UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-Q




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


For
the quarterly period ended June 30, 2010


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


For
the transition period
from           to


Commission
File Number 000-53656


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)




Not
applicable


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







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




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




Large
      accelerated filer o
              
              Accelerated
      filer oNon-accelerated
      filer o
              (Do
      not check if a smaller reporting company)
              Smaller
      reporting company x














Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


o Yes x  No


APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:


Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. o
Yes  o
No





APPLICABLE
ONLY TO CORPORATE ISSUERS:


Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





2




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




INDEX




Page
                          NumberForward-Looking
      Statements
                        4PART
      I
                        
                        Financial
      Information
                        5Item
      1.
                        
                        Financial
      Statements
                        5Consolidated
      Balance Sheets as of June 30, 2010 (unaudited) and December 31,
      2009
                        5Consolidated
      Statements of Operations for the three and six months ended June 30, 2010
      and 2009 (unaudited)
                        6Consolidated
      Statements of Equity as of June 30, 2010 (unaudited)
                        7Consolidated
      Statements of Cash Flows for the six months ended June 30, 2010 and 2009
      (unaudited)
                        8Consolidated
      Statements of Comprehensive Income (Loss) for the three and six months
      ended June 30, 2010 and 2009 (unaudited)
                        9Notes
      to Consolidated Financial Statements (unaudited)
                        10Item
      2.
                        
                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        31Item
      4.
                        
                        Controls
      and Procedures
                        53PART
      II
                        
                        Other
      Information
                        54Item
      1.
                        
                        Legal
      Proceedings
                        54Item
      1A.
                        Risk
      Factors
                        54Item
      2.
                        
                        Unregistered
      Sales of Equity Securities and Use of Proceeds
                        54Item
      6.
                        
                        Exhibits
                        55




3




Forward-Looking
Statements





Certain
statements contained or incorporated by reference in this Form 10-Q 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;


·
            estimated
      future capital maintenance
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;
      and


·
            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 capital;


·
            fluctuations
      in charter rates or operating
expenses;


·
            insufficient
      cash or losses from operations;


·
            inability
      to achieve or maintain sufficient utilization of our vessels to cover debt
      service payments and operating
expenses;


·
            intense
      competition in the anchor handling tug supply ship or multipurpose bulk
      carrier 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 our Annual Statement on Form 10-K for the year ended
      December 31, 2009, under Item 1A. Risk
Factors.





All
forward-looking statements included in this Form 10-Q 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.





4





PART
I.  Financial Information





Item
1. Financial Statements







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




CONSOLIDATED
BALANCE SHEETS




(Unaudited)


June
      30,
                                                                    
                                                                    
                                                                    December
      31,2010
                                                                    
                                                                    
                                                                    2009ASSETSCash
                                                                    
                                                                    $
                                                                    15,163,922
                                                                    
                                                                    
                                                                    $
                                                                    18,267,260Cash
      held in escrow
                                                                    
                                                                    
                                                                    75,000
                                                                    
                                                                    
                                                                    
                                                                    -Related
      party receivables
                                                                    
                                                                    
                                                                    1,040,798
                                                                    
                                                                    
                                                                    
                                                                    1,949,363Due
      from charterers
                                                                    
                                                                    
                                                                    5,607,264
                                                                    
                                                                    
                                                                    
                                                                    3,263,009Other
      receivables
                                                                    
                                                                    
                                                                    162,709
                                                                    
                                                                    
                                                                    
                                                                    28,788Prepaid
      assets
                                                                    
                                                                    
                                                                    39,136
                                                                    
                                                                    
                                                                    
                                                                    214,490Current
      derivative assets
                                                                    
                                                                    
                                                                    1,679,556
                                                                    
                                                                    
                                                                    
                                                                    2,773,820Other
      current assets
                                                                    
                                                                    
                                                                    833,931
                                                                    
                                                                    
                                                                    
                                                                    1,142,499Current
      assets
                                                                    
                                                                    
                                                                    24,602,316
                                                                    
                                                                    
                                                                    
                                                                    27,639,229Vessels
                                                                    
                                                                    
                                                                    409,285,197
                                                                    
                                                                    
                                                                    
                                                                    168,478,062Vessel
      construction in progress
                                                                    
                                                                    
                                                                    17,203,203
                                                                    
                                                                    
                                                                    
                                                                    111,152,161On
      board equipment
                                                                    
                                                                    
                                                                    16,334,610
                                                                    
                                                                    
                                                                    
                                                                    11,912,779442,823,010
                                                                    
                                                                    
                                                                    
                                                                    291,543,002Less
      accumulated depreciation
                                                                    
                                                                    
                                                                    (10,794,132
                                                                    )
                                                                    
                                                                    
                                                                    (5,003,164
                                                                    )Vessels
      and equipment, net
                                                                    
                                                                    
                                                                    432,028,878
                                                                    
                                                                    
                                                                    
                                                                    286,539,838Investment
      in unconsolidated entities
                                                                    
                                                                    
                                                                    2,270,907
                                                                    
                                                                    
                                                                    
                                                                    2,977,432Deferred
      loan fees, net
                                                                    
                                                                    
                                                                    2,956,736
                                                                    
                                                                    
                                                                    
                                                                    3,554,818Derivative
      assets, net of current portion
                                                                    
                                                                    
                                                                    864,012
                                                                    
                                                                    
                                                                    
                                                                    2,797,433Other
      assets
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    207Total
      assets
                                                                    
                                                                    $
                                                                    462,722,849
                                                                    
                                                                    
                                                                    $
                                                                    323,508,957LIABILITIES
      AND EQUITYAccounts
      payable and other accrued liabilities
                                                                    
                                                                    $
                                                                    11,068,110
                                                                    
                                                                    
                                                                    $
                                                                    15,400,959Vessel
      construction installments payable
                                                                    
                                                                    
                                                                    10,053,166
                                                                    
                                                                    
                                                                    
                                                                    65,019,372Accrued
      interest payable
                                                                    
                                                                    
                                                                    756,010
                                                                    
                                                                    
                                                                    
                                                                    173,608Due
      to related party
                                                                    
                                                                    
                                                                    1,560,945
                                                                    
                                                                    
                                                                    
                                                                    852,663Unaccepted
      equity contributions
                                                                    
                                                                    
                                                                    75,000
                                                                    
                                                                    
                                                                    
                                                                    -Current
      derivative liabilities
                                                                    
                                                                    
                                                                    14,396,747
                                                                    
                                                                    
                                                                    
                                                                    4,522,274Current
      portion of long-term debt
                                                                    
                                                                    
                                                                    28,523,987
                                                                    
                                                                    
                                                                    
                                                                    17,858,391Current
      portion of note payable to related party
                                                                    
                                                                    
                                                                    457,500
                                                                    
                                                                    
                                                                    
                                                                    -Current
      liabilities
                                                                    
                                                                    
                                                                    66,891,465
                                                                    
                                                                    
                                                                    
                                                                    103,827,267Long-term
      derivative liabilities
                                                                    
                                                                    
                                                                    20,811,695
                                                                    
                                                                    
                                                                    
                                                                    5,007,963Notes
      payable to related party
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    477,500Long-term
      debt, net of current portion
                                                                    
                                                                    
                                                                    337,176,190
                                                                    
                                                                    
                                                                    
                                                                    140,527,679Total
      liabilities
                                                                    
                                                                    
                                                                    424,879,350
                                                                    
                                                                    
                                                                    
                                                                    249,840,409Commitments
      and contingenciesIII
      to I Maritime Partners Cayman I, L.P. partners' equity:General
      partner
                                                                    
                                                                    
                                                                    292,900
                                                                    
                                                                    
                                                                    
                                                                    514,138Class
      A limited partners (units issued and outstanding:June
      30, 2010 - 614,435, December 31, 2009 - 612,244)
                                                                    
                                                                    
                                                                    22,961,111
                                                                    
                                                                    
                                                                    
                                                                    36,459,320Class
      B limited partners (units issued and outstanding:June
      30, 2010 - 84,313, December 31, 2009 - 84,313)
                                                                    
                                                                    
                                                                    2,904,907
                                                                    
                                                                    
                                                                    
                                                                    4,789,036Class
      D limited partners (units issued and outstanding:June
      30, 2010 - 2,000, December 31, 2009 - 2,000)
                                                                    
                                                                    
                                                                    (149,947
                                                                    )
                                                                    
                                                                    
                                                                    (105,253
                                                                    )Accumulated
      other comprehensive (loss) income
                                                                    
                                                                    
                                                                    (11,355,380
                                                                    )
                                                                    
                                                                    
                                                                    6,456,857III
      to I Maritime Partners Cayman I, L.P. partners' equity
                                                                    
                                                                    
                                                                    14,653,591
                                                                    
                                                                    
                                                                    
                                                                    48,114,098Non-controlling
      interest
                                                                    
                                                                    
                                                                    23,189,908
                                                                    
                                                                    
                                                                    
                                                                    25,554,450Total
      equity
                                                                    
                                                                    
                                                                    37,843,499
                                                                    
                                                                    
                                                                    
                                                                    73,668,548Total
      liabilities and equity
                                                                    
                                                                    $
                                                                    462,722,849
                                                                    
                                                                    
                                                                    $
                                                                    323,508,957




See Notes
to Consolidated Financial Statements.




