about the assumptions that market participants would use in
      pricing the asset or liability, based on the best information available in
      the circumstances.





The
estimated fair value of cash, accounts receivable, accounts payable, accrued
interest, related party receivables and payables approximate their carrying
amounts due to the relatively short period to maturity of these instruments. The
estimated fair value of all debt as of December 31, 2009 and December 31, 2008
approximated the carrying value since the draws on the Senior Loan incur
interest at a variable rate and mature every one to three months. The estimates
presented are not necessarily indicative of the amounts that would be realized
in a current market exchange.





The fair
value of the interest rate swap and the forward currency exchange contracts
discussed in Note 5 are included in current and long-term derivative liabilities
in our consolidated balance sheet. The fair value of the interest rate swap
(used for non-speculative purposes) is based on the relative fair values of the
discounted future stream of interest payments under the original floating
interest facility using rates derived based on a forward curve of the
three-month EURIBOR, upon which the terms of the Senior Loan are based, versus
the future interest payments due under the fixed rate obtained in the interest
rate swap agreement of 3.465%. The fair values of the forward currency exchange
contracts are based on the relative exchange rates per the forward currency
exchange contracts versus the forward exchange rate curve as of December 31,
2009. The fair value of the derivative instruments are determined with reference
to observable rates which are commonly quoted on a forward basis, and are
therefore classified as Level 2 items.





Our
assets and liabilities as of December 31, 2009 that are measured at fair value
on a recurring basis are summarized below (in dollars):





December 31, 2009Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  TotalAssetsForward
      currency exchange contracts
                  
                  $
                  —
                  
                  
                  $
                  5,571,253
                  
                  
                  $
                  —
                  
                  
                  $
                  5,571,253LiabilitiesInterest
      rate swap agreements
                  
                  $
                  —
                  
                  
                  $
                  9,530,237
                  
                  
                  $
                  —
                  
                  
                  $
                  9,530,237December
      31, 2008Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  TotalAssetsForward
      currency exchange contracts
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —LiabilitiesInterest
      rate swap agreements
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —




85





III TO I
MARITIME PARTNERS CAYMAN I, LP. AND SUBSIDIARIES




NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





The
following table presents information about the impairment loss related to our
deposit on asset acquisition, described in Note 4, which is measured at fair
value on a non-recurring basis as of December 31, 2009:





December 31, 2009Level 1
                
                
                Level 2
                
                
                Level 3
                
                
                TotalAssetDeposit
      on asset acquisition
                
                $
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —





The
deposit on asset acquisition was determined to have a fair value of $0 based on
Level 3 inputs, which included third-party information regarding the value of
similar assets.





8.
            Legal
      Proceedings





We may in
the future be involved as a party to various legal proceedings, which are
incidental to the ordinary course of business. We regularly analyze current
information and, as necessary, provide accruals for probable liabilities on the
eventual disposition of these matters. In the opinion of management, as of
December 31, 2009, there were no threatened or pending legal matters that would
have a material impact on our consolidated results of operations, financial
position or cash flows.





9.
            Subsequent
      Events





In late
January 2010 and in March 2010, our German Subsidiary entered into four loan
agreements with Reederei Hartmann. Each of the agreements is related to a
corresponding AHTS SPV, and provides for loans equal to the remaining amount of
capital outstanding from our German Subsidiary to the AHTS SPV to which the
agreement relates. The execution of the agreements and the subsequent
recognition of the contribution of capital by the AHTS SPV results in our
satisfying the capital contribution in the full amount called for under the
Company Agreement of the respective AHTS SPV. Additional information regarding
the loan agreements can be found in Note 4.





In
February and March 2010, amendments were made to the shipbuilding contracts for
the AHTS vessels held through our AHTS SPVs Isle of Langeoog, Isle of Amrum, and
Isle of Wangerooge, to postpone the installment payments due under the contracts
until delivery of the applicable AHTS vessel and to provide for interest due to
Fincantieri on the outstanding installment payments due at a rate based on the
three-month EURIBOR plus 2%.





Our
fourth, fifth, and sixth AHTS vessels were delivered on February 16, March 11,
and March 15, 2010, respectively, and are currently not under charter. Our
commercial manager, UOS, is currently pursuing opportunities with charterers for
our vessels.


86





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





None.





Item
9A(T). Controls and Procedures





As of
December 31, 2009, our general partner’s chief executive officer and chief
financial officer evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934 (“Securities Exchange Act”), and concluded that, as of such
date, our disclosure controls and procedures were adequate and effective for the
purpose of ensuring that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act (15 U.S.C 78a
et seq.) is recorded,
processed, summarized and reported, within the time periods specified by the
SEC’s rules and forms and is accumulated and communicated to our management,
including the principal executive and principal financial officers of our
general partner, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosures.





During
the quarter ended December 31, 2009, there have been no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, those internal controls subsequent to
the date of the evaluation. As a result, no corrective actions were required or
undertaken.





This
annual report does not include a report of management’s assessment regarding
internal control over financial reporting or an attestation report of the
company’s registered public accounting firm due to a transition period
established by rules of the SEC for newly public companies.





Item
9B. Other Information





None.





PART
III





Item
10. Directors and Executive Officers and Corporate Governance





III to I
International Maritime Solutions Cayman, Inc., a Cayman Islands corporation, as
our general partner manages our operations and activities. Our general partner
is not elected by our limited partners and is not subject to re-election on a
regular basis. Limited partners are not entitled to elect the officers or
directors of our general partner or directly or indirectly participate in our
management or operations. The stock of our general partner is not listed on any
exchange. As a result, our general partner is not a “listed company” under the
SEC rules and regulations and therefore is not required to have any independent
directors.





We do not
have a separately designated executive committee or nominating committee of the
Board of Directors. Consequently, we do not have charters for either of those
committees. We do have an audit committee; however, none of its members would
qualify as independent directors.





Set forth
below is information concerning the directors and executive officers of III to I
International Maritime Solutions Cayman, Inc. as of March 22, 2010. Directors
and officers serve until they are removed from such positions.





Name
            
            Age
            
            Position with General PartnerDarrell
      W. Cain
            
            53
            
            Director
      and Chief Executive OfficerMichael
      T. Watters
            
            57
            
            Director
      and Audit Committee MemberJason
      M. Morton
            
            36
            
            Director
      and Chief Financial OfficerGary
      V. Moore
            
            58
            
            Director
      and Audit Committee Member




87


Darrell
W. Cain is a certified public accountant and has been engaged in public
accounting since January 1979. He is a graduate of Baylor University where he
received a Bachelor of Business Administration degree in 1977 and a Master of
Public Accounting degree in 1978. Mr. Cain has been a partner in the accounting
firm of Cain, Watters & Associates, P.L.L.C. (“CWA”) or a predecessor firm
since October 1984. He has served as Chief Executive Officer and a director of
our general partner since inception.





Michael
T. Watters is a certified public accountant and has been engaged in public
accounting since 1980. He is a graduate of the University of North Texas where
he received a Bachelor of Business Administration degree in accounting in 1976
and a Master of Science degree in accounting in 1980. Mr. Watters has been a
partner in the accounting firm of CWA or a predecessor firm since September
1991. He has served as a director of our general partner since March 2009, and
has served on the audit committee of our general partner since his appointment
as director.





Jason M.
Morton is a chartered financial analyst and a graduate of Baylor University
where he received a Bachelor of Business Administration degree in Finance and
International Business in 1995. Mr. Morton has been an officer of DCMI since
January 2008. Prior to such time, Mr. Morton served as a consultant with Alvarez
& Marsal from April 2003 until April 2006 and senior investment analyst for
III to I Financial Management Research from April 2006 to December2007. He has served as Chief
Financial Officer and a director of our general partner since November
2007.





Gary V.
Moore is a certified public accountant and has been engaged in public accounting
since 1978. Mr. Moore is also a certified fraud examiner and investment advisor
representative. He is a graduate of the University of Texas at Arlington where
he received a Bachelor of Business Administration degree in accounting. Mr.
Moore has been the General Manager and Chief Compliance Officer of the
accounting firm of CWA since 2001. He has served as a director of our general
partner since March 2009, and has served on the audit committee of our general
partner since his appointment as a director.





Code
of Business Conduct and Ethics





The board
of directors of our general partner has adopted a code of business conduct and
ethics for our officers, which is available to the public on our website at
www.3to1IMS.com. If any amendments are made to the code or if our general
partner grants any waiver, including any implicit waiver, from a provision of
the code that the SEC requires us to disclose, we will disclose the nature of
such amendment or waiver on our website or in a current report on Form
8-K.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934 requires our officers and
directors, and persons who own more than 10% of a registered class of our equity
securities, to file reports of beneficial ownership and changes in beneficial
ownership with the SEC. Officers, directors and greater than 10% holders are
required by SEC regulations to furnish us with copies of all Section 16(a)
forms.





Based
solely on our review of the copies of such forms we received, or representations
from certain reporting persons that no Form 4s were required for those persons,
we believe that during the fiscal year ended December 31, 2009, all of our
officers, directors, and greater than 10% beneficial owners complied on a timely
basis with all applicable filing requirements under Section 16(a) of the
Securities Exchange Act of 1934, except for the failure to timely file one Form
3 by Mr. Darrell Cain.





Item
11. Executive Compensation





Compensation
Discussion and Analysis





Our
general partner has paid no cash compensation to its executive officers since
its inception. Darrell W. Cain is an executive officer of CWA and Jason M.
Morton is an executive officer of DCMI. Each of them receives compensation for
the performance of his duties as an executive officer of CWA or DCMI,
respectively, which includes managing our partnership. Neither CWA nor DCMI
allocates this compensation outside of their respective entities. DCMI provides
us various general and administrative services, such as technical, commercial,
regulatory, financial, accounting, treasury, tax and legal staffing and related
support services, pursuant to a services agreement for which we will pay a
non-accountable administrative fee of $1,200,000 per year. Additional
information is provided in this Form 10-K under Item 13. Certain Relationships
and Related Transactions, and Director Independence.