5




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




CONSOLIDATED
STATEMENTS OF OPERATIONS




(Unaudited)




Three
      Months Ended June 30,
                                          
                                          
                                          Six
      Months Ended June 30,2010
                                          
                                          
                                          2009
                                          
                                          
                                          2010
                                          
                                          
                                          2009Time
      charter revenue
                                          
                                          $
                                          12,469,310
                                          
                                          
                                          $
                                          4,391,713
                                          
                                          
                                          $
                                          21,083,264
                                          
                                          
                                          $
                                          5,218,890Operating
      expenses:Vessel
      operating expenses
                                          
                                          
                                          8,890,232
                                          
                                          
                                          
                                          3,536,572
                                          
                                          
                                          
                                          16,360,569
                                          
                                          
                                          
                                          4,201,675Depreciation
      expense
                                          
                                          
                                          4,307,156
                                          
                                          
                                          
                                          967,824
                                          
                                          
                                          
                                          7,119,952
                                          
                                          
                                          
                                          1,087,966Professional
      fees
                                          
                                          
                                          507,121
                                          
                                          
                                          
                                          754,128
                                          
                                          
                                          
                                          1,031,498
                                          
                                          
                                          
                                          1,940,112Brokerage
      and representation fees
                                          
                                          
                                          -
                                          
                                          
                                          
                                          164,062
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          328,125Other
      operating expenses
                                          
                                          
                                          466,839
                                          
                                          
                                          
                                          216,870
                                          
                                          
                                          
                                          807,253
                                          
                                          
                                          
                                          233,083Total
      operating expenses
                                          
                                          
                                          14,171,348
                                          
                                          
                                          
                                          5,639,456
                                          
                                          
                                          
                                          25,319,272
                                          
                                          
                                          
                                          7,790,961Operating
      loss
                                          
                                          
                                          (1,702,038
                                          )
                                          
                                          
                                          (1,247,743
                                          )
                                          
                                          
                                          (4,236,008
                                          )
                                          
                                          
                                          (2,572,071
                                          )Other
      income (expense):Interest
      income
                                          
                                          
                                          79,819
                                          
                                          
                                          
                                          195,497
                                          
                                          
                                          
                                          110,252
                                          
                                          
                                          
                                          865,332Gain
      on extinguishment of debt
                                          
                                          
                                          5,300,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          5,300,000
                                          
                                          
                                          
                                          -Interest
      expense
                                          
                                          
                                          (4,187,676
                                          )
                                          
                                          
                                          (1,217,010
                                          )
                                          
                                          
                                          (5,896,730
                                          )
                                          
                                          
                                          (1,840,511
                                          )Net
      loss on interest rate swaps
                                          
                                          
                                          (8,251,299
                                          )
                                          
                                          
                                          (3,039,954
                                          )
                                          
                                          
                                          (18,917,397
                                          )
                                          
                                          
                                          (3,568,139
                                          )Foreign
      currency transaction gain (loss)
                                          
                                          
                                          2,169,691
                                          
                                          
                                          
                                          3,230,705
                                          
                                          
                                          
                                          2,790,549
                                          
                                          
                                          
                                          (226,828
                                          )Equity
      in loss of unconsolidated entities
                                          
                                          
                                          (169,978
                                          )
                                          
                                          
                                          (186,270
                                          )
                                          
                                          
                                          (288,914
                                          )
                                          
                                          
                                          (309,029
                                          )Total
      other expense
                                          
                                          
                                          (5,059,443
                                          )
                                          
                                          
                                          (1,017,032
                                          )
                                          
                                          
                                          (16,902,240
                                          )
                                          
                                          
                                          (5,079,175
                                          )Net
      loss
                                          
                                          
                                          (6,761,481
                                          )
                                          
                                          
                                          (2,264,775
                                          )
                                          
                                          
                                          (21,138,248
                                          )
                                          
                                          
                                          (7,651,246
                                          )Net
      loss attributable to thenon-controlling interest
                                          
                                          
                                          2,709,858
                                          
                                          
                                          
                                          839,960
                                          
                                          
                                          
                                          6,008,287
                                          
                                          
                                          
                                          987,185Net
      loss attributable to III to I MaritimePartners Cayman I,
      L.P.
                                          
                                          
                                          (4,051,623
                                          )
                                          
                                          
                                          (1,424,815
                                          )
                                          
                                          
                                          (15,129,961
                                          )
                                          
                                          
                                          (6,664,061
                                          )Less
      general partner interest in net loss
                                          
                                          
                                          (56,458
                                          )
                                          
                                          
                                          (20,561
                                          )
                                          
                                          
                                          (210,954
                                          )
                                          
                                          
                                          (97,820
                                          )Limited
      partner interest in net loss
                                          
                                          $
                                          (3,995,165
                                          )
                                          
                                          $
                                          (1,404,254
                                          )
                                          
                                          $
                                          (14,919,007
                                          )
                                          
                                          $
                                          (6,566,241
                                          )Net
      loss per general partner unit:Basic
      and diluted
                                          
                                          $
                                          (5.70
                                          )
                                          
                                          $
                                          (2.08
                                          )
                                          
                                          $
                                          (21.31
                                          )
                                          
                                          $
                                          (9.88
                                          )Weighted
      average general partner units outstanding
                                          
                                          
                                          9,900
                                          
                                          
                                          
                                          9,900
                                          
                                          
                                          
                                          9,900
                                          
                                          
                                          
                                          9,900Net
      loss per limited partner unit:Basic
      and diluted
                                          
                                          $
                                          (5.70
                                          )
                                          
                                          $
                                          (2.08
                                          )
                                          
                                          $
                                          (21.31
                                          )
                                          
                                          $
                                          (9.88
                                          )Weighted
      average limited partner units outstanding
                                          
                                          
                                          700,577
                                          
                                          
                                          
                                          676,156
                                          
                                          
                                          
                                          700,160
                                          
                                          
                                          
                                          664,556





See Notes
to Consolidated Financial Statements.
  6


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




CONSOLIDATED
STATEMENT OF EQUITY




(Unaudited)




AccumulatedClass
      A
                                  
                                  
                                  Class
      B
                                  
                                  
                                  Class
      D
                                  
                                  
                                  Other
                                  
                                  
                                  Non-General
                                  
                                  
                                  Limited
                                  
                                  
                                  Limited
                                  
                                  
                                  Limited
                                  
                                  
                                  Comprehensive
                                  
                                  controllingPartner
                                  
                                  
                                  Partners
                                  
                                  
                                  Partners
                                  
                                  
                                  Partners
                                  
                                  
                                  Income
      (Loss)
                                  
                                  
                                  Interest
                                  
                                  
                                  TotalBalance
      at December 31, 2009
                                  
                                  $
                                  514,138
                                  
                                  
                                  $
                                  36,459,320
                                  
                                  
                                  $
                                  4,789,036
                                  
                                  
                                  $
                                  (105,253
                                  )
                                  
                                  $
                                  6,456,857
                                  
                                  
                                  $
                                  25,554,450
                                  
                                  
                                  $
                                  73,668,548Contributions,
      net of syndication costs
                                  
                                  
                                  (10,284
                                  )
                                  
                                  
                                  (418,360
                                  )
                                  
                                  
                                  (87,587
                                  )
                                  
                                  
                                  (2,078
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  10,552,671
                                  
                                  
                                  
                                  10,034,362Net
      loss
                                  
                                  
                                  (210,954
                                  )
                                  
                                  
                                  (13,079,849
                                  )
                                  
                                  
                                  (1,796,542
                                  )
                                  
                                  
                                  (42,616
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (6,008,287
                                  )
                                  
                                  
                                  (21,138,248
                                  )Forward
      currency exchange contracts
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (10,591,233
                                  )
                                  
                                  
                                  (3,530,411
                                  )
                                  
                                  
                                  (14,121,644
                                  )Foreign
      currency translation adjustment
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (7,221,004
                                  )
                                  
                                  
                                  (3,378,515
                                  )
                                  
                                  
                                  (10,599,519
                                  )Balance
      at June 30, 2010
                                  
                                  $
                                  292,900
                                  
                                  
                                  $
                                  22,961,111
                                  
                                  
                                  $
                                  2,904,907
                                  
                                  
                                  $
                                  (149,947
                                  )
                                  
                                  $
                                  (11,355,380
                                  )
                                  
                                  $
                                  23,189,908
                                  
                                  
                                  $
                                  37,843,499


See Notes
to Consolidated Financial Statements.




7





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




CONSOLIDATED
STATEMENTS OF CASH FLOWS




(Unaudited)


Six
      Months Ended June 30,2010
                              
                              
                              2009Operating
      activities:Net
      loss
                              
                              $
                              (21,138,248
                              )
                              
                              $
                              (7,651,246
                              )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
                              
                              
                              7,119,952
                              
                              
                              
                              1,087,966Amortization
      of deferred loan fees
                              
                              
                              77,431
                              
                              
                              
                              140,389Foreign
      currency transaction (gain) loss
                              
                              
                              (714,559
                              )
                              
                              
                              1,670,842Net
      gain on forward currency exchange contracts
                              
                              
                              (2,680,893
                              )
                              
                              
                              (1,518,483
                              )Net
      loss on interest rate swap
                              
                              
                              18,917,397
                              
                              
                              
                              3,568,139Settlement
      of hedge instruments
                              
                              
                              604,903
                              
                              
                              
                              74,468Gain
      on extinguishment of debt
                              
                              
                              (5,300,000
                              )
                              
                              
                              -Equity
      in loss of unconsolidated entities
                              
                              
                              288,914
                              
                              
                              
                              309,029Payment
      of interest on Berenberg Facility
                              
                              
                              -
                              
                              
                              
                              (3,559,158
                              )Changes
      in assets and liabilities:Due
      from charterers
                              
                              
                              (2,828,027
                              )
                              
                              
                              (2,242,660
                              )Other
      receivables
                              
                              
                              (138,189
                              )
                              
                              
                              (23,958
                              )Prepaid
      and other assets
                              
                              
                              284,638
                              
                              
                              
                              (609,895
                              )Accounts
      payable and accrued liabilities
                              
                              
                              (2,522,285
                              )
                              
                              
                              4,735,613Accrued
      interest payable
                              
                              
                              599,343
                              
                              
                              
                              (222,400
                              )Net
      cash used in operating activities
                              
                              
                              (7,429,623
                              )
                              
                              
                              (4,241,354
                              )Investing
      activities:Net
      related party receivable
                              
                              
                              906,603
                              
                              
                              
                              (96,022
                              )Advances
      for vessel acquisitions
                              
                              
                              (233,642,431
                              )
                              
                              
                              (74,023,548
                              )Advances
      for capitalized vessel construction costs
                              
                              
                              -
                              
                              
                              
                              (3,861,963
                              )Purchase
      of on board equipment
                              
                              
                              (6,188,012
                              )
                              
                              
                              (4,652,432
                              )Decrease
      in restricted cash
                              
                              
                              -
                              
                              
                              
                              50,346,471Net
      cash used in investing activities
                              
                              
                              (238,923,840
                              )
                              
                              
                              (32,287,494
                              )Financing
      activities:Proceeds
      from Berenberg Facility
                              
                              
                              -
                              
                              
                              
                              1,263,351Repayments
      on Berenberg Facility
                              
                              
                              -
                              
                              
                              
                              (48,100,352
                              )Proceeds
      from senior loan with Nord/LB
                              
                              
                              213,929,939
                              
                              
                              
                              98,469,456Repayments
      on senior loan with Nord/LB
                              
                              
                              (8,022,371
                              )
                              
                              
                              (1,025,723
                              )Proceeds
      from RHKG Loan Agreements
                              
                              
                              21,321,272
                              
                              
                              
                              -Proceeds
      from Hartmann Loans
                              
                              
                              8,081,696
                              
                              
                              
                              -Deferred
      loan fees
                              
                              
                              -
                              
                              
                              
                              (9,527
                              )Repayment
      of related party note payable
                              
                              
                              (20,000
                              )
                              
                              
                              (10,939,369
                              )Net
      accounts payable to related party
                              
                              
                              834,699
                              
                              
                              
                              1,731,903Contributions
      from partners
                              
                              
                              144,100
                              
                              
                              
                              4,680,071Unaccepted
      equity contributions
                              
                              
                              75,000
                              
                              
                              
                              (289,500
                              )Syndication
      costs
                              
                              
                              (678,012
                              )
                              
                              
                              (1,050,300
                              )Contributions
      from non-controlling interests
                              
                              
                              10,798,474
                              
                              
                              
                              1,673,125Distributions
      to non-controlling interests
                              
                              
                              -
                              
                              
                              
                              (689,984
                              )Net
      cash provided by financing activities
                              
                              
                              246,464,797
                              
                              
                              
                              45,713,151Effect
      of exchange rate changes on cash
                              
                              
                              (3,214,672
                              )
                              
                              
                              (175,682
                              )Net
      (decrease) increase in cash
                              
                              
                              (3,103,338
                              )
                              
                              
                              9,008,621Cash,
      beginning of period
                              
                              
                              18,267,260
                              
                              
                              
                              2,222,196Cash,
      end of period
                              
                              $
                              15,163,922
                              
                              
                              $
                              11,230,817Non-cash
      financing and investing activities:Construction
      in progress reclassed to delivered vessels
                              
                              $
                              77,957,286
                              
                              
                              $
                              34,429,331Syndication
      costs financed through accounts payable
                              
                              
                              305,200
                              
                              
                              
                              1,050,300





See Notes
to Consolidated Financial Statements.




8




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




CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)




(Unaudited)


Three
      Months Ended June 30,
                                                                              
                                                                              
                                                                              Six
      Months Ended June 30,2010
                                                                              
                                                                              
                                                                              2009
                                                                              
                                                                              
                                                                              2010
                                                                              
                                                                              
                                                                              2009Net
      loss
                                                                              
                                                                              $
                                                                              (6,761,481
                                                                              )
                                                                              
                                                                              $
                                                                              (2,264,775
                                                                              )
                                                                              
                                                                              $
                                                                              (21,138,248
                                                                              )
                                                                              
                                                                              $
                                                                              (7,651,246
                                                                              )Foreign
      currency exchange forward contracts
                                                                              
                                                                              
                                                                              (8,096,932
                                                                              )
                                                                              
                                                                              
                                                                              2,753,107
                                                                              
                                                                              
                                                                              
                                                                              (14,121,644
                                                                              )
                                                                              
                                                                              
                                                                              2,753,107Foreign
      currency translation adjustment
                                                                              
                                                                              
                                                                              (5,853,573
                                                                              )
                                                                              
                                                                              
                                                                              1,954,609
                                                                              
                                                                              
                                                                              
                                                                              (10,599,519
                                                                              )
                                                                              
                                                                              
                                                                              1,032,639Comprehensive
      income (loss)
                                                                              
                                                                              $
                                                                              (20,711,986
                                                                              )
                                                                              
                                                                              $
                                                                              2,442,941
                                                                              
                                                                              
                                                                              $
                                                                              (45,859,411
                                                                              )
                                                                              
                                                                              $
                                                                              (3,865,500
                                                                              )




See Notes
to Consolidated Financial Statements.




9


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)




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
accompanying unaudited consolidated interim financial statements have been
prepared in accordance with the rules applicable to Form 10-Q and include all
information and footnotes required for interim financial statement presentation,
but do not include all disclosures required under accounting principles
generally accepted in the United States (“U.S. GAAP”) for complete financial
statements.  In the opinion of management, these financial statements
include all adjustments, consisting only of normal recurring adjustments and
accruals, that in our opinion are necessary for a fair presentation of our
financial position as of June 30, 2010 and December 31, 2009, and the results of
operations for the three and six months ended June 30, 2010 and 2009 and cash
flows for the six months ended June 30, 2010 and 2009.  These
financial statements should be read in conjunction with the consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2009 as filed with the SEC.  Interim results of
operations are not necessarily indicative of the results to be expected for the
full year.





Our
functional currency is the U.S. dollar.  However, the functional
currency of many of our subsidiaries is the Euro.  All amounts are
stated in U.S. dollars (“USD”), and where the amount relates to a subsidiary,
the amount has been translated to Euros (“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 June 30,
2010.  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 statement of operations
amounts, the average exchange rate for the given period is used.







Nature
of the Business





Cayman I,
a Cayman Islands exempted 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”).  We are also authorized to
engage in other activities if III to I International Maritime Solutions Cayman,
Inc., a Cayman Islands exempted company with limited liability (“General
Partner”), believes such activities will benefit our core business of shipping
operations.  We are currently 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 June 30, 2010,
delivery of eight of our AHTS vessels had occurred from the shipyard,
Fincantieri Cantieri Navali Italiani SpA (“Fincantieri”) in Italy, and we had a
contract to purchase one additional new AHTS vessel, which was under
construction by Fincantieri.




10


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)




Delivery
of eight AHTS vessels has occurred as follows:




AHTS
      SPV
                  Vessel
      Name
                  Date
      Delivered6160
      –  MS Juist
                  UOS
      Atlantis
                  February
      27, 20096161
      –  MS Norderney
                  UOS
      Challenger
                  May
      28, 20096162
      –  Isle of Baltrum
                  UOS
      Columbia
                  October
      2, 20096163
      –  Isle of Langeoog
                  UOS
      Discovery
                  February
      16, 20106168
      –  Isle of Amrum
                  UOS
      Endeavour
                  March
      11, 20106171
      –  Isle of Wangerooge
                  UOS
      Explorer
                  March
      15, 20106172
      –  Isle of Neuwerk
                  UOS
      Freedom
                  June
      29, 20106173
      –  Isle of Usedom
                  UOS
      Liberty
                  June
      23, 2010





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 (“Partnership
Agreement”).  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.





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.





In May
2007, we acquired a 75% limited partnership interest in 12 separate special
purpose entities (“SPVs”), each a Kommanditgesellschaft (“KG”), German limited
partnership, 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 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 for their approximate carrying value, 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 Reederei Hesse and the
Hartmann Group.  See Note 3 for additional information.




11


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


Profits
and losses are allocated among our partners in accordance with the Partnership
Agreement.  Distributions, based on available cash flows, will be made
to the partners 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
twice their capital contributions and (iii) thirty percent
thereafter.








Significant
Accounting Policies





Principles of
Consolidation


The
accompanying unaudited consolidated interim financial statements have been
prepared in accordance with the rules applicable to Form 10-Q and include all
information and footnotes required for interim financial statement presentation,
but do not include all disclosures required under U.S. GAAP for complete
financial statements   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.  Vessels will regularly
move between countries in international waters.  It is therefore
impracticable 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, 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.





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 via either cash reserves or charter
coverage.




12


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


Due from
Charterers


Customer
obligations due under normal trade terms are recorded as due from
charterers.  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 receivable for
collectability and establish an allowance as necessary for individual customer
balances.  As of June 30, 2010 and December 31, 2009, 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 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).  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,
net of salvage value, 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 vessels’ and equipment’s remaining useful lives or the lives
of the renewals or betterments.  The net book value 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.





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 evaluated our intentions with
respect to the chemical tanker and determined that the asset was
impaired.  We therefore recorded an impairment to the deposit on asset
acquisition on our balance sheet to reduce the carrying value of this asset to
zero in December 2009.  No indicators of potential impairment were
noted for the period ended June 30, 2010.




13


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


Deferred Loan
Fees


Costs
incurred in connection with the issuance of debt have been capitalized and are
being amortized on an effective interest basis to interest expense over the life
of the related debt agreements.  Deferred loan fees at June 30, 2010
and December 31, 2009 amounted to $2,956,736 and $3,554,818, respectively, net
of accumulated amortization of $125,118 and $63,482, 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 by them 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 non-controlling interest and
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 to be owned by FLTC Fund I
(“UOS AHTS Pool”) under which they will 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 to be owned by FLTC Fund I is delivered
and begins to participate in the UOS AHTS Pool, which is expected in the third
quarter 2010.  After such time, our revenue will be recorded taking
into account potential pool adjustments for the period.





Five
customers represented 89.3% and 93.6%, respectively, of our revenue for the
three and six months ended June 30, 2010.  During the three and six
months ended June 30, 2009, two customers represented 100% of our
revenue.





Other
revenue (i.e. Fuel Revenue, Oil & Lube Revenue, etc.) is reported gross
according to FASB ASC 605 Revenue Recognition,as 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.
Due to these indications of our role as primary obligor, the revenue is recorded
gross based on the amount billed to the charterer.





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.




14


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


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 (loss).





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 and
non-controlling interest holders.  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 June 30, 2010 and December
31, 2009.





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
SPVs.





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.







Recent
Accounting Pronouncements





None.






2. Maritime
Vessels





We
committed to purchase nine AHTS vessels.  As of June 30, 2010, the
construction and delivery of the first eight AHTS vessels was
complete.  The estimated cost of each AHTS vessel ranges from
$45,363,707 (EUR 37,159,000) to $51,999,976 (EUR 42,595,000) for a total
commitment for the nine vessels of $439,914,059 (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 former
credit facility with Berenberg Bank, loans from Reederei Hartmann and their
affiliates, 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 primary
non-controlling interest holder and the 25% owner of the three AHTS SPVs of FLTC
Fund I, (“Hartmann Guarantee”) in the amount of $9,719,857 (EUR 7,961,875) and
$46,014,645 (EUR 32,046,875) was outstanding at June 30, 2010 and December 31,
2009, respectively.




15


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


As of
December 31, 2009, the terms of the Hartmann Guarantee were being
renegotiated between Reederei Hartmann and Nord/LB, and these negotiations
are ongoing.  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 June 30, 2010 and December 31, 2009, we incurred
$442,823,010 and $291,543,002, respectively, in connection with the acquisition
of the AHTS vessels.  The remaining AHTS vessel was delivered in July
2010.  For additional information, please see Note 10. Subsequent
Events.  Our AHTS vessel 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 and our interests in the mini-bulkers, we entered
into an agreement related to the potential acquisition of a chemical tanker,
which would have been owned by Kronos Shipping I, Ltd. (“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 formed Anthos Shipping Co.
Limited (“Anthos”), a Cyprus SPV, to own the chemical tanker.  The
equity of Anthos was 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.