88





Director
Compensation





In March
2009, the Board of Directors of our general partner approved an annual fee of
$38,400 to Gary V. Moore for services as a director. Such amount is intended to
compensate Mr. Moore for the performance of his services as a member of the
audit committee of our general partner. All directors’ fees are pro-rated from
the date of election to the Board of Directors and are payable quarterly. Each
director will be fully indemnified by us for actions associated with being a
director to the extent permitted under laws of the Cayman Islands.





The
following table shows the compensation of the directors for the periods
ended:





Name
                
                Fees
                    Earned or
                    Paid in
                    Cash ($)
                
                
                Stock
                    Awards ($)
                
                
                Option
                    Awards ($)
                
                
                Non-Equity
                    Incentive Plan
                    Compensation
                    ($)
                
                
                Change in
                    Pension Value
                    and
                    Nonqualified
                    Deferred
                    Compensation
                    Earnings ($)
                
                
                All Other
                    Compensation ($)
                
                
                Total ($)Darrell W. Cain (1)December
      31, 2009
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —December
      31, 2008
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Michael T. Watters
      (2)December
      31, 2009
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —December
      31, 2008
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Jason M. Morton (3)December
      31, 2009
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —December
      31, 2008
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Gary V. Moore (4)December
      31, 2009
                
                
                25,600
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                25,600December
      31, 2008
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —







(1)
            Darrell
      W. Cain is an executive officer of our general partner and is also an
      executive officer of CWA. CWA compensates Mr. Cain for the performance of
      his duties as an executive officer of CWA, which includes managing our
      partnership. He does not receive additional compensation for his service
      as a director.





(2)
            Michael
      T. Watters is an executive officer of CWA. CWA compensates Mr. Watters for
      the performance of his duties as a director of CWA, which includes
      managing our partnership. He does not receive additional compensation for
      his service as a director.





(3)
            Jason
      M. Morton is an executive officer of our general partner and DCMI. DCMI
      compensates Mr. Morton for the performance of his duties as an executive
      officer of DCMI, which includes managing our partnership. He does not
      receive additional compensation for his service as a director. DCMI
      provides us various general and administrative services, such as
      technical, commercial, regulatory, financial, accounting, treasury, tax
      and legal staffing and related support services, pursuant to a services
      agreement for which we pay a non-accountable administrative fee of
      $1,200,000 per year. Additional information is provided in this Form 10-K
      under Item 13. Certain Relationships and Related Transactions, and
      Director Independence.





(4)
            Mr.
      Moore was appointed as a director in March 2009. As a result, he received
      no compensation in 2008. Mr. Moore will receive an annual fee for his
      service as a director beginning in 2009 in the amount of approximately
      $38,400. Such amount is intended to compensate Mr. Moore for the
      performance of his services as a member of the audit committee of our
      general partner. During the year ended December 31, 2009, Mr. Moore earned
      director’s fees totaling $25,600, which remained outstanding at year end.
      Additionally, Mr. Moore is an executive officer of CWA which compensates
      Mr. Moore for the performance of his duties as an executive officer of
      CWA.




89


Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholders Matters





Ownership
of the Partnership





The
following table sets forth the beneficial ownership of the partnership’s units
as of March 22, 2010, by beneficial owners of 5% or more of such units, by each
director and named executive officer of our general partner and all directors
and named executive officers as a group.





Name(1)
                
                Number of
                  Voting Units(2)
                
                
                Percentage of Outstanding
                  Voting UnitsDarrell
      W. Cain
                
                
                19,370
                (3)
                
                
                2.727
                %Michael
      T. Watters
                
                
                10,900
                (4)
                
                
                1.534
                %Gary
      V. Moore
                
                
                2,000
                (5)
                
                
                0.282
                %Jason
      M. Morton
                
                
                —
                (6)
                
                
                0.000
                %All
      directors and named executive officers as a group
                
                
                22,370
                
                
                
                3.149
                %Suresh
      Capital Partners, LLC
                
                
                11,000
                (7)
                
                
                1.548
                %The
      Maritime Funding Group, Inc. Irrevocable Trust
                
                
                —
                (8)
                
                
                0.000
                %







(1)
            Unless
      indicated below, the persons named in the table have sole voting and
      investment power with respect to all shares of stock shown as beneficially
      owned by them.





(2)
            In
      all matters on which limited partners may cast a vote, each partner other
      than a Class D limited partner shall have one (1) vote (or a fraction
      thereof) for each Class A unit, Class B unit, Class C unit or General
      Partner unit (or fraction thereof) held by such partner, subject to the
      “Class D Protective Provisions” contained in our Second Amended and
      Restated Agreement of Limited Partnership which is attached as Exhibit 3.4
      to this Form 10-K. Pursuant to the Partnership Agreement, whenever the
      approval of a specified percentage of the partners or units is required,
      the percentage refers to the partners holding the appropriate percentage
      of voting units and not to a percentage of the class of individual
      partners. As a result, the percentage of outstanding voting units of each
      partner in the ownership table above represents the percentage of all
      outstanding voting units owned by such partner, rather than the percentage
      owned by such partner of any particular class of units of the
      partnership.





(3)
            With
      respect to the 19,370 units beneficially owned by Darrell W. Cain, 1,000
      of such units are Class B units owned by Mr. Cain individually, 5,000 of
      such units are Class B units owned for the benefit of Mr. Cain through an
      Individual Retirement Account, 3,470 of such units are Class B units
      beneficially owned by Mr. Cain through an Individual Retirement Account
      for the benefit of Mr. Cain’s spouse, Sandi L. Hamm, and the remaining
      9,900 of such units are General Partner units owned by our general partner
      and are attributable to Mr. Cain based on his significant ownership
      percentage in our general partner as set forth in the table below under
      the section entitled Ownership of the General
      Partner.





(4)
            With
      respect to the 10,900 units beneficially owned by Michael T. Watters,
      1,000 of such units are Class B units owned by Mr. Watters individually
      and the remaining 9,900 of such units are General Partner units owned by
      our general partner and are attributable to Mr. Watters based on his
      significant ownership percentage in our general partner as set forth in
      the table below under the section entitled Ownership of the General
      Partner.





(5)
            With
      respect to the 2,000 units beneficially owned by Mr. Moore, all of such
      units are Class B units. Additionally, Mr. Moore does own a small
      percentage of our general partner as set forth in the table below under
      the section entitled Ownership of the General
      Partner; however, because of Mr. Moore’s small ownership percentage
      of our general partner, we have not attributed to him any General Partner
      units owned by our general partner.





(6)
            Jason
      M. Morton does not currently own voting units in the partnership. Mr.
      Morton does own a small percentage of our general partner as set forth in
      the table below under the section entitled Ownership of the General
      Partner; however, because of Mr. Morton’s small ownership
      percentage of our general partner, we have not attributed to him any
      General Partner units owned by our general
  partner.





(7)
            While
      Suresh Capital Partners, LLC does not currently own more than 5% of the
      voting units of the partnership, it is the beneficial owner of 11,000
      Class B units. Of these 11,000 Class B units, 6,000 of such units are
      Class B units owned by Suresh Capital Partners, LLC, and the remaining
      5,000 of such units are Class B units owned by Surram, LLC, an affiliate
      of Suresh Capital Partners, LLC. Additionally, Suresh Capital Partners,
      LLC is the beneficial owner of 1,000 Class D units. Although such Class D
      units are not voting units, the holders of such units are entitled to
      certain “Class D Protective Provisions” as described in our Second Amended
      and Restated Agreement of Limited Partnership, which is attached as
      Exhibit 3.4 to this Form 10-K.


90





(8)
            While
      The Maritime Funding Group, Inc. Irrevocable Trust does not currently own
      voting units in the partnership, it is the beneficial owner of 1,000 Class
      D units. Although such Class D units are not voting units, the holders of
      such units are entitled to certain “Class D Protective Provisions” as
      described in our Second Amended and Restated Agreement of Limited
      Partnership which is attached as Exhibit 3.4 to this Form
      10-K.





Ownership
of the General Partner





The
following table sets forth the beneficial ownership of our general partner’s
shares as of March 22, 2010, by beneficial owners of 5% or more of such shares,
by each director and named executive officer of our general partner, and by all
directors and named executive officers as a group.





Name(1)
                
                Number of
                  Shares(2)
                
                
                Percentage of
                  Outstanding SharesDarrell
      W. Cain
                
                
                300
                
                
                
                30
                %Michael
      T. Watters
                
                
                300
                
                
                
                30
                %Steve
      Cain
                
                
                50
                
                
                
                5
                %Scott
      Steenson
                
                
                50
                
                
                
                5
                %Jason
      M. Morton
                
                
                20
                
                
                
                2
                %Gary
      V. Moore
                
                
                10
                
                
                
                1
                %All
      directors and named executive officers as a group
                
                
                630
                
                
                
                63
                %







(1)
            Unless
      indicated below, the persons named in the table have sole voting and
      investment power with respect to all shares of stock shown as beneficially
      owned by them.





(2)
            Our
      general partner is wholly-owned by IMS Holdings. The number of shares and
      percentage of outstanding shares with respect to each person shown in the
      table above corresponds to such person’s ownership in IMS
      Holdings.





Item
13. Certain Relationships and Related Transactions, and Director
Independence





III to I
International Maritime Solutions Cayman, Inc., a Cayman Islands exempted
company, as our general partner, manages our operations and activities. Our
general partner is not elected by our limited partners and is not subject to
re-election on a regular basis. Limited partners are not entitled to elect the
directors of our general partner or directly or indirectly participate in our
management or operations. The general partner and its affiliates currently own
approximately 3.2% of our outstanding units, including 9,900 General Partner
units. As a result, the general partner and its affiliates will have substantial
control over our management. The general partner is a wholly-owned subsidiary of
IMS Holdings, a Texas limited liability company, of which Darrell W. Cain and
Michael T. Watters each own 30%. For additional detail, see Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters, under the caption entitled Ownership of the General
Partner.





Administrative
and Professional Services Agreement with DCMI





In April
2008, we entered into an agreement, effective January 1, 2008, to retain DCMI,
an entity owned in part by Jason M. Morton, a director and the Chief Financial
Officer of our general partner, to perform administrative and professional
services (“Services Agreement”). This Services Agreement was amended and
restated in June 2008 and January 2009. Pursuant to the most recent amendment
and restatement of the Services Agreement, the initial term of such agreement
commenced as of January 1, 2009 and ends on December 31, 2013, with automatic
one-year renewal periods thereafter. Under the Services Agreement, DCMI provides
various general and administrative services for us, such as technical,
commercial, regulatory, financial, accounting, treasury, tax and legal staffing
and related support services. In exchange for such services, we were originally
obligated to pay DCMI a non-accountable administrative fee of $25,000 per month,
which fee has since been increased to $100,000 per month pursuant to the terms
of the most recent amendment and restatement of the Services
Agreement.


91





Management
Agreement with SCMH





In
November 2006, we entered into a management agreement (“Management Agreement”)
with SCMH, which until April 1, 2009, held an approximate 2% ownership in our
Cyprus Subsidiary. The Management Agreement provided for a three year management
fee of $4,200,000, payable in 12 quarterly installments of $350,000 each. The
initial installment was paid in October 2006. The remaining installments were
due at the beginning of each quarter commencing January 2007 and ending July
2009.





Effective
January 1, 2007, the terms of the Management Agreement were amended. We entered
into a letter agreement with SCMH (“Letter Agreement”) which replaced the
Management Agreement. The Letter Agreement provided for us to advance funds as a
loan, which are unsecured, totaling $3,237,500 to SCMH on a quarterly basis. The
Letter Agreement provided for repayment of the advances with interest at a rate
equal to 5% per annum. As of December 31, 2009 and 2008, the amount receivable
from SCMH in connection with the Letter Agreement was $1,842,324 and $1,661,782,
respectively, including accrued interest of $209,340 and $118,798, respectively.
During the years December 31, 2009 and 2008, we recognized interest income of
$90,541 and $74,053, respectively.





Effective
January 1, 2009, we entered into an Amended and Restated Shareholders’ Agreement
in our Cyprus Subsidiary. As a result of this agreement, the Letter Agreement
with SCMH was terminated.





The
German Subsidiary Financial Services Agreements





Each AHTS
SPV has entered into a contract with the German Subsidiary, whereby the German
Subsidiary or its assignee will provide financial services including, but not
limited to, the procurement of equity during the building period of the relevant
AHTS vessel. Under such agreements, the German Subsidiary would have received
fees of $660,400 (EUR 500,000) payable in four equal installments, each due at
(i) the beginning of steel cutting, (ii) installation of the main engines, (iii)
launching of the vessel and (iv) delivery of the completed vessel. The German
Subsidiary subcontracted the requirement to provide these services and the right
to receive these payments to Suresh Capital Consulting & Finance Ltd.,
Maritime Funding Group LLC and Churada Investments Limited which are affiliates
of SCMH. During 2008, we paid $1,791,625 (EUR 1,250,000) in syndication costs.
No syndication costs were paid during 2009. These costs are included as an
offset to non-controlling interest and III to I Maritime Cayman I, L.P.
partners’ equity on our consolidated balance sheet.





As of
December 31, 2009 and 2008, we had $106,039 and $4,278,164, including accrued
interest of $6,002 and $283,164, respectively, due from IMS Holdings, an
affiliate of the general partner, resulting from short-term advances we made to
IMS Holdings relating to the option to acquire the chemical tanker prior to the
formation of Kronos. Each of these advances was evidenced by a promissory note,
the amount and terms of which are as follows (the “Partnership
Notes”):





·
            $100,000
      Promissory Note dated November 29, 2007 by IMS Holdings in favor of the
      partnership, bearing interest at 8% and having a maturity date of November
      28, 2017;


·
            $3,200,000
      Promissory Note dated January 10, 2008 by IMS Holdings in favor of the
      partnership, bearing interest at 8% and having a maturity date of January
      9, 2018;


·
            $75,000
      Promissory Note dated April 29, 2008 by IMS Holdings in favor of the
      partnership, bearing interest at 8% and having a maturity date of April
      28, 2018;


·
            $350,000
      Promissory Note dated June 27, 2008 by IMS Holdings in favor of the
      partnership, bearing interest at 8% and having a maturity date of June 26,
      2018;


·
            $100,000
      Promissory Note dated July 30, 2008 by IMS Holdings in favor of the
      partnership, bearing interest at 8% and having a maturity date of July 29,
      2018;


·
            $90,000
      Promissory Note dated October 7, 2008 by IMS Holdings in favor of the
      partnership, bearing interest at 8% and having a maturity date of October
      6, 2018;


·
            $10,000
      Promissory Note dated November 7, 2008 by IMS Holdings in favor of the
      partnership, bearing interest at 8% and having a maturity date of November
      6, 2018;


·
            $60,000
      Promissory Note dated December 10, 2008 by IMS Holdings in favor of the
      partnership, bearing interest at 8% and having a maturity date of December
      9, 2018; and


92





·
            $10,000
      Promissory Note dated December 12, 2008 by IMS Holdings in favor of the
      partnership, bearing interest at 8% and having a maturity date of December
      11, 2018.





Each of
the above advances made by IMS Holdings in favor of the partnership was funded
through a corresponding loan made by IMS Capital Partners, LLC, an affiliate of
IMS Holdings owned in part by Jason M. Morton, a director and officer of our
general partner (“IMS Capital Partners”) in favor of IMS Holdings (the “IMS
Holdings Notes”). All of the IMS Holdings Notes were on the same terms as the
Partnership Notes.





On April
25, 2009 and after the formation of Kronos, the original MOA was amended to
include Kronos as the sole obligor in connection with the chemical tanker
financing facility. However, IMS Capital Partners had already paid amounts
totaling $4,138,946 to a Schulte Group affiliate in connection with the original
MOA, with such amounts funded via the Partnership Notes. In June 2009, we
entered into an agreement whereby all of the rights retained by IMS Capital
Partners and IMS Holdings with respect to the chemical tanker pursuant to the
original MOA were transferred to Kronos, the new obligor under the amended MOA.
To give effect and consideration for this transfer, (i) the partnership assigned
all of the Partnership Notes to IMS Capital Partners in exchange for the consent
of IMS Capital Partners to the execution of the amended MOA, (ii) Kronos
credited the partnership additional paid in capital in the amount of the
Partnership Notes, totaling $4,138,946, and accepted the rights to the chemical
tanker pursuant to the amended MOA and (iii) each of IMS Holdings and IMS
Capital Partners agreed that they have no further obligations or corresponding
rights in the chemical tanker or the MOA, as amended. The outcome of the
execution of this agreement left (i) Kronos the sole holder to all rights and
obligations with respect to the chemical tanker and the amended MOA, (ii) the
partnership with additional paid in capital in Kronos and (iii) IMS Capital
Partners and IMS Holdings each holding directly offsetting note obligations. As
a result of the offsetting note obligations held by IMS Capital Partners and IMS
Holdings, in June 2009, both entities entered into a Note Cancellation Agreement
whereby each entity agreed to cancel the notes held in exchange for the other
entities agreement to do the same. As a result, none of the IMS Holdings Notes
related to this matter is still outstanding as of the date of this Form 10-K,
and the residual amount remaining under the Partnership Notes represents amounts
expended by IMS Holdings on matters unrelated to the acquisition of the chemical
tanker. Additional information related to the Schulte Group financing is
included in this Form 10-K under Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations under the caption entitled Financing Arrangements in the
Liquidity and Capital
Resources section.





During
October 2008, we were advanced $1,000,000 in the form of a loan from III:I
Emerging Market Partners Real Estate Investment Fund I, L.P. (“EMP Fund I”), an
affiliate of our general partner. This loan was evidenced by a $1,000,000
Promissory Note dated as of October 29, 2008 by the partnership in favor of EMP
Fund I with an interest rate of 12% and a maturity date of October 28, 2010. In
connection with this loan, we paid a $20,000 commitment fee to EMP Fund I upon
execution of the promissory note. The loan balance at December 31, 2009 and 2008
was $536,838 and $1,001,041, including $59,338 and $1,041 of accrued interest,
respectively.





During
December 2008, we were advanced $250,000 in the form of a loan from FMR. This
loan was evidenced by a $250,000 Promissory Note dated as of December 17, 2008
by the partnership in favor of FMR with an interest rate of 12% and a maturity
date of December 16, 2018. The loan was paid in full as of December 31, 2009.
The loan balance at December 31, 2008 was $251,233, $1,233 of accrued
interest.





Sales
of Certain AHTS SPVs





In
December 2007, the German Subsidiary entered into three separate agreements
whereby it sold and assigned its interests in the following AHTS SPVs to Suresh
Capital Maritime Partners I-B Germany GmbH: (i) ATL Offshore GmbH & Co.
“Isle of Memmert” KG, (ii) ATL Offshore GmbH & Co. “Isle of Mellum” KG and
(iii) ATL Offshore GmbH & Co. “Isle of Fehmarn” KG. As consideration for
each such sale and assignment, we received $3,107,367 (EUR 2,119,478),
$2,916,969 (EUR 2,027,785) and $2,775,845 (EUR 1,929,680), respectively. Each of
these amounts approximated our carrying value of such assets as of the date of
sale; therefore, no gain or loss was recognized on the
transactions.