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.





In light
of the global downturn in the economy and the resulting decrease in charter
rates for chemical tankers and decreases in the value of similar vessels, on
April 9, 2010, we elected to abandon our option to purchase the chemical
tanker.
We recognized an impairment to the deposit on asset acquisition on our balance
sheet as of December 31, 2009 to reduce the carrying value of this asset,
resulting in the recognition of a loss on impairment of
$9,874,907.  On April 9, 2010, we abandoned our option to acquire the
tanker, and under the terms of the Amended MOA, we became subject to the
$3,000,000 in liquidated damages and the principal balance of $5,300,000 due
under the facility was extinguished, and we therefore recognized a gain on the
extinguishment of debt of $5,300,000.  The result is a net loss
between these two events of approximately $4,574,907, which in the end
represents liquidating damages of $3,000,000, plus the loss of our capitalized
costs approximating $1,574,907.  In addition, we recognized interest
expense on the Schulte Group Facility for the period ended June 30, 2010
totaling $62,946.
 
 Since
that time, we have undertaken a review of the Schulte Group’s role in the
acquisition of the tanker.  This review includes a review of their
contractual responsibilities with respect to efforts to achieve pricing for the
tanker consistent with market fluctuations, and their construction oversight for
our vessels and the other pool vessels to assure that the shipyard was in a
position to timely fulfill its responsibilities under the shipbuilding
contracts, among other items.  Management is reviewing all options
available to us should we determine that further action is required against
either the Schulte Group, Conway Shipping I, Ltd, or the Hanseatic Tanker
Pool.





16


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


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 exchange rate on the date 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, respectively, 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.





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




June
      30,
                                                                                                          
                                                                                                          
                                                                                                          December
      31,2010
                                                                                                          
                                                                                                          
                                                                                                          2009Assets
                                                                                                          
                                                                                                          $
                                                                                                          23,559,747
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          24,901,430Liabilities
                                                                                                          
                                                                                                          $
                                                                                                          18,838,142
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          18,722,777Equity
                                                                                                          
                                                                                                          
                                                                                                          4,721,605
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          6,178,653Total
      liabilities and equity
                                                                                                          
                                                                                                          $
                                                                                                          23,559,747
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          24,901,430Three
      Months Ended June 30,
                                                                                                          
                                                                                                          
                                                                                                          Six
      Months Ended June 30,2010
                                                                                                          
                                                                                                          
                                                                                                          2009
                                                                                                          
                                                                                                          
                                                                                                          2010
                                                                                                          
                                                                                                          
                                                                                                          2009For
      the PeriodRevenue
                                                                                                          
                                                                                                          $
                                                                                                          2,645,184
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          1,004,357
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          4,490,016
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          3,034,446Expenses
                                                                                                          
                                                                                                          
                                                                                                          (2,992,076
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (1,386,377
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (5,079,636
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (3,665,118
                                                                                                          )Net
      loss
                                                                                                          
                                                                                                          $
                                                                                                          (346,892
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (382,020
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (589,620
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (630,672
                                                                                                          )Interest
      in net loss of unconsolidated entities
                                                                                                          
                                                                                                          $
                                                                                                          (169,978
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (186,270
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (288,914
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (309,029
                                                                                                          )




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 $42,679 between the amount at which the investment is reflected on
our consolidated balance sheet as of June 30, 2010, $2,270,907, and 49% of the
equity shown on the financial information above, $2,313,586, 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 June
30, 2010.




17




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




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




JUNE
30, 2010




(Unaudited)




For the
period ended December 31, 2009, 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 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.






4. Long-Term
Debt


June
      30,
                                
                                
                                December
      31,2010
                                
                                
                                2009RHKG
      Loan Agreements
                                
                                $
                                27,809,824
                                
                                
                                $
                                7,617,990Hartmann
      Loan Agreement
                                
                                
                                8,081,696
                                
                                
                                
                                -Nord/LB
      Facility
                                
                                
                                329,808,657
                                
                                
                                
                                145,468,080Schulte
      Group Facility
                                
                                
                                -
                                
                                
                                
                                5,300,000Total
      debt
                                
                                
                                365,700,177
                                
                                
                                
                                158,386,070Current
      portion of long-term debt
                                
                                
                                (28,523,987
                                )
                                
                                
                                (17,858,391
                                )Total
      debt classified as long-term
                                
                                $
                                337,176,190
                                
                                
                                $
                                140,527,679




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 primary non-controlling interest
holder of our AHTS SPVs (the “RHKG Loan Agreements”).  Each of the
individual agreements is separately related to a corresponding AHTS SPV, and
provides for loans (“RHKG 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 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.  The original proceeds
are stated below:




Borrower
                                  
                                  AHTS
      SPV
                                    Associated
      with
                                    Loan
                                  
                                  Date
      of Loan
                                  
                                  EUR
                                  
                                  
                                  Rate
                                  
                                  
                                  USDSCMP
      GmbH
                                  
                                  Isle
      of Baltrum
                                  
                                  October
      2, 2009
                                  
                                  
                                  5,315,000
                                  
                                  
                                  
                                  1.45860
                                  
                                  
                                  $
                                  7,752,459SCMP
      GmbH
                                  
                                  Isle
      of Langeoog
                                  
                                  February
      10, 2010
                                  
                                  
                                  5,350,000
                                  
                                  
                                  
                                  1.37180
                                  
                                  
                                  
                                  7,339,130SCMP
      GmbH
                                  
                                  Isle
      of Amrum
                                  
                                  March
      5, 2010
                                  
                                  
                                  6,050,000
                                  
                                  
                                  
                                  1.36300
                                  
                                  
                                  
                                  8,246,150SCMP
      GmbH
                                  
                                  Isle
      of Wangerooge
                                  
                                  March
      5, 2010
                                  
                                  
                                  6,065,000
                                  
                                  
                                  
                                  1.36300
                                  
                                  
                                  
                                  8,266,59522,780,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  31,604,334




18


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


The RHKG
Loan Agreements mature five 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 ownership 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 S.P.A. of
Roma, Italy, which is the Italian export credit and reinsurance agency (“SACE”),
under the Senior Loan, the RHKG Loan Agreements state that our German Subsidiary
shall use its best endeavors to have each of the respective AHTS SPVs 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.





During
the three and six months ended June 30, 2010, we incurred interest expense of
$436,043 (EUR 341,700) and $692,560 (EUR 520,526), respectively, related to the
RHKG Loan Agreements.  Accrued interest of $732,786 (EUR 600,251) was
outstanding at June 30, 2010.





Hartmann
Loan





On June
17, 2010, our German Subsidiary entered into a loan agreement with Captain
Alfred Hartmann (“Capt. Hartmann”), who is the chairman of the board for
Hartmann AG, which is a member of the Hartmann Group (“Hartmann Loan
Agreement”).  Reederei Hartmann GmbH & Co., KG and certain other
members of the Hartmann Group are the non-controlling interest holders of our
AHTS SPVs, each of which holds an AHTS vessel.  Pursuant to the
Hartmann Loan Agreement, our German Subsidiary received proceeds of $8,147,896
(EUR 6,620,000).  The loan proceeds (“Hartmann Loan”) were paid to the
three AHTS SPVs which had not yet had their vessels delivered to them, and
resulted in the recognition of capital contributions from our German Subsidiary
to our AHTS SPVs Isle of Sylt, Isle of Neuwerk, and Isle of Usedom, totaling
$2,338,520 (EUR 1,900,000), $2,584,680 (EUR 2,100,000), and $3,224,696 (EUR
2,620,000), respectively.





These
capital contributions allowed us to draw on the Senior Loan Facility, and as a
result, the vessels UOS Liberty and UOS Freedom were delivered on June 23 and
June 29, 2010, respectively, to our AHTS SPVs Isle of Usedom and Isle of
Neuwerk.





The
Hartmann Loan Agreement matures 5 years from the date of signing.  The
agreement calls for interest to be calculated at 6% per annum, due annually at
the anniversary of the date of signing.  There is no penalty for
pre-payment of all or any portion of the loan prior to the end of the loan
period.  The terms of the agreement include the granting of a security
interest in our ownership interest in the corresponding AHTS SPVs, and in the
dividends from the AHTS SPVs arising from the pro-rata percentage of the loan
amount as compared to our total share capital.





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





During
the three and six months ended June 30, 2010, we incurred interest expense of
$18,303 (EUR 14,343).  Accrued interest of $17,510 (EUR 14,343) was
outstanding at June 30, 2010.




19













III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


Nord/LB
Facility




On
December 19, 2008, we entered into a $513,431,856 (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 $102,686,371 (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 $12,208 (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 $6,104 (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.





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, 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, 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 $1,220,800 (EUR
1,000,000).  If interest incurred exceeds $1,220,800 (EUR 1,000,000),
the excess interest will be due at each interest payment date which can be every
three to six months.





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
$12,360,600 (EUR 10,125,000) to $34,792,800 (EUR 28,500,000), based on current
exchange rates.





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.  The Hartmann
Guarantee in the amount of $9,719,857 (EUR 7,961,875) and $45,932,786 (EUR
32,046,875) was outstanding at June 30, 2010 and December 31, 2009,
respectively.





At
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 delayed our
ability to make 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.  
The resolution to this situation is ongoing, and the recent deliveries involved
the granting of loans from Reederei Hartmann and their affiliate to our German
Subsidiary under the RHKG and Hartmann Loan Agreements described
above.  In addition, the shipbuilding contracts for those vessels were
amended 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
six-month EURIBOR plus 2%, currently 3.04%.




20


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


The
drawdowns on the Senior Loan to date as of June 30, 2010 are as
follows:




AHTS
      SPV
                                AHTS
      Vessel
                                Date
      of Drawdown
                                
                                ProceedsMS
      Juist
                                UOS
      Atlantis
                                February
      25, 2009
                                
                                $
                                44,689,067MS
      Norderney
                                UOS
      Challenger
                                May
      25, 2009
                                
                                $
                                49,080,519Isle
      of Baltrum
                                UOS
      Columbia
                                October
      2, 2009
                                
                                $
                                51,120,284Isle
      of Langeoog
                                UOS
      Discovery
                                February
      15, 2010
                                
                                $
                                47,790,771Isle
      of Amrum
                                UOS
      Endeavour
                                March
      10, 2010
                                
                                $
                                47,629,553Isle
      of Wangerooge
                                UOS
      Explorer
                                March
      12, 2010
                                
                                $
                                47,871,380Isle
      of Neuwerk
                                UOS
      Freedom
                                June
      25, 2010
                                
                                $
                                43,175,015Isle
      of Usedom
                                UOS
      Liberty
                                June
      22, 2010
                                
                                $
                                43,413,338


At June
30, 2010 and December 31, 2009, a total of $329,808,657 (EUR 270,157,812) and
$145,468,080 (EUR 101,491,719), respectively, was outstanding under the Senior
Loan with an effective interest rate of 2.584% and 2.791%,
respectively.  The outstanding balance will be due in full in February
2021.  During the three and six months ended June 30, 2010 and 2009,
we incurred interest of $2,046,973 (EUR 1,604,085) and $3,319,903 (EUR
2,495,230) and $549,278 (EUR 403,258) and $706,910 (EUR 529,441), respectively,
related to the drawdowns on the Senior Loan.