The
purchaser in the foregoing transactions, Suresh Capital Maritime Partners I-B
Germany GmbH, is owned indirectly by FLTC Fund I, a trust company of which the
trustee is Family Legacy Trust Company. Family Legacy Trust Company is a
wholly-owned subsidiary of Dental Community Financial Holdings, Ltd., whose
general partner, Dental Community Holdings, Inc. is owned and controlled by
Darrell W. Cain and Michael T. Watters, each of whom also owns equity in us and
serves as a director of our general partner. Mr. Cain also serves as an
executive officer of our general partner.


93





The
AHTS Vessel Pooling Agreement





In March
2009, we entered into the AHTS Pool Agreement to participate in a revenue pool
comprised of our nine AHTS SPVs and three AHTS SPVs owned by FLTC Fund I. The
agreement names UOS as the “Pool Manager,” with responsibility for the
management and accounting of the pool and also for monitoring Pool Members’
compliance with the AHTS Pool Agreement. Under the AHTS Pool Agreement, each of
our AHTS SPVs has agreed to pool its returns from employment of the vessel less
voyage expenses with the other Pool Members to achieve an even distribution of
the risks resulting from the fluctuation in the offshore chartering business. As
indicated above, FLTC Fund I is a trust company of which the trustee is Family
Legacy Trust Company, a wholly-owned subsidiary of Dental Community Financial
Holdings, Ltd., whose general partner, Dental Community Holdings, Inc. is owned
and controlled by Darrell W. Cain and Michael T. Watters. Mr. Cain and Mr.
Watters also own equity in us and serve as directors of our general partner, and
Mr. Cain serves as an executive officer of our general partner.





Cross-Collateralization
of Nord/LB Loan Facility





In
December 2008, our AHTS SPVs entered into the Senior Loan with Nord/LB.
Additional information is provided in this Form 10-K under Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations under
the caption entitled Financing
Arrangements in the Liquidity and Capital
Resources section. In order to obtain more favorable financing terms
under the Senior Loan, we agreed to a fleet financing arrangement whereby the
Senior Loan would be secured by, among other things, our nine AHTS vessels and
three AHTS vessels owned by FLTC Fund I. In connection with this fleet financing
arrangement, we entered into a mutual indemnity agreement in May 2009 with the
three AHTS SPVs owned by FLTC Fund I (the “AHTS Mutual Indemnity Agreement”).
Pursuant to the AHTS Mutual Indemnity Agreement, we agreed to indemnify the AHTS
SPVs owned by FLTC Fund I for all liabilities suffered by such SPVs arising out
of or associated with any breach by us (or resulting from any payment or
performance by such AHTS SPVs in order to avoid a breach by us) under the credit
facility with Nord/LB or the AHTS Mutual Indemnity Agreement. Conversely, the
AHTS SPVs owned by FLTC Fund I agreed to provide us with reciprocal
indemnification obligations pursuant to the AHTS Mutual Indemnity
Agreement.





Payment
of Construction Administrative and Technical and Commercial Management
Fees





During
2009 and 2008, the AHTS SPVs paid $2,508,275 (EUR 1,750,000) and $1,254,138 (EUR
875,000), respectively, in technical and commercial management fees to Hartmann
Offshore, an affiliate of Reederei Hartmann, the non-controlling interest owner
of the AHTS SPVs. During 2009 and 2008, the AHTS SPVs paid $1,612,463 (EUR
1,125,000) and $358,325 (EUR 250,000), respectively, in construction management
fees to Hartmann Offshore. These fees are included in vessel construction in
process or vessels on our consolidated balance sheet. These fees are included in
vessel construction in progress or vessels on our consolidated balance sheet.
The balances as of December 31, 2009 and 2008 were $7,345,663 (EUR 5,125,000)
and $2,687,438 (EUR 1,875,000), respectively.





Equity
Contribution Agreement





In April
2009, we entered into an Equity Contribution Agreement with SCMH and our general
partner, whereby they agreed to contribute their non-controlling shares in our
Cyprus Subsidiary to us in exchange for certain consideration set forth in the
agreement. For its contribution, each of the equity holders of SCMH received
1,000 Class D units. The general partner contributed its share in the Cyprus
Subsidiary in exchange for certain rights granted to it in our current
Partnership Agreement and the agreement by SCMH to contribute its share. As a
result of the equity contribution, we became the sole shareholder of our Cyprus
subsidiary. While the Equity Contribution Agreement was consummated upon the
adoption of our current Partnership Agreement later in April 2009, pursuant to
the terms of the Equity Contribution Agreement and the current Partnership
Agreement, all of the parties have agreed to treat the contribution of the
Cyprus shares and issuance of the Class D units effective as of April 1,
2009.


94





RHKG
Loan Agreements





In late
January 2010 and in March 2010, our German Subsidiary entered into four loan
agreements with Reederei Hartmann, which is the non-controlling interest holder
of our AHTS SPVs (the “RHKG Loan Agreements”). Each of the agreements is related
to a corresponding AHTS SPV, and provides for loans equal to the remaining
amount of capital outstanding from our German Subsidiary to the AHTS SPV to
which the agreement relates. The execution of the agreements and the subsequent
recognition of the contribution of capital by the AHTS SPV results in our
satisfying the capital contribution in the full amount called for under the
Company Agreement of the respective AHTS SPV.





These
four agreements relate to the AHTS SPVs Isle of Baltrum, Isle of Langeoog, Isle
of Amrum, and Isle of Wangerooge, and under these agreements, loans totaling
$31,604,334 (EUR 22,780,000) were made from Reederei Hartmann to our German
Subsidiary. In connection with Langeoog, Amrum and Wangerooge, the loan proceeds
were paid directly to the respective AHTS SPV, thereby fulfilling the remaining
capital contribution obligations of our German Subsidiary with respect to each
of those AHTS SPVs. The loan agreement for the AHTS SPV Isle of Baltrum differs
slightly from the others in that the event giving rise to our liability is the
assumption of the AHTS SPV’s liability to Reederei Hartmann in the amount of
$7,752,459 (EUR 5,315,000) as of October 2, 2009, in exchange for being credited
with making a capital contribution to Isle of Baltrum in such
amount.





Each of
the four RHKG Loan Agreements currently in place matures 5 years from the date
of signing, with maturity dates therefore falling between January and March 2015
for the agreements currently in place. The agreements each call for interest to
be calculated at 6% per annum, due annually at each anniversary date of signing.
There is no penalty for pre-payment of all or any portion of the loans prior to
the end of the respective loan periods. The terms of the agreements include the
granting of a security interest in our interest in the corresponding AHTS SPV,
and in the dividends from the AHTS SPV arising from the pro-rata percentage of
the loan amount as compared to our total share capital.





Under the
RHKG Loan Agreements, if additional financing is granted by Nord/LB to one of
the AHTS SPVs to which an RHKG Loan Agreement relates via an increase in the
amount guaranteed by SACE under the Senior Loan, the RHKG Loan Agreements state
that our German Subsidiary shall use its best endeavors to have the AHTS SPV
receiving the proceeds distribute funds from the financing to our German
Subsidiary sufficient to allow it to repay the RHKG Loan Agreement.





We are
subject to various warranties, representations, and covenants under the RHKG
Loan Agreements, such as limitations on our entering into asset dispositions or
restructuring arrangements unreasonably detrimental to Reederei Hartmann’s
security interest in the AHTS SPVs, and the reserving of distributions received
from an involved AHTS SPV for repayment of the related RHKG Loan
Agreement.





In
connection with each of the loans from RHKG with respect Isle of Langeoog, Isle
of Amrum, and Isle of Wangerooge, RHKG obtained the funds for their loan to our
German Subsidiary pursuant to a loan on nearly identical terms from Fincantieri,
the shipyard constructing the vessels. It is anticipated that RHKG will enter
into similar loan agreements with our three remaining AHTS SPVs that have not
taken delivery of their respective AHTS vessels. However, no assurances can be
given that Fincantieri will continue to loan RHKG the funds necessary to secure
delivery of these final three vessels, or that RHKG will continue to loan our
German Subsidiary such funds on acceptable terms or at all.


95


Item
14. Principal Accounting Fees and Services




The
following table presents fees for services rendered by McGladrey & Pullen,
LLP during fiscal 2009 and fiscal 2008.




Year Ended
                          December 31, 2009
                        
                        
                        Year Ended
                          December 31, 2008Audit
      fees (1)
                        
                        $
                        130,000
                        
                        
                        $
                        73,000Audit-related
      fees (2)
                        
                        
                        85,000
                        
                        
                        
                        18,000Tax
      fees (3)
                        
                        
                        46,494
                        
                        
                        
                        26,691All
      other fees
                        
                        
                        —
                        
                        
                        
                        —Total
                        
                        $
                        261,494
                        
                        
                        $
                        117,691







(1)
              Fees for audit of annual
      financial statements over financial reporting under the Sarbanes Oxley Act
      of 2002, reviews of the related quarterly financial statements, and
      reviews of documents filed with the
SEC.


(2)
              Fees
      for professional services for consultations related to financial
      accounting and reporting.


(3)
            Fees related to professional
      services for tax compliance, tax advice and tax
      planning.




The audit
committee has considered whether the provision of the non-audit services
described above is compatible with maintaining the independence of McGladrey
& Pullen, LLP and determined that the provision of such services was
compatible with maintaining such independence.




Audit
Committee Policies and Procedures for Pre-approval of Audit and Non-Audit
Services




Consistent
with SEC policies regarding auditor independence, the audit committee is
responsible for pre-approving all audit and non-audit services performed by the
independent registered public accounting firm. In addition to its approval of
the audit engagement, the audit committee will also take action at least
annually to authorize the performance by the independent registered public
accounting firm of several specific types of services within the categories of
audit-related services and tax services. Audit-related services include
assurance and related services that are reasonably related to the performance of
the audit or review of the financial statements. Authorized tax services include
compliance-related services such as services involving tax filings, as well as
consulting services such as tax planning, transaction analysis and
opinions.





PART
IV





Item
15. Exhibits, Financial Statement Schedules.




(a)(1)     
Financial Statements.




See list
of financial statements in this Form 10-K under Part II, Item 8. Financial
Statements and Supplementary Data.




(a)(2)     
Financial Statement Schedules.




None


96




(a)(3)     
Exhibits.




Exhibit
                  Number
                
                Title of Document2.1
                
                Equity
      Contribution Agreement, dated as of April 23, 2009, by and among III to I
      Maritime Partners Cayman I, L.P., I-A Suresh Capital Maritime Partners
      Limited, III to I International Maritime Solutions Cayman, Inc., Suresh
      Capital Maritime Holdings, LLC, Suresh Capital Partners, LLC and The
      Maritime Funding Group, Inc. Irrevocable Trust (Incorporated by reference
      to Exhibit 2.1 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)3.1
                
                Certificate
      of Registration of Exempted Limited Partnership of III to I Maritime
      Partners Cayman I, L.P. (Incorporated by reference to Exhibit 3.1 to our
      Registration Statement on Form 10-12G (File No. 000-53656) filed with the
      SEC on April 30, 2009)3.2
                
                Statement
      in Terms of Section 9 of the Exempted Limited Partnership Law (as amended)
      of III to I Maritime Partners Cayman I, L.P. (Incorporated by reference to
      Exhibit 3.2 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)3.3
                
                Statement
      in Terms of Section 10 of the Exempted Limited Partnership Law (as
      amended) of III to I Maritime Partners Cayman I, L.P. (Incorporated by
      reference to Exhibit 3.3 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)3.4
                
                Second
      Amended and Restated Agreement of Limited Partnership of III to I Maritime
      Partners Cayman I, L.P. (Incorporated by reference to Exhibit 3.4 to our
      Registration Statement on Form 10-12G (File No. 000-53656) filed with the
      SEC on April 30, 2009)3.5
                
                Certificate
      of Incorporation of III to I International Maritime Solutions Cayman, Inc.
      (Incorporated by reference to Exhibit 3.5 to our Registration Statement on
      Form 10-12G (File No. 000-53656) filed with the SEC on April 30,
      2009)3.6
                
                Memorandum
      & Articles of Association of III to I International Maritime Solutions
      Cayman, Inc. (Incorporated by reference to Exhibit 3.6 to our Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on April
      30, 2009)4.1
                
                Form
      of Certificate for Units of the Partnership (Incorporated by reference to
      Exhibit 4.1 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)4.2
                
                Second
      Amended and Restated Agreement of Limited Partnership of III to I Maritime
      Partners Cayman I, L.P. (included as Exhibit 3.4 above) (Incorporated by
      reference to Exhibit 4.2 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)10.1
                
                Loan,
      Guarantee Facility and Credit Facility Agreement, dated as of December 19,
      2008, by and among Norddeutsche Landesbank Girozentrale, as Lender,
      Mandated Lead Arranger and Agent, the lenders party thereto, ATL Offshore
      GmbH & Co. MS “Juist” KG, ATL Offshore GmbH & Co. MS “Norderney”
      KG, ATL Offshore GmbH & Co. “Isle of Baltrum” KG, ATL Offshore GmbH
      & Co. “Isle of Langeoog” KG, ATL Offshore GmbH & Co. “Isle of
      Amrum” KG, ATL Offshore GmbH & Co. “Isle of Sylt” KG, ATL Offshore
      GmbH & Co. “Isle of Wangerooge” KG, ATL Offshore GmbH & Co. “Isle
      of Neuwerk” KG, ATL Offshore GmbH & Co. “Isle of Usedom” KG, ATL
      Offshore GmbH & Co. “Isle of Fehmarn” KG, ATL Offshore GmbH & Co.
      “Isle of Memmert” KG, and ATL Offshore GmbH & Co. “Isle of Mellum” KG,
      as jointly and severally liable borrowers (Incorporated by reference to
      Exhibit 10.1 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.2
                
                Loan
      Agreement, dated as of November 20, 2008, by and between Kronos Shipping
      I, Ltd., as Borrower and Deutsche Schiffsbank Aktiengesellschaft, as
      Lender (Incorporated by reference to Exhibit 10.2 to our Amendment No. 1
      to Registration Statement on Form 10-12G (File No. 000-53656) filed with
      the SEC on July 2, 2009)10.3
                
                Supplemental
      Letter, dated as of February 4, 2009, by and among Kronos Shipping I,
      Ltd., the Schulte Group, III to I Maritime Partners Cayman I, L.P. and
      Anthos Shipping Co. Limited (Incorporated by reference to Exhibit 10.3 to
      our Registration Statement on Form 10-12G (File No. 000-53656) filed with
      the SEC on April 30,
2009)




97





10.4
            
            Master
      Agreement for Financial Derivatives Transactions, dated as of November
      2008, by and between Kronos Shipping I, LP c/o Walkers SPV Limited and
      Deutsche Schiffsbank Aktiengesellschaft, Bremen und Hamburg (Incorporated
      by reference to Exhibit 10.4 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)10.5
            
            Credit
      Facility, dated as of November 29, 2006, by and among Joh. Berenberg,
      Gossler & Co. KG, Suresh Capital Maritime Partners Germany GmbH and
      III to I Maritime Partners Cayman I, L.P. (Incorporated by reference to
      Exhibit 10.5 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.6
            
            Amendment
      Agreement No. 1 to the Credit Facility, dated as of March 13, 2007, by and
      among Suresh Capital Maritime Partners Germany GmbH, III to I Maritime
      Partners Cayman I, L.P. and Joh. Berenberg, Gossler & Co. KG
      (Incorporated by reference to Exhibit 10.6 to our Registration Statement
      on Form 10-12G (File No. 000-53656) filed with the SEC on April 30,
      2009)10.7
            
            Amendment
      Agreement No. 2 to the Credit Facility, dated as of May 4, 2007, by and
      among Suresh Capital Maritime Partners Germany GmbH, III to I Maritime
      Partners Cayman I, L.P. and Joh. Berenberg, Gossler & Co. KG
      (Incorporated by reference to Exhibit 10.7 to our Registration Statement
      on Form 10-12G (File No. 000-53656) filed with the SEC on April 30,
      2009)10.8
            
            Amended
      and Restated Memorandum of Agreement, dated as of April 25, 2009, by and
      between Kronos Shipping I, Ltd. and the Conway Shipping Co. Ltd.
      (Incorporated by reference to Exhibit 10.8 to our Registration Statement
      on Form 10-12G (File No. 000-53656) filed with the SEC on April 30,
      2009)10.9
            
            Contract,
      dated as of January 8, 2009, by and between Reederei Hartmann GmbH &
      Co. KG and ATL Offshore GmbH & Co. MS “Norderney” KG (Incorporated by
      reference to Exhibit 10.9 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)10.10
            
            Standard
      Texas Lease, dated as of June 15, 2007, by and between Peterson Place
      Partners, Ltd. and Cain, Watters & Associates, P.C. (Incorporated by
      reference to Exhibit 10.10 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)10.11
            
            Second
      Amended and Restated Agreement to Perform Administrative and Professional
      Services, dated as of January 5, 2009, by and between III to I Maritime
      Partners Cayman I, L.P. and Dental Community Management, Inc.
      (Incorporated by reference to Exhibit 10.11 to our Registration Statement
      on Form 10-12G (File No. 000-53656) filed with the SEC on April 30,
      2009)10.12
            
            Sale
      and Assignment of a Limited Share (Fehmarn), dated as of December 27,
      2007, by and between Suresh Capital Maritime Partners Germany GmbH and I-B
      Suresh Capital Maritime Partners Limited (Incorporated by reference to
      Exhibit 10.12 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)10.13
            
            Sale
      and Assignment of a Limited Share (Mellum), dated as of December 27, 2007,
      by and between Suresh Capital Maritime Partners Germany GmbH and I-B
      Suresh Capital Maritime Partners Limited (Incorporated by reference to
      Exhibit 10.13 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)10.14
            
            Sale
      and Assignment of a Limited Share (Memmert), dated as of December 27,
      2007, by and between Suresh Capital Maritime Partners Germany GmbH and I-B
      Suresh Capital Maritime Partners Limited (Incorporated by reference to
      Exhibit 10.14 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)10.15
            
            Sale
      and Assignment of a Limited Share (Markasit), dated as of January 31,
      2009, by and between Suresh Capital Maritime Partners Germany GmbH and
      Reederei Hartmann GmbH & Co. KG (Incorporated by reference to Exhibit
      10.15 to our Registration Statement on Form 10-12G (File No. 000-53656)
      filed with the SEC on April 30, 2009)10.16
            
            Sale
      and Assignment of a Limited Share (Larensiediep), dated as of January 31,
      2009, by and between Suresh Capital Maritime Partners Germany GmbH and
      Reederei Hartmann GmbH & Co. KG (Incorporated by reference to Exhibit
      10.16 to our Registration Statement on Form 10-12G (File No. 000-53656)
      filed with the SEC on April 30,
2009)