A
guarantee commission of 1.375% per annum was due to Nord/LB on the loans
provided during the pre-delivery stage of each ship up to a loan balance of
$292,992,000 (EUR 240,000,000).  The guarantee commission was 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 for the duration of the Senior Loan, associated,
for example, with the amount of capital infusions from outside investors into
the AHTS SPVs, limits on additional financing, restrictions of cargo and
weapons, directives regarding the structure and duration of charters related to
the AHTS vessels, and certain restrictions on distributions.





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 would
have issued 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 was 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
previously anticipated taking ownership of Anthos upon fulfilling the terms of
the Amended MOA.  Each pre-delivery advance would have been required
to be repaid in full upon delivery of the chemical tanker to Anthos, but no
later than March 31, 2012.  Additionally, each delivery advance would
have been 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.





Interest
on the Deutsche Schiffsbank Facility would have been paid in arrears on the last
day of each applicable interest period.  In the event the interest
period were longer than six months, interest would have been paid every six
months during such interest period and on the last day of any such interest
period.  Interest on the borrowings would have been based upon LIBOR,
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 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 was to be payable quarterly in arrears and
on the last day of the commitment period applicable to such
advance.  Further, a guarantee commission would have been 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 June 30, 2010 and 2009.




21


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


If
acquired, the chemical tanker would have been held in Anthos, which would have
been 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 would have been required to be secured by a cash
collateral account with a balance of at least $7,560,000.  If no time
lapse between the two events were to occur, the cash collateral account would
not be required.  Additionally, prior to the delivery of the chemical
tanker, the Deutsche Schiffsbank Facility would have been required to 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 would have been required to
be secured by a mortgage on the chemical tanker including the related deed of
covenants and deed of share charges.





We would
have been subject to various covenants associated with the Deutsche Schiffsbank
Facility, under which we were required to 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.





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, the Schulte Group placed an
order for the chemical tanker for IMS Holdings 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.





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.  As a
result of amendments to the original MOA, the term of the loan and bank
guarantee was extended through July 30, 2010.  The amendment to the
original MOA also 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.  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.  The interest on the Schulte Group Facility is based on the
three-month US LIBOR rate plus a margin of 4.50%





In light
of the global downturn in the economy and the resulting decrease in charter
rates for chemical tankers and decreases in the value of similar vessels, we
recognized an impairment to the deposit on asset acquisition on our balance
sheet as of December 31, 2009 to reduce the carrying value of this asset to
zero.  Through June 30, 2010, we have incurred $9,798,915 in deposits,
interest, and capitalized costs and $233,801 in deferred loan fees in connection
with the option to acquire the chemical tanker, of which $62,946 was recorded as
interest expense for the period ended June 30, 2010, per FASB ASC 825 Financial Instruments and the
remainder was impaired as of December 31, 2009.




22


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


On April
9, 2010, we elected to abandon our option to purchase the chemical
tanker.  Under the terms of the Amended MOA, the principal balance due
under the Schulte Group Facility of $5,300,000 was extinguished, and we became
subject to the $3,000,000 in liquidated damages.





As we
have abandoned our option to purchase the chemical tanker, we do not intend to
utilize the Deutsche Schiffsbank Facility.





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





Three
      Months Ended
                          
                          
                          Six
      Months EndedEnded
      June 30,
                          
                          
                          Ended
      June 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Interest
      capitalized to vessel construction in progress:Beginning
      of period
                          
                          $
                          2,448,095
                          
                          
                          $
                          3,652,207
                          
                          
                          $
                          4,581,469
                          
                          
                          $
                          3,448,928Currency
      translation change related to beginning balance
                          
                          
                          (543,719
                          )
                          
                          
                          205,512
                          
                          
                          
                          (926,546
                          )
                          
                          
                          (11,988
                          )Interest
      incurred
                          
                          
                          4,624,863
                          
                          
                          
                          1,390,239
                          
                          
                          
                          7,469,802
                          
                          
                          
                          2,434,519Interest
      expense
                          
                          
                          (4,187,676
                          )
                          
                          
                          (1,217,010
                          )
                          
                          
                          (5,896,730
                          )
                          
                          
                          (1,840,511
                          )Amount
      reclassed to delivered vessels
                          
                          
                          (1,258,388
                          )
                          
                          
                          (1,158,779
                          )
                          
                          
                          (4,144,820
                          )
                          
                          
                          (1,158,779
                          )End
      of period
                          
                          $
                          1,083,175
                          
                          
                          $
                          2,872,169
                          
                          
                          $
                          1,083,175
                          
                          
                          $
                          2,872,169Interest
      paid
                          
                          $
                          3,656,186
                          
                          
                          $
                          1,304,429
                          
                          
                          $
                          4,977,027
                          
                          
                          $
                          5,011,155Interest
      added to principal on borrowings
                          
                          $
                          -
                          
                          
                          $
                          173,230
                          
                          
                          $
                          -
                          
                          
                          $
                          594,009






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
covered the one year period beginning May 26, 2009 and the contract for MS
Norderney covered the period from May 20, 2009 through November 26,
2009.  These contracts were not designated for hedge accounting under
FASB ASC 815, Derivatives and
Hedging.





Between
March 27, 2009 and May 25,2009, our AHTS SPVs entered into interest rate swap
agreements, which began between February 2010 and March 20, 2010 and expire
between February 2019 and April 2020, in order to hedge the risk of rising
interest rates related to the Senior Loan, which is based on the three-month
EURIBOR rate.  The total notional value of these agreements is
$369,029,147 (EUR 302,284,688) at June 30, 2010.  Through these
agreements, we have effectively 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.




23


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


On  March
30, 2010, three of our AHTS SPVs, MS Baltrum, MS Langeoog, and MS Amrum, amended
their former interest rate swap agreements, to adjust the start dates to
coincide with the delivery dates of the vessels.




May
      25, 2009 Agreement
                        
                        March
      30, 2010 AgreementStart
      Date
                        End
      Date
                        Notional
      Amt.
                        Fixed
      Rate
                        
                        Start
      Date
                        End
      Date
                        Notional
      Amt.
                        Fixed
      RateMS
      Baltrum
                        03/30/10
                        09/30/19
                        33,587,188
                        3.705%
                        
                        04/01/10
                        10/01/19
                        33,587,188
                        3.705%MS
      Langeoog
                        05/31/10
                        11/30/19
                        33,587,188
                        3.750%
                        
                        05/17/10
                        11/15/19
                        33,587,188
                        3.748%MS
      Amrum
                        03/31/10
                        12/31/19
                        34,317,344
                        3.720%
                        
                        03/10/10
                        12/10/19
                        34,317,344
                        3.717%




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, have
a notional value totaling $97,200,000 at June 30, 2010.  The contracts
run from December 2009 through December 2011.





On March
3, 2010, our AHTS SPVs entered into forward exchange contracts to adjust for
anticipated currency needs between USD and EUR.  The notional value of
the contracts totals $24,300,000 at June 30, 2010.  The contracts run
from April 2010 through December 2011.  These contracts are not
designated for hedge accounting under FASB ASC 815, Derivatives and
Hedging.





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.




24




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




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




JUNE
30, 2010




(Unaudited)




The fair
value of our derivative instruments as of June 30, 2010 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
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      6,452,466
                      
                      
                      $
                      3,281,031Not
      designated as hedging instruments:Forward
      currency exchange contracts
                      
                      
                      1,679,556
                      
                      
                      
                      864,012
                      
                      
                      
                      -
                      
                      
                      
                      -Interest
      rate swap agreements
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      7,944,281
                      
                      
                      
                      17,530,664Total
      derivatives
                      
                      $
                      1,679,556
                      
                      
                      $
                      864,012
                      
                      
                      $
                      14,396,747
                      
                      
                      $
                      20,811,695




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
three and six months ended June 30, 2010 and 2009, we recognized net gains and
(losses) on derivative instruments in our consolidated statement of operations
as follows:




For
      the Three Months Ended June 30,
              
              
              For
      the Six Months Ended June 30,Derivatives
      by hedge designation
              
              Classification
      of gains (losses)
              
              2010
              
              
              2009
              
              
              2010
              
              
              2009Designated
      as hedging instruments:Cash
      flow hedges:Forward
      currency exchange contracts
              
              Foreign
      currency transaction gain (loss)
              
              $
              (617,428
              )
              
              $
              (74,468
              )
              
              $
              (604,903
              )
              
              $
              (74,468
              )Not
      designated as hedging instruments:Forward
      currency exchange contracts
              
              Foreign
      currency transaction gain (loss)
              
              $
              2,464,501
              
              
              $
              1,058,190
              
              
              $
              2,680,893
              
              
              $
              1,518,483Interest
      rate swap agreements - Unmatured
              
              Loss
      on interest rate swaps
              
              $
              (8,251,299
              )
              
              $
              (3,039,954
              )
              
              $
              (18,917,397
              )
              
              $
              (3,568,139
              )Interest
      rate swap agreements - Close-to-Maturity and Matured
              
              Interest
      expense
              
              $
              (2,147,268
              )
              
              $
              -
              
              
              $
              (2,147,268
              )
              
              $
              -




For the
three and six months ended June 30, 2010, the foreign currency transaction loss
related to forward currency exchange contracts designated as cash flow hedges
was $617,428 and $604,903, respectively, of which a gain of $57,864 and $76,690
is related to the fair value of the ineffective portion of the forward currency
exchange contracts, offset by a loss of $675,292 and $681,593 related to matured
contracts.  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 our consolidated statement of operations under Foreign currency
transaction gain (loss).  The current effective loss portion of
$6,471,812 (EUR 5,301,288) is expected to be reclassified into net income
in this manner within the next twelve months.




25


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


For the
three and six months ended June 30, 2009, the foreign currency transaction loss
related to forward currency exchange contracts designated as cash flow hedges
was $74,468, which is related to the fair value of the ineffective portion of
the forward currency exchange contracts.





For the
three and six months ended June 30, 2010, the foreign currency transaction gain
related to derivatives not designated as hedging instruments is $2,464,501 and
$2,680,893, respectively.  Of these amounts, a gain of $115,220 and a
loss of $91,237, respectively is related the forward currency exchange contracts
not designated as hedging instruments which have matured, and the residual gain
of $2,349,281 and $2,772,130, respectively is due to the change in fair value of
the remaining contracts.





For the
three and six months ended June 30, 2009, the foreign currency transaction gain
related to derivatives not designated as hedging instruments is $1,058,190 and
$1,518,483, respectively.  Included in both of these amounts is a gain
of $195,762, which is related to the matured contracts not designated as hedging
instruments.  The residual gain for the three and six months ended
June 30, 2009 of $862,428 and $1,322,721, respectively 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 pay a
monthly fixed administrative fee of $100,000.





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 June 30, 2010 and December 31, 2009, the
amount receivable from SCMH in connection with the Letter Agreement was $898,016
and $1,842,324 , respectively, including accrued interest of $240,200 and
$209,340, respectively.  During the three and six months ended June
30, 2010 and 2009, we recognized interest income of $14,088 and $30,860 and
$24,522 and $45,203, respectively related to the advances to SCMH.




26


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


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 primarily 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, the
portion related to the chemical tanker acquisition, 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.  See
Note 2, Maritime Vessels, for additional information regarding our option to
purchase the chemical tanker.





On March
15, 2010, an additional $31,000 was loaned by us to IMS Holdings, our general
partner.  As of June 30, 2010, we had amounts receivable of $141,782,
including accrued interest income of $10,745, from IMS Holdings related to these
short-term advances.  During the three and six months ended June 30,
2010, we recognized interest income of $2,621 and $4,743.  This
outstanding balance as of June 30, 2010 is unrelated to 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 June 30, 2010 and December 31, 2009 was $457,500 and $477,500,
respectively.  $5,714 and $59,338 of interest was accrued at June 30,
2010 and December 31, 2009.  During the three and six months ended
June 30, 2010 and 2009, we incurred interest of $17,141 and $34,282 and $22,391
and $51,439, respectively.





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 June 30, 2010 and December
31, 2009, the loan is paid in full.  During the three and six months
ended June 30, 2009, we incurred interest of $3,660 and $4,542, 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 operating
expenses.  For the three and six months ended June 30, 2010 and 2009,
we incurred $477,823 (EUR 374,440) and $805,173 (EUR 605,166) and $179,206 (EUR
131,566) and $207,063 (EUR 155,080), respectively.





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 June 30, 2010 and
December 31, 2009 were $5,341,000 (EUR 4,375,000) and $5,195,713 (EUR
3,625,000), 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 June 30, 2010 and December 31, 2009 totaled $2,594,200
(EUR 2,125,000) and $2,149,950 (EUR 1,500,000), 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 $610,400 (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, all of which are affiliates of SCMH.  As of June
30, 2010 and December 31, 2009, we incurred to date $4,005,750 (EUR 3,281,250)
and $3,896,784 (EUR 2,718,750), 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.





27




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




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




JUNE
30, 2010




(Unaudited)





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.





·
            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, due from charterers, 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 June 30, 2010
and December 31, 2009 approximated the carrying value since the draws on the
Senior Loan incur interest at a variable rate and mature every three months, and
our RHKG and Hartman loans were issued at fixed rates which are comparable to
rates available in the market as of June 30, 2010 given similar collateral
arrangements.  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 swaps and the forward currency exchange contracts
discussed in Note 5 are included in current and long-term derivative assets and
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 3.748%.  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 June 30, 2010.  The fair values 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.




28




III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)


Our
assets and liabilities as of June 30, 2010 and December 31, 2009 that are
measured at fair value on a recurring basis are summarized below (in
dollars):




June
      30, 2010Level
      1
                                
                                
                                Level
      2
                                
                                
                                Level
      3
                                
                                
                                TotalAssetsForward
      currency exchange contracts
                                
                                $
                                -
                                
                                
                                $
                                2,543,568
                                
                                
                                $
                                -
                                
                                
                                $
                                2,543,568LiabilitiesForward
      currency exchange contracts
                                
                                $
                                -
                                
                                
                                $
                                9,733,497
                                
                                
                                $
                                -
                                
                                
                                $
                                9,733,497Interest
      rate swap agreements
                                
                                $
                                -
                                
                                
                                $
                                25,474,945
                                
                                
                                $
                                -
                                
                                
                                $
                                25,474,945December
      31, 2009Level
      1
                                
                                
                                Level
      2
                                
                                
                                Level
      3
                                
                                
                                TotalAssetsForward
      currency exchange contracts
                                
                                $
                                -
                                
                                
                                $
                                5,571,253
                                
                                
                                $
                                -
                                
                                
                                $
                                5,571,253LiabilitiesInterest
      rate swap agreements
                                
                                $
                                -
                                
                                
                                $
                                9,530,237
                                
                                
                                $
                                -
                                
                                
                                $
                                9,530,237






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 June 30, 2010, 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. Other
Comprehensive Income





The
components of other comprehensive income (loss) are as follows:




Three
      Months Ended June 30,
                                
                                
                                Six
      Months Ended June 30,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009Unrealized
      (loss) gain on forward currency exchange contract hedge
                                
                                $
                                (8,096,932
                                )
                                
                                $
                                2,753,107
                                
                                
                                $
                                (14,121,644
                                )
                                
                                $
                                2,753,107Foreign
      currency translation adjustment
                                
                                
                                (5,853,573
                                )
                                
                                
                                1,954,609
                                
                                
                                
                                (10,599,519
                                )
                                
                                
                                1,032,639Other
      comprehensive (loss) income
                                
                                
                                (13,950,505
                                )
                                
                                
                                4,707,716
                                
                                
                                
                                (24,721,163
                                )
                                
                                
                                3,785,746Less
      other comprehensive loss (income) attributable to
      non-controllinginterest
                                
                                
                                5,174,789
                                
                                
                                
                                (1,429,474
                                )
                                
                                
                                6,908,926
                                
                                
                                
                                (375,577
                                )Other
      comprehensive (loss) income attributable to III to I
    MaritimePartners
      Cayman I, L.P.
                                
                                $
                                (8,775,716
                                )
                                
                                $
                                3,278,242
                                
                                
                                $
                                (17,812,237
                                )
                                
                                $
                                3,410,169




29


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  JUNE
30, 2010
  (Unaudited)




Accumulated
other comprehensive income in the partners’ equity section of the consolidated
balance sheets includes:




June
      30,
                      
                      
                      December
      31,2010
                      
                      
                      2009Unrealized
      (loss) income on forward currency exchange contract hedge
                      
                      $
                      (6,766,810
                      )
                      
                      $
                      3,824,423Foreign
      currency translation adjustment
                      
                      
                      (4,588,570
                      )
                      
                      
                      2,632,434Accumulated
      other comprehensive (loss) income
                      
                      $
                      (11,355,380
                      )
                      
                      $
                      6,456,857







10. Subsequent
Events





On June
17, 2010, our German Subsidiary entered into the Hartmann Loan Agreement
described in Note 4.  The proceeds from the Hartmann Loan allowed us
to make a capital contribution to our AHTS SPV Isle of Sylt, which allowed us to
draw on the Senior Loan Facility.  As a result, the vessel UOS
Enterprise, the last of our nine AHTS vessels, was delivered on July 2, 2010 to
our AHTS SPV Isle of Sylt.  Our commercial manager, UOS, is currently
pursuing opportunities with charterers for this vessel.




30




Item
2. 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 presents our operating results for the three and six
months ended June 30, 2010 and 2009.  This report represents an update
to the more detailed and comprehensive disclosures included in our Annual Report
on Form 10-K for the year ended December 31, 2009.  Accordingly, the
following discussion should be read in conjunction with the information included
in our Form 10-K filed with the Securities and Exchange Commission (“SEC”), and
with our unaudited consolidated financial statements and related notes as
presented in this Form 10-Q under Part I, Item 1. Financial
Statements.





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 Item 1A. Risk Factors of our Annual
Report on Form 10-K for the year ended December 31, 2009.





Our
functional currency is the U.S. dollar.  However, the functional
currency of many of our subsidiaries is the Euro.  All amounts are
stated in U.S. dollars (“USD”), and where the amount relates to a subsidiary,
the amount has been restated in Euros (“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 June 30,
2010.  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., a Cayman
Islands exempted company with limited liability, as our general
partner.  Through our subsidiaries, we own majority interests in nine
anchor-handling tug supply (“AHTS”) vessels, and non-controlling interests in
two multipurpose bulk carrier vessels (“mini-bulkers”), all of which are
currently in operation.





AHTS
Vessels


Our first
three AHTS vessels were delivered in 2009, and the remaining six AHTS vessels
were delivered in 2010.





Our AHTS
vessels generally operate under time charter leasing arrangements with oil
companies under either short-term “spot market” charters, which are measured in
days or weeks, or longer-term charters, which typically range from one to three
years, including renewal options.





Our AHTS
vessels under longer term charters are:


·
            UOS
      Atlantis, under charter through March
2011,


·
            UOS
      Challenger, under charter through December 31,
  2010,


·
            UOS
      Columbia, which is now operating under the first 90 day extension of its
      original three month charter, with potential one day extensions from
      August through November 2010, and


·
            UOS
      Explorer, under charter through December 2010, with a possible six month
      extension through June 2011.





The UOS
Freedom and UOS Enterprise, delivered June 29 and July 2, 2010, respectively,
are not yet under charter.





The
average charter rate per day of our longer-term charters in place at June 30,
2010 was $31,125 per day.  Our most recently delivered vessels, which
were delivered on June 23, June 29, and July 2, 2010, are not currently under
charter.  Considering our eight AHTS vessels delivered as of June 30,
2010, the average longer-term charter rate per day, factoring in the utilization
of our vessels, was $23,407 and $24,275 per day, respectively, for the three and
six month period ended June 30, 2010.




31




Our
vessels working in the spot market include:





·
            UOS
      Discovery, working in the Australasia spot market,
  and


·
            UOS
      Endeavour, working in the North Sea spot
market.





The UOS
Liberty, delivered June 23, 2010, is in route to the North Sea, and will join
the UOS Endeavour in the North Sea spot market.