98





10.17
            
            Share
      Transfer Agreement SCMP, dated as of February 2009, by and between
      Reederei Hartmann GmbH & Co., KG and Suresh Capital Maritime Partners
      Germany GmbH, as amended by Addendum No. 1, dated May 20, 2009, Addendum
      No. 2, dated June 18, 2009, Addendum No. 3, dated August 14, 2009,
      Addendum No. 4, dated August 31, 2009, Addendum No. 5, dated September 29,
      2009, Addendum No. 6, dated September 30, 2009, and Addendum No. 7, dated
      November 2, 2009 (Incorporated by reference to Exhibit 10.1 to our
      Quarterly Report on Form 10-Q filed with the SEC on November 20,
      2009)10.18*
            
            Addendum
      No. 8 to Share Transfer Agreement SCMP, dated as of February 10,
      201010.19
            
            Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6160, dated
      September 22, 2006, between ATL Offshore GmbH and Fincantieri Cantieri
      Navali Italiani S.p.A. and related Deed of Assignment (Incorporated by
      reference to Exhibit 10.18 to our Amendment No. 1 to Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on July
      2, 2009)10.20
            
            Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6161, dated
      September 22, 2006, between ATL Offshore GmbH and Fincantieri Cantieri
      Navali Italiani S.p.A. and related Deed of Assignment (Incorporated by
      reference to Exhibit 10.19 to our Amendment No. 1 to Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on July
      2, 2009)10.21
            
            Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6162, dated
      November 3, 2006, between ATL Offshore GmbH & “Isle of Baltrum” and
      Fincantieri Cantieri Navali Italiani S.p.A., as amended by the Addendum to
      the shipbuilding Contract, dated June 18, 2009 (Incorporated by reference
      to Exhibit 10.20 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.22
            
            Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6163, dated
      November 3, 2006, between ATL Offshore GmbH & Isle of Langeoog KG and
      Fincantieri Cantieri Navali Italiani S.p.A., as amended by the Addendum to
      the shipbuilding Contract, dated June 18, 2009 (Incorporated by reference
      to Exhibit 10.21 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.23
            
            Addendum
      to the Shipbuilding Contract – Langeoog, dated February 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Langeoog” KG (Incorporated by reference to Exhibit 10.5 to
      our Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.24
            
            Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6168, dated
      January 30, 2007, between ATL Offshore GmbH and Fincantieri Cantieri
      Navali Italiani S.p.A., as amended by the Addendum to the shipbuilding
      Contract, dated June 18, 2009, and related Deed of Assignment
      (Incorporated by reference to Exhibit 10.22 to our Amendment No. 1 to
      Registration Statement on Form 10-12G (File No. 000-53656) filed with the
      SEC on July 2, 2009)10.25
            
            Addendum
      to the Shipbuilding Contract – Amrum, dated 2nd of March 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Amrum” KG (Incorporated by reference to Exhibit 10.6 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.26
            
            Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6169, dated
      January 30, 2007, between ATL Offshore GmbH and Fincantieri Cantieri
      Navali Italiani S.p.A., as amended by the Addendum to the shipbuilding
      Contract, dated June 18, 2009, and related Deed of Assignment
      (Incorporated by reference to Exhibit 10.23 to our Amendment No. 1 to
      Registration Statement on Form 10-12G (File No. 000-53656) filed with the
      SEC on July 2, 2009)10.27
            
            Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6171, dated
      March 20, 2007, between ATL Offshore GmbH and Fincantieri Cantieri Navali
      Italiani S.p.A., as amended by the Addendum to the shipbuilding Contract,
      dated June 18, 2009, and related Deed of Assignment (Incorporated by
      reference to Exhibit 10.24 to our Amendment No. 1 to Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on July
      2, 2009)10.28
            
            Addendum
      to the Shipbuilding Contract – Wangerooge, dated 2nd of March 2010,
      between Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH
      & Co. “Isle of Wangerooge” KG (Incorporated by reference to Exhibit
      10.7 to our Current Report on Form 8-K filed with the SEC on March 11,
      2010)




99





10.29
              
              Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6172, dated
      March 20, 2007, between ATL Offshore GmbH and Fincantieri Cantieri Navali
      Italiani S.p.A., as amended by the Addendum to the shipbuilding Contract,
      dated June 18, 2009, and related Deed of Assignment (Incorporated by
      reference to Exhibit 10.25 to our Amendment No. 1 to Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on July
      2, 2009)10.30
              
              Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6173, dated
      March 20, 2007, between ATL Offshore GmbH and Fincantieri Cantieri Navali
      Italiani S.p.A., as amended by the Addendum to the shipbuilding Contract,
      dated June 18, 2009, and related Deed of Assignment (Incorporated by
      reference to Exhibit 10.26 to our Amendment No. 1 to Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on July
      2, 2009)10.31
              
              Contract
      (Financial Services Agreement), dated September 7, 2007, between ATL
      Offshore GmbH & Co. “Isle of Amrum” KG and Suresh Capital Maritime
      Partners Germany GbmH with Side Letter No. 1, dated September 8, 2007, and
      Side Letter No. 2, dated September 16, 2008 (Incorporated by reference to
      Exhibit 10.27 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)10.32
              
              Agreement,
      dated June 17, 2009, by and among III to I Maritime Partners Cayman I,
      L.P., III to I International Maritime Solutions Cayman, Inc., IMS Capital
      Partners, LLC and Kronos Shipping I, Ltd. (Incorporated by reference to
      Exhibit 10.28 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.33
              
              Note
      Cancellation Agreement, dated June 17, 2009, by and among III to I IMS
      Holdings LLC and IMS Capital Partners, LLC (Incorporated by reference to
      Exhibit 10.29 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.34
              
              Promissory
      Note, dated October 29, 2008, by III to I Maritime Partners Cayman I, L.P.
      in favor of III to I Emerging Market Partners Real Estate Investment Fund
      I, L.P. in the principal amount of $1,000,000 (Incorporated by reference
      to Exhibit 10.30 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.35
              
              Promissory
      Note, dated December 17, 2008, by III to I Maritime Partners Cayman I,
      L.P. in favor of III:I Financial Management Research, L.P. in the
      principal amount of $250,000 (Incorporated by reference to Exhibit 10.31
      to our Amendment No. 1 to Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on July 2, 2009)10.36
              
              Pool
      Agreement AHTS-Moss 424, dated as of March 13, 2009, by and among ATL
      Offshore GmbH & Co. MS “Juist” KG, ATL Offshore GmbH & Co. MS
      “Norderney” KG, ATL Offshore GmbH & Co. “Isle of Baltrum” KG, ATL
      Offshore GmbH & Co. “Isle of Langeoog” KG, ATL Offshore GmbH & Co.
      “Isle of Amrum” KG, ATL Offshore GmbH & Co. “Isle of Sylt” KG, ATL
      Offshore GmbH & Co. “Isle of Wangerooge” KG, ATL Offshore GmbH &
      Co. “Isle of Neuwerk” KG, ATL Offshore GmbH & Co. “Isle of Usedom” KG,
      ATL Offshore GmbH & Co. “Isle of Fehmarn” KG, ATL Offshore GmbH &
      Co. “Isle of Memmert” KG, and ATL Offshore GmbH & Co. “Isle of Mellum”
      KG (Incorporated by reference to Exhibit 10.32 to our Amendment No. 2 to
      Registration Statement on Form 10-12G (File No. 000-53656) filed with the
      SEC on July 29, 2009)10.37
              
              Loan
      Agreement, dated effective as of October 2, 2009, by and between Suresh
      Capital Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann
      GmbH & Co. KG, as Lender (Incorporated by reference to Exhibit 10.1 to
      our Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.38
              
              Loan
      Agreement, dated as of February 10, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.2 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.39
              
              Loan
      Agreement, dated as of March 5, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.3 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)


100





10.40
              
              Loan
      Agreement, dated as of March 5, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.4 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.41*
              
              Mutual
      Indemnity Agreement, dated as of May 20, 2009, by and among ATL Offshore
      GmbH & Co. MS “Juist” KG, ATL Offshore GmbH & Co. MS “Norderney”
      KG, ATL Offshore GmbH & Co. “Isle of Baltrum” KG, ATL Offshore GmbH
      & Co. “Isle of Langeoog” KG, ATL Offshore GmbH & Co. “Isle of
      Amrum” KG, ATL Offshore GmbH & Co. “Isle of Sylt” KG, ATL Offshore
      GmbH & Co. “Isle of Wangerooge” KG, ATL Offshore GmbH & Co. “Isle
      of Neuwerk” KG, ATL Offshore GmbH & Co. “Isle of Usedom” KG, ATL
      Offshore GmbH & Co. “Isle of Fehmarn” KG, ATL Offshore GmbH & Co.
      “Isle of Memmert” KG, and ATL Offshore GmbH & Co. “Isle of Mellum”
      KG14.1*
              
              Code
      of Ethics21.1
              
              List
      of Subsidiaries of III to I Maritime Partners Cayman I, L.P. (Incorporated
      by reference to Exhibit 21.1 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)31.1*
              
              Certification
      (pursuant to Securities Exchange Act Rule 13a-14(a)) by Chief Executive
      Officer31.2*
              
              Certification
      (pursuant to Securities Exchange Act Rule 13a-14(a)) by Chief Financial
      Officer32.1*
              
              Section
      1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Chief
      Executive Officer32.2*
              
              Section
      1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Chief
      Financial Officer


*
            Filed
      herewith.




101


SIGNATURE




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




III
      to I Maritime Partners Cayman I, L.P.(Registrant)By:
              III
      to I International Maritime Solutions Cayman, Inc.Its
      General PartnerBy:
              /s/ Darrell W. CainDarrell
      W. CainDirector
      and Chief Executive Officer(Duly
      authorized to sign this registration statement on behalf of the
      Registrant)Date:     March
      31, 2010By:
              III
      to I International Maritime Solutions Cayman, Inc.Its
      General PartnerBy:
              /s/ Jason M. MortonJason
      M. MortonDirector
      and Chief Financial Officer(Duly
      authorized to sign this registration statement on behalf of the
      Registrant)Date:     March
      31, 2010




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




Signature
              
              Title
              
              Date/s/Darrell
      W. Cain
              
              Director
      and Chief Executive Officer
              
              March
      31, 2010Darrell
      W. Cain
              
              (principal
      executive officer)/s/ Jason M. Morton
              
              Director
      and Chief Financial Officer
              
              March
      31, 2010Jason
      M. Morton
              
              (principal
      financial officer andprincipal
      accounting officer)/s/ Gary V. Moore
              
              Director
              
              March
      31, 2010Gary
      V. MooreDirector
              
              March
      31, 2010Michael
      T. Watters


102


Exhibits





Exhibit Number
              
              Title of Document2.1
              
              Equity
      Contribution Agreement, dated as of April 23, 2009, by and among III to I
      Maritime Partners Cayman I, L.P., I-A Suresh Capital Maritime Partners
      Limited, III to I International Maritime Solutions Cayman, Inc., Suresh
      Capital Maritime Holdings, LLC, Suresh Capital Partners, LLC and The
      Maritime Funding Group, Inc. Irrevocable Trust (Incorporated by reference
      to Exhibit 2.1 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)3.1
              
              Certificate
      of Registration of Exempted Limited Partnership of III to I Maritime
      Partners Cayman I, L.P. (Incorporated by reference to Exhibit 3.1 to our
      Registration Statement on Form 10-12G (File No. 000-53656) filed with the
      SEC on April 30, 2009)3.2
              
              Statement
      in Terms of Section 9 of the Exempted Limited Partnership Law (as amended)
      of III to I Maritime Partners Cayman I, L.P. (Incorporated by reference to
      Exhibit 3.2 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)3.3
              
              Statement
      in Terms of Section 10 of the Exempted Limited Partnership Law (as
      amended) of III to I Maritime Partners Cayman I, L.P. (Incorporated by
      reference to Exhibit 3.3 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)3.4
              
              Second
      Amended and Restated Agreement of Limited Partnership of III to I Maritime
      Partners Cayman I, L.P. (Incorporated by reference to Exhibit 3.4 to our
      Registration Statement on Form 10-12G (File No. 000-53656) filed with the
      SEC on April 30, 2009)3.5
              
              Certificate
      of Incorporation of III to I International Maritime Solutions Cayman, Inc.
      (Incorporated by reference to Exhibit 3.5 to our Registration Statement on
      Form 10-12G (File No. 000-53656) filed with the SEC on April 30,
      2009)3.6
              
              Memorandum
      & Articles of Association of III to I International Maritime Solutions
      Cayman, Inc. (Incorporated by reference to Exhibit 3.6 to our Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on April
      30, 2009)4.1
              
              Form
      of Certificate for Units of the Partnership (Incorporated by reference to
      Exhibit 4.1 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)4.2
              
              Second
      Amended and Restated Agreement of Limited Partnership of III to I Maritime
      Partners Cayman I, L.P. (included as Exhibit 3.4 above) (Incorporated by
      reference to Exhibit 4.2 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)10.1
              
              Loan,
      Guarantee Facility and Credit Facility Agreement, dated as of December 19,
      2008, by and among Norddeutsche Landesbank Girozentrale, as Lender,
      Mandated Lead Arranger and Agent, the lenders party thereto, ATL Offshore
      GmbH & Co. MS “Juist” KG, ATL Offshore GmbH & Co. MS “Norderney”
      KG, ATL Offshore GmbH & Co. “Isle of Baltrum” KG, ATL Offshore GmbH
      & Co. “Isle of Langeoog” KG, ATL Offshore GmbH & Co. “Isle of
      Amrum” KG, ATL Offshore GmbH & Co. “Isle of Sylt” KG, ATL Offshore
      GmbH & Co. “Isle of Wangerooge” KG, ATL Offshore GmbH & Co. “Isle
      of Neuwerk” KG, ATL Offshore GmbH & Co. “Isle of Usedom” KG, ATL
      Offshore GmbH & Co. “Isle of Fehmarn” KG, ATL Offshore GmbH & Co.
      “Isle of Memmert” KG, and ATL Offshore GmbH & Co. “Isle of Mellum” KG,
      as jointly and severally liable borrowers (Incorporated by reference to
      Exhibit 10.1 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.2
              
              Loan
      Agreement, dated as of November 20, 2008, by and between Kronos Shipping
      I, Ltd., as Borrower and Deutsche Schiffsbank Aktiengesellschaft, as
      Lender (Incorporated by reference to Exhibit 10.2 to
      our   Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.3
              
              Supplemental
      Letter, dated as of February 4, 2009, by and among Kronos Shipping I,
      Ltd., the Schulte Group, III to I Maritime Partners Cayman I, L.P. and
      Anthos Shipping Co. Limited (Incorporated by reference to Exhibit 10.3 to
      our Registration Statement on Form 10-12G (File No. 000-53656) filed with
      the SEC on April 30,
2009)


103





10.4
              
              Master
      Agreement for Financial Derivatives Transactions, dated as of November
      2008, by and between Kronos Shipping I, LP c/o Walkers SPV Limited and
      Deutsche Schiffsbank Aktiengesellschaft, Bremen und Hamburg (Incorporated
      by reference to Exhibit 10.4 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)10.5
              
              Credit
      Facility, dated as of November 29, 2006, by and among Joh. Berenberg,
      Gossler & Co. KG, Suresh Capital Maritime Partners Germany GmbH and
      III to I Maritime Partners Cayman I, L.P. (Incorporated by reference to
      Exhibit 10.5 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.6
              
              Amendment
      Agreement No. 1 to the Credit Facility, dated as of March 13, 2007, by and
      among Suresh Capital Maritime Partners Germany GmbH, III to I Maritime
      Partners Cayman I, L.P. and Joh. Berenberg, Gossler & Co. KG
      (Incorporated by reference to Exhibit 10.6 to our Registration Statement
      on Form 10-12G (File No. 000-53656) filed with the SEC on April 30,
      2009)10.7
              
              Amendment
      Agreement No. 2 to the Credit Facility, dated as of May 4, 2007, by and
      among Suresh Capital Maritime Partners Germany GmbH, III to I Maritime
      Partners Cayman I, L.P. and Joh. Berenberg, Gossler & Co.
      KG  (Incorporated by reference to Exhibit 10.7 to our
      Registration Statement on Form 10-12G (File No. 000-53656) filed with the
      SEC on April 30, 2009)10.8
              
              Amended
      and Restated Memorandum of Agreement, dated as of April 25, 2009, by and
      between Kronos Shipping I, Ltd. and the Conway Shipping Co. Ltd.
      (Incorporated by reference to Exhibit 10.8 to our Registration Statement
      on Form 10-12G (File No. 000-53656) filed with the SEC on April 30,
      2009)10.9
              
              Contract,
      dated as of January 8, 2009, by and between Reederei Hartmann GmbH &
      Co. KG and ATL Offshore GmbH & Co. MS “Norderney” KG (Incorporated by
      reference to Exhibit 10.9 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)10.10
              
              Standard
      Texas Lease, dated as of June 15, 2007, by and between Peterson Place
      Partners, Ltd. and Cain, Watters & Associates, P.C. (Incorporated by
      reference to Exhibit 10.10 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)10.11
              
              Second
      Amended and Restated Agreement to Perform Administrative and Professional
      Services, dated as of January 5, 2009, by and between III to I Maritime
      Partners Cayman I, L.P. and Dental Community Management, Inc.
      (Incorporated by reference to Exhibit 10.11 to our Registration Statement
      on Form 10-12G (File No. 000-53656) filed with the SEC on April 30,
      2009)10.12
              
              Sale
      and Assignment of a Limited Share (Fehmarn), dated as of December 27,
      2007, by and between Suresh Capital Maritime Partners Germany GmbH and I-B
      Suresh Capital Maritime Partners Limited (Incorporated by reference to
      Exhibit 10.12 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)10.13
              
              Sale
      and Assignment of a Limited Share (Mellum), dated as of December 27, 2007,
      by and between Suresh Capital Maritime Partners Germany GmbH and I-B
      Suresh Capital Maritime Partners Limited (Incorporated by reference to
      Exhibit 10.13 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)10.14
              
              Sale
      and Assignment of a Limited Share (Memmert), dated as of December 27,
      2007, by and between Suresh Capital Maritime Partners Germany GmbH and I-B
      Suresh Capital Maritime Partners Limited (Incorporated by reference to
      Exhibit 10.14 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)10.15
              
              Sale
      and Assignment of a Limited Share (Markasit), dated as of January 31,
      2009, by and between Suresh Capital Maritime Partners Germany GmbH and
      Reederei Hartmann GmbH & Co. KG (Incorporated by reference to Exhibit
      10.15 to our Registration Statement on Form 10-12G (File No. 000-53656)
      filed with the SEC on April 30, 2009)10.16
              
              Sale
      and Assignment of a Limited Share (Larensiediep), dated as of January 31,
      2009, by and between Suresh Capital Maritime Partners Germany GmbH and
      Reederei Hartmann GmbH & Co. KG (Incorporated by reference to Exhibit
      10.16 to our Registration Statement on Form 10-12G (File No. 000-53656)
      filed with the SEC on April 30,
2009)