The
average spot charter rate per day experienced by the two vessels was $33,504 for
the three and six months ended June 30, 2010.  The average spot
charter rate per day, factoring in the utilization to consider the effect of
off-hire days experienced by the vessels during the three and six months ended
June 30, 2010, was $15,202.





Each of
the special purposes entities (“SPVs”) 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.  The commercial
management of the vessel under this agreement has been sub-contracted to United
Offshore Support GmbH & Co. KG (“UOS”).  Affiliates of the
Hartmann Group collectively own the remaining ownership of our AHTS
vessels.





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 currently
represents 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.





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 one
or more of the FLTC Fund I vessels are placed in service, which is expected to
occur in September 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


Under
these arrangements, our AHTS SPVs are typically responsible for the vessel’s
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 consists of the revenue earned under that vessel’s
charters, less that vessel’s operating expenses, which does not include interest
expense on acquisition debt.  Results are adjusted for increases
(decreases) in revenue resulting from the pooling agreement.  A
description of the current AHTS vessels and their net daily earnings during the
three and six months ended June 30, 2010, is set forth below.




32




·
            UOS
      Atlantis – Our AHTS vessel, UOS Atlantis, began operating under charter on
      March 15, 2009, and continues under an extension of the original
      charter.  Our net daily earnings (deficit) for UOS Atlantis
      averaged $12,815 and $14,475, respectively, for the three and six months
      ended June 30, 2010.  Included in this vessel’s revenue are
      pooling adjustments totaling ($1,256,462) and ($1,692,403) respectively,
      for the three and six months ended June 30, 2010.  Included in
      this vessel’s operating expenses are management fees paid to Hartmann
      Offshore totaling $144,519 and $269,786, respectively, for the three and
      six months ended June 30, 2010.  In addition to the vessel
      operating expenses included in the net daily earnings, we recognized
      $664,794 and $1,354,726, respectively, of depreciation expense for the
      three and six months ended June 30,
2010.





·
            UOS
      Challenger – Our AHTSvessel, UOS
      Challenger, was placed in service upon delivery on May 28, 2009, and
      began operating under an extension of its original May 2009 charter in
      February 2010.  Our net daily earnings (deficit) for UOS
      Challenger averaged $2,714 and $12,817, respectively, for the three and
      six months ended June 30, 2010.  Included in this vessel’s
      revenue are pooling adjustments totaling ($2,081,986) and ($2,737,564),
      respectively, for the three and six months ended June 30,
      2010.  Included in this vessel’s operating expenses are
      management fees paid to Hartmann Offshore totaling $122,958 and $277,472,
      respectively, for the three and six months ended June 30,
      2010.  In addition to the vessel operating expenses included in
      the net daily earnings, we recognized $674,136 and $1,380,103,
      respectively, of depreciation expense for the three and six months ended
      June 30, 2010.





·
            UOS
      Columbia – Our AHTS vessel, UOS Columbia, was delivered in 2009 and began
      operating under an extension of its original February 2010 charter in May
      2010.  This charter includes the potential for ninety one-day
      extensions.  Our net daily earnings (deficit) for UOS Columbia
      averaged $40,787 and $29,265 for the three and six months ended June 30,
      2010.  Included in this vessel’s revenue are pooling adjustments
      totaling $2,984,850 and $4,054,963, respectively, for the three and six
      months ended June 30, 2010.  Included in this vessel’s operating
      expenses are management fees paid to Hartmann Offshore totaling $69,941
      and $111,526 for the three and six months ended June 30,
      2010.  In addition to the vessel operating expenses included in
      the net daily earnings, we recognized $674,516 and $1,391,333 of
      depreciation expense for the three and six months ended June 30,
      2010.





·
            UOS
      Discovery – Our AHTS vessel, UOS Discovery, was delivered on February 16,
      2010, and began operating under a short-term charter in May
      2010.  Our net daily earnings (deficit) for UOS Discovery
      averaged ($10,423) and ($15,857) for the three and six months ended June
      30, 2010.  Included in this vessel’s revenue are pooling
      adjustments totaling ($330,198) for the three and six months ended June
      30, 2010.  Included in this vessel’s operating expenses is fuel
      cost of $1,019,879 for initial fueling of the tanks and for the vessel’s
      journey to the Australasia area, where it is currently
      located.  Included in this vessel’s operating expenses are
      management fees paid to Hartmann Offshore totaling $71,442 for the three
      and six months ended June 30, 2010.  In addition to the vessel
      operating expenses included in the net daily earnings, we recognized
      $680,110 and $1,044,175 of depreciation expense for the three and six
      months ended June 30, 2010.





·
            UOS
      Endeavour – Our AHTS vessel, UOS Endeavour, was delivered on March 11,
      2010, and we placed the vessel in the North Sea spot
      market.  Our net daily earnings (deficit) for UOS Endeavour
      averaged $9,650 and $335 for the three and six months ended June 30,
      2010.  Included in this vessel’s revenue are pooling adjustments
      totaling $731,169 for the three and six months ended June 30,
      2010.  Included in this vessel’s operating expenses is fuel cost
      of $724,972 for initial fueling of the tanks for the journey to the North
      Sea, and management fees paid to Hartmann Offshore totaling $54,065 for
      the three and six months ended June 30, 2010.  In addition to
      the vessel operating expenses included in the net daily earnings, we
      recognized $732,757 and $940,303 of depreciation expense for the three and
      six months ended June 30, 2010.  The vessel did not perform
      under its first spot charter until April, and has performed under eight
      spot charters since that date.  During the three months ending
      June 30, 2010, the vessel was employed for 43 days at daily rates varying
      from $13,000 to $46,875.  This volatility in rates is consistent
      with our expectations for the North Sea spot market at this
      time.




33




·
            UOS
      Enterprise – Our AHTS vessel, UOS Enterprise, was delivered on July 2,
      2010, and is not currently under charter.  As the vessel was not
      delivered until July 2, the vessel incurred no management fees as no
      charter revenue was earned, and no depreciation expense was recognized
      during the three and six months ended June 30,
  2010.





·
            UOS
      Explorer – Our AHTS vessel, UOS Explorer, was delivered on March 15, 2010,
      and began operating under a charter in June 2010. Our net daily earnings
      (deficit) for UOS Explorer averaged ($11,004) and ($12,780) for the three
      and six months ended June 30, 2010, which represented 108 days in
      service.  Included in this vessel’s operating expenses is fuel
      cost of $610,146 for initial fueling of the tanks, and net pooling expense
      totaling $36,150 for the three and six months ended June 30,
      2010.  Also included in this vessel’s operating expenses are
      management fees paid to Hartmann Offshore totaling $20,884 for the three
      and six months ended June 30, 2010.  In addition to the vessel
      operating expenses included in the net daily earnings, we recognized
      $746,429 and $940,743 of depreciation expense for the three and six months
      ended June 30, 2010.





·
            UOS
      Freedom – Our AHTS vessel, UOS Freedom, was delivered on June 29, 2010,
      and was not under charter as of June 30, 2010.  The vessel is
      slated to join the UOS Endeavour in the North Sea spot market in the third
      quarter of 2010.  Our net daily earnings (deficit) for UOS
      Freedom averaged ($129,801) for the three and six months ended June 30,
      2010, which represents two days in service.  No management fees
      were paid to Hartmann Offshore during the three and six months ended June
      30, 2010, as no charter revenue was earned during the
      period.  In addition to the vessel operating expenses included
      in the net daily earnings, we recognized $8,571 of depreciation expense
      for the three and six months ended June 30,
  2010.





·
            UOS
      Liberty – Our AHTS vessel, UOS Liberty, was delivered on June 23, 2010,
      and is not currently under charter.  Our net daily earnings
      (deficit) for UOS Liberty averaged ($29,507) for the three and six months
      ended June 30, 2010, which represents eight days in service.  No
      management fees were paid to Hartmann Offshore during the three and six
      months ended June 30, 2010, as no charter revenue was earned during the
      period.  In addition to the vessel operating expenses included
      in the net daily earnings, we recognized $59,607 of depreciation expense
      for the three and six months ended June 30,
  2010.




34





The table
below presents a summary of our vessel results discussed above, excluding UOS
Enterprise which was delivered July 2, 2010:




Net
      daily earnings (deficit)Three
      months
                                  
                                  
                                  Six
      monthsAHTS
      SPV
                                    AHTS
      Vessel
                                  Date
                                    Delivered
                                  
                                  Charter
      Information
                                  
                                  ended
                                    June
      30, 2010
                                  
                                  
                                  ended
                                    June
      30, 2010MS
      Juist
                                    UOS
      Atlantis
                                  February
      27, 2009
                                  
                                  Under
      extension of original charter, which began in
                                    March
      2009, through March 2011.
                                  
                                  $
                                  12,815
                                  
                                  
                                  $
                                  14,475MS
      Norderney
                                    UOS
      Challenger
                                  May
      28, 2009
                                  
                                  Under
      extension of original charter, which began in May
                                    2009,
      through December 2010.
                                  
                                  
                                  2,714
                                  
                                  
                                  
                                  12,817Isle
      of Baltrum
                                    UOS
      Columbia
                                  October
      5, 2009
                                  
                                  Under
      extension of original charter, which began in
                                    February
      2010, through August 2010.
                                  
                                  
                                  40,787
                                  
                                  
                                  
                                  29,265Isle
      of Langeoog
                                    UOS
      Discovery
                                  February
      16, 2010
                                  
                                  The
      UOS Discovery operates in the Australian spot
                                    market.
                                  
                                  
                                  (10,423
                                  )
                                  
                                  
                                  (15,857
                                  )Isle
      of Amrum
                                    UOS
      Endeavour
                                  March
      11, 2010
                                  
                                  The
      UOS Endeavour operates in the North Sea spot
                                    market.
                                  
                                  
                                  9,650
                                  
                                  
                                  
                                  335Isle
      of Wangerooge
                                    UOS
      Explorer
                                  March
      15, 2010
                                  
                                  Began
      operating in June 2010 under a six-month charter,
                                    which
      includes provision for one six-month extension.
                                  
                                  
                                  (11,004
                                  )
                                  
                                  
                                  (12,780
                                  )Isle
      of Neuwerk
                                    UOS
      Freedom
                                  June
      29, 2010
                                  
                                  Not
      currently under charter.
                                  
                                  
                                  (129,801
                                  )
                                  
                                  
                                  (129,801
                                  )Isle
      of Usedom
                                    UOS
      Liberty
                                  June
      23, 2010
                                  
                                  Not
      currently under charter.  In route to North Sea to join
                                    the
      UOS Endeavour in the North Sea spot market.
                                  
                                  
                                  (29,507
                                  )
                                  
                                  
                                  (29,507
                                  )


The
combined results of our eight AHTS vessels in service resulted in average net
daily earnings of $6,533 and $5,213 for the three and six months ended June 30,
2010.  The daily earnings are based on a total of 554 and 906 days in
service for the three and six months ended June 30, 2010, which is based on the
total days in service of all of the vessels combined, with six of our vessels
delivered during the period.  Included in vessel operating expense is
$498,192 and $805,174 of vessel management fees to Hartmann Offshore during the
three and six months ended June 30, 2010, respectively.  In addition
to vessel operating expenses included in the net daily earnings, we recognized
$4,306,958 and $7,119,754 of depreciation expense for the three and six months
ended June 30, 2010, respectively.





Our
commercial manager, UOS, is currently pursuing opportunities with charterers for
our idle vessels.





The
current AHTS market continues to reflect 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 and the
resulting decrease in the price of oil, combined with the contraction in the
credit markets, which resulted in reduced credit availability for the second
tier oil companies.  All of these factors negatively impacted budgets
for exploration and development, especially outside of the major oil
companies.  If economic expectations and the price of oil continue to
stabilize, we 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.




35




If the
current environment were to worsen, and we were unable to achieve adequate
utilization of our vessels and/or experience day rates below break-even levels,
the combination of idle capacity and a decline in day rates would negatively
impact our financial results given the debt service costs of our
vessels.





Other
Vessel Investments


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 the mini-bulkers.





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.





In
addition to our AHTS vessels acquisitions and mini-bulker investments, we had
advanced funds for the potential purchase of a chemical tanker to be held in a
separate SPV which would have been owned by Kronos Shipping I, Ltd.
(“Kronos”).  In light of the global downturn in the economy and the
resulting decrease in charter rates for chemical tankers and decreases in the
value of such vessels, we formally forfeited our option to acquire the
tanker.  Please refer to Chemical Tanker Transaction/Schulte
Group Facility/Kronos under Financing Arrangements for more information
regarding this transaction.





36





Results
of Operations


Three
      Months Ended June 30,
                                        
                                        
                                        Six
      Months Ended June 30,2010
                                        
                                        
                                        2009
                                        
                                        
                                        2010
                                        
                                        
                                        2009Time
      charter revenue
                                        
                                        $
                                        12,469,310
                                        
                                        
                                        $
                                        4,391,713
                                        
                                        
                                        $
                                        21,083,264
                                        
                                        
                                        $
                                        5,218,890Operating
      expenses:Vessel
      operating expenses
                                        
                                        
                                        8,890,232
                                        
                                        
                                        
                                        3,536,572
                                        
                                        
                                        
                                        16,360,569
                                        
                                        
                                        
                                        4,201,675Depreciation
      expense
                                        
                                        
                                        4,307,156
                                        
                                        
                                        
                                        967,824
                                        
                                        
                                        
                                        7,119,952
                                        
                                        
                                        
                                        1,087,966Professional
      fees
                                        
                                        
                                        507,121
                                        
                                        
                                        
                                        754,128
                                        
                                        
                                        
                                        1,031,498
                                        
                                        
                                        
                                        1,940,112Brokerage
      and representation fees
                                        
                                        
                                        -
                                        
                                        
                                        
                                        164,062
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        328,125Other
      operating expenses
                                        
                                        
                                        466,839
                                        
                                        
                                        
                                        216,870
                                        
                                        
                                        
                                        807,253
                                        
                                        
                                        
                                        233,083Total
      operating expenses
                                        
                                        
                                        14,171,348
                                        
                                        
                                        
                                        5,639,456
                                        
                                        
                                        
                                        25,319,272
                                        
                                        
                                        
                                        7,790,961Operating
      loss
                                        
                                        
                                        (1,702,038
                                        )
                                        
                                        
                                        (1,247,743
                                        )
                                        
                                        
                                        (4,236,008
                                        )
                                        
                                        
                                        (2,572,071
                                        )Other
      income (expense):Interest
      income
                                        
                                        
                                        79,819
                                        
                                        
                                        
                                        195,497
                                        
                                        
                                        
                                        110,252
                                        
                                        
                                        
                                        865,332Gain
      on extinguishment of debt
                                        
                                        
                                        5,300,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        5,300,000
                                        
                                        
                                        
                                        -Interest
      expense
                                        
                                        
                                        (4,187,676
                                        )
                                        
                                        
                                        (1,217,010
                                        )
                                        
                                        
                                        (5,896,730
                                        )
                                        
                                        
                                        (1,840,511
                                        )Net
      loss on interest rate swaps
                                        
                                        
                                        (8,251,299
                                        )
                                        
                                        
                                        (3,039,954
                                        )
                                        
                                        
                                        (18,917,397
                                        )
                                        
                                        
                                        (3,568,139
                                        )Foreign
      currency transaction gain (loss)
                                        
                                        
                                        2,169,691
                                        
                                        
                                        
                                        3,230,705
                                        
                                        
                                        
                                        2,790,549
                                        
                                        
                                        
                                        (226,828
                                        )Equity
      in loss of unconsolidated entities
                                        
                                        
                                        (169,978
                                        )
                                        
                                        
                                        (186,270
                                        )
                                        
                                        
                                        (288,914
                                        )
                                        
                                        
                                        (309,029
                                        )Total
      other expense
                                        
                                        
                                        (5,059,443
                                        )
                                        
                                        
                                        (1,017,032
                                        )
                                        
                                        
                                        (16,902,240
                                        )
                                        
                                        
                                        (5,079,175
                                        )Net
      loss
                                        
                                        
                                        (6,761,481
                                        )
                                        
                                        
                                        (2,264,775
                                        )
                                        
                                        
                                        (21,138,248
                                        )
                                        
                                        
                                        (7,651,246
                                        )Net
      loss attributable to thenon-controlling
      interest
                                        
                                        
                                        2,709,858
                                        
                                        
                                        
                                        839,960
                                        
                                        
                                        
                                        6,008,287
                                        
                                        
                                        
                                        987,185Net
      loss attributable to III to I MaritimePartners
      Cayman I, L.P.
                                        
                                        
                                        (4,051,623
                                        )
                                        
                                        
                                        (1,424,815
                                        )
                                        
                                        
                                        (15,129,961
                                        )
                                        
                                        
                                        (6,664,061
                                        )Less
      general partner interest in net loss
                                        
                                        
                                        (56,458
                                        )
                                        
                                        
                                        (20,561
                                        )
                                        
                                        
                                        (210,954
                                        )
                                        
                                        
                                        (97,820
                                        )Limited
      partner interest in net loss
                                        
                                        $
                                        (3,995,165
                                        )
                                        
                                        $
                                        (1,404,254
                                        )
                                        
                                        $
                                        (14,919,007
                                        )
                                        
                                        $
                                        (6,566,241
                                        )Net
      loss per general partner unit:Basic
      and diluted
                                        
                                        $
                                        (5.70
                                        )
                                        
                                        $
                                        (2.08
                                        )
                                        
                                        $
                                        (21.31
                                        )
                                        
                                        $
                                        (9.88
                                        )Weighted
      average general partner units outstanding
                                        
                                        
                                        9,900
                                        
                                        
                                        
                                        9,900
                                        
                                        
                                        
                                        9,900
                                        
                                        
                                        
                                        9,900Net
      loss per limited partner unit:Basic
      and diluted
                                        
                                        $
                                        (5.70
                                        )
                                        
                                        $
                                        (2.08
                                        )
                                        
                                        $
                                        (21.31
                                        )
                                        
                                        $
                                        (9.88
                                        )Weighted
      average limited partner units outstanding
                                        
                                        
                                        700,577
                                        
                                        
                                        
                                        676,156
                                        
                                        
                                        
                                        700,160
                                        
                                        
                                        
                                        664,556





37





Three
Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009 and
the Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30,
2009





Revenues


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





Revenues
increased approximately $8,078,000 for the three months ended June 30, 2010
compared to the three months ended June 30, 2009.  This increase is
due to our having eight vessels in service during the three months ended June
30, 2010, with six of the eight in service for the entire three months then
ended, in contrast with the two vessels in service during the three months ended
June 30, 2009, and only one of those in service for the entire three months
ended June 30, 2009.





Revenues
increased approximately $15,864,000 for the six months ended June 30, 2010
compared to the six months ended June 30, 2009, during which our second vessel
entered into its initial charter.  This increase is due to our having
six additional vessels in service during the six months ended June 30, 2010 in
comparison with the six months ended June 30, 2009.





Vessel Operating
Expenses


Vessel
operating expenses consist of expenses related to the operation of our vessels,
and do not include interest expense related to acquisition debt.  The
largest line items in our vessel operating expenses for the three and six months
ended June 30, 2010 are costs related to crewing our vessels, including crew
wages, and fueling costs.





Vessel
operating expenses increased approximately $5,353,000, from approximately
$3,537,000 for the three months ended June 30, 2009 compared to approximately
$8,890,000 for the three months ended June 30, 2010.  The increase is
due to our having six vessels in operation during the current three months,
whereas during the three months ended June 30, 2009, only two of our AHTS
vessels had been delivered.  The increases from our additional vessels
in service were partially offset by a decrease in repair costs, including
approximately $582,000 of charges related to vessel repairs incurred in the
three months ended June 30, 2009, most of which was related to damage to the
main winch of UOS Challenger sustained during operations.





Vessel
operating expenses increased approximately $12,159,000, from approximately
$4,202,000 for the six months ended June 30, 2009 compared to approximately
$16,361,000 for the six months ended June 30, 2010.  The increase is
due to our having six vessels in operation during the current three months,
whereas during the six months ended June 30, 2009, only one of our AHTS vessels
had been delivered.





Depreciation
expense


Depreciation
expense increased approximately $3,339,000, from approximately $968,000 for the
three months ended June 30, 2009 compared to approximately $4,307,000 for the
three ended June 30, 2010.  Depreciation expense increased
approximately $6,032,000 from approximately $1,088,000 for the six months ended
June 30, 2009 compared to approximately $7,120,000 for the six ended June 30,
2010.





These
increases are due to our having eight vessels in operation during the current
three and six months, whereas during the three and six months ended June 30,
2009, only two of our AHTS vessels had been delivered.





Professional
Fees


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





The
decrease in professional fees of approximately $247,000, or 33%, from
approximately $754,000 for the three months ended June 30, 2009 compared to
approximately $507,000 for the three months ended