104





10.17
              
              Share
      Transfer Agreement SCMP, dated as of February 2009, by and between
      Reederei Hartmann GmbH & Co., KG and Suresh Capital Maritime Partners
      Germany GmbH, as amended by Addendum No. 1, dated May 20, 2009, Addendum
      No. 2, dated June 18, 2009, Addendum No. 3, dated August 14, 2009,
      Addendum No. 4, dated August 31, 2009, Addendum No. 5, dated September 29,
      2009, Addendum No. 6, dated September 30, 2009, and Addendum No. 7, dated
      November 2, 2009 (Incorporated by reference to Exhibit 10.1 to our
      Quarterly Report on Form 10-Q filed with the SEC on November 20,
      2009)10.18*
              
              Addendum
      No. 8 to Share Transfer Agreement SCMP, dated as of February 10,
      201010.19
              
              Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6160, dated
      September 22, 2006, between ATL Offshore GmbH and Fincantieri Cantieri
      Navali Italiani S.p.A. and related Deed of Assignment (Incorporated by
      reference to Exhibit 10.18 to our Amendment No. 1 to Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on July
      2, 2009)10.20
              
              Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6161, dated
      September 22, 2006, between ATL Offshore GmbH and Fincantieri Cantieri
      Navali Italiani S.p.A. and related Deed of Assignment (Incorporated by
      reference to Exhibit 10.19 to our Amendment No. 1 to Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on July
      2, 2009)10.21
              
              Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6162, dated
      November 3, 2006, between ATL Offshore GmbH & “Isle of Baltrum” and
      Fincantieri Cantieri Navali Italiani S.p.A., as amended by the Addendum to
      the shipbuilding Contract, dated June 18, 2009 (Incorporated by reference
      to Exhibit 10.20 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.22
              
              Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6163, dated
      November 3, 2006, between ATL Offshore GmbH & Isle of Langeoog KG and
      Fincantieri Cantieri Navali Italiani S.p.A., as amended by the Addendum to
      the shipbuilding Contract, dated June 18, 2009 (Incorporated by reference
      to Exhibit 10.21 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.23
              
              Addendum
      to the Shipbuilding Contract – Langeoog, dated February 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Langeoog” KG (Incorporated by reference to Exhibit 10.5 to
      our Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.24
              
              Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6168, dated
      January 30, 2007, between ATL Offshore GmbH and Fincantieri Cantieri
      Navali Italiani S.p.A., as amended by the Addendum to the shipbuilding
      Contract, dated June 18, 2009, and related Deed of Assignment
      (Incorporated by reference to Exhibit 10.22 to our Amendment No. 1 to
      Registration Statement on Form 10-12G (File No. 000-53656) filed with the
      SEC on July 2, 2009)10.25
              
              Addendum
      to the Shipbuilding Contract – Amrum, dated 2nd of March 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Amrum” KG (Incorporated by reference to Exhibit 10.6 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.26
              
              Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6169, dated
      January 30, 2007, between ATL Offshore GmbH and Fincantieri Cantieri
      Navali Italiani S.p.A., as amended by the Addendum to the shipbuilding
      Contract, dated June 18, 2009, and related Deed of Assignment
      (Incorporated by reference to Exhibit 10.23 to our Amendment No. 1 to
      Registration Statement on Form 10-12G (File No. 000-53656) filed with the
      SEC on July 2, 2009)10.27
              
              Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6171, dated
      March 20, 2007, between ATL Offshore GmbH and Fincantieri Cantieri Navali
      Italiani S.p.A., as amended by the Addendum to the shipbuilding Contract,
      dated June 18, 2009, and related Deed of Assignment (Incorporated by
      reference to Exhibit 10.24 to our Amendment No. 1 to Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on July
      2, 2009)10.28
              
              Addendum
      to the Shipbuilding Contract – Wangerooge, dated 2nd of March 2010,
      between Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH
      & Co. “Isle of Wangerooge” KG (Incorporated by reference to Exhibit
      10.7 to our Current Report on Form 8-K filed with the SEC on March 11,
      2010)


105





10.29
              
              Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6172, dated
      March 20, 2007, between ATL Offshore GmbH and Fincantieri Cantieri Navali
      Italiani S.p.A., as amended by the Addendum to the shipbuilding Contract,
      dated June 18, 2009, and related Deed of Assignment (Incorporated by
      reference to Exhibit 10.25 to our Amendment No. 1 to Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on July
      2, 2009)10.30
              
              Shipbuilding
      Contract for the supply of one A.H.T.S. Vessel Fincantieri no. 6173, dated
      March 20, 2007, between ATL Offshore GmbH and Fincantieri Cantieri Navali
      Italiani S.p.A., as amended by the Addendum to the shipbuilding Contract,
      dated June 18, 2009, and related Deed of Assignment (Incorporated by
      reference to Exhibit 10.26 to our Amendment No. 1 to Registration
      Statement on Form 10-12G (File No. 000-53656) filed with the SEC on July
      2, 2009)10.31
              
              Contract
      (Financial Services Agreement), dated September 7, 2007, between ATL
      Offshore GmbH & Co. “Isle of Amrum” KG and Suresh Capital Maritime
      Partners Germany GbmH with Side Letter No. 1, dated September 8, 2007, and
      Side Letter No. 2, dated September 16, 2008 (Incorporated by reference to
      Exhibit 10.27 to our Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on April 30, 2009)10.32
              
              Agreement,
      dated June 17, 2009, by and among III to I Maritime Partners Cayman I,
      L.P., III to I International Maritime Solutions Cayman, Inc., IMS Capital
      Partners, LLC and Kronos Shipping I, Ltd. (Incorporated by reference to
      Exhibit 10.28 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.33
              
              Note
      Cancellation Agreement, dated June 17, 2009, by and among III to I IMS
      Holdings LLC and IMS Capital Partners, LLC (Incorporated by reference to
      Exhibit 10.29 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.34
              
              Promissory
      Note, dated October 29, 2008, by III to I Maritime Partners Cayman I, L.P.
      in favor of III to I Emerging Market Partners Real Estate Investment Fund
      I, L.P. in the principal amount of $1,000,000 (Incorporated by reference
      to Exhibit 10.30 to our Amendment No. 1 to Registration Statement on Form
      10-12G (File No. 000-53656) filed with the SEC on July 2,
      2009)10.35
              
              Promissory
      Note, dated December 17, 2008, by III to I Maritime Partners Cayman I,
      L.P. in favor of III:I Financial Management Research, L.P. in the
      principal amount of $250,000 (Incorporated by reference to Exhibit 10.31
      to our Amendment No. 1 to Registration Statement on Form 10-12G (File No.
      000-53656) filed with the SEC on July 2, 2009)10.36
              
              Pool
      Agreement AHTS-Moss 424, dated as of March 13, 2009, by and among ATL
      Offshore GmbH & Co. MS “Juist” KG, ATL Offshore GmbH & Co. MS
      “Norderney” KG, ATL Offshore GmbH & Co. “Isle of Baltrum” KG, ATL
      Offshore GmbH & Co. “Isle of Langeoog” KG, ATL Offshore GmbH & Co.
      “Isle of Amrum” KG, ATL Offshore GmbH & Co. “Isle of Sylt” KG, ATL
      Offshore GmbH & Co. “Isle of Wangerooge” KG, ATL Offshore GmbH &
      Co. “Isle of Neuwerk” KG, ATL Offshore GmbH & Co. “Isle of Usedom” KG,
      ATL Offshore GmbH & Co. “Isle of Fehmarn” KG, ATL Offshore GmbH &
      Co. “Isle of Memmert” KG, and ATL Offshore GmbH & Co. “Isle of Mellum”
      KG (Incorporated by reference to Exhibit 10.32 to our Amendment No. 2 to
      Registration Statement on Form 10-12G (File No. 000-53656) filed with the
      SEC on July 29, 2009)10.37
              
              Loan
      Agreement, dated effective as of October 2, 2009, by and between Suresh
      Capital Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann
      GmbH & Co. KG, as Lender (Incorporated by reference to Exhibit 10.1 to
      our Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.38
              
              Loan
      Agreement, dated as of February 10, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.2 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.39
              
              Loan
      Agreement, dated as of March 5, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.3 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)


106





10.40
              
              Loan
      Agreement, dated as of March 5, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.4 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.41*
              
              Mutual
      Indemnity Agreement, dated as of May 20, 2009, by and among ATL Offshore
      GmbH & Co. MS “Juist” KG, ATL Offshore GmbH & Co. MS “Norderney”
      KG, ATL Offshore GmbH & Co. “Isle of Baltrum” KG, ATL Offshore GmbH
      & Co. “Isle of Langeoog” KG, ATL Offshore GmbH & Co. “Isle of
      Amrum” KG, ATL Offshore GmbH & Co. “Isle of Sylt” KG, ATL Offshore
      GmbH & Co. “Isle of Wangerooge” KG, ATL Offshore GmbH & Co. “Isle
      of Neuwerk” KG, ATL Offshore GmbH & Co. “Isle of Usedom” KG, ATL
      Offshore GmbH & Co. “Isle of Fehmarn” KG, ATL Offshore GmbH & Co.
      “Isle of Memmert” KG, and ATL Offshore GmbH & Co. “Isle of Mellum”
      KG14.1*
              
              Code
      of Ethics21.1
              
              List
      of Subsidiaries of III to I Maritime Partners Cayman I, L.P. (Incorporated
      by reference to Exhibit 21.1 to our Registration Statement on Form 10-12G
      (File No. 000-53656) filed with the SEC on April 30,
  2009)31.1*
              
              Certification
      (pursuant to Securities Exchange Act Rule 13a-14(a)) by Chief Executive
      Officer31.2*
              
              Certification
      (pursuant to Securities Exchange Act Rule 13a-14(a)) by Chief Financial
      Officer32.1*
              
              Section
      1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Chief
      Executive Officer32.2*
              
              Section
      1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Chief
      Financial Officer


*
            Filed
      herewith.


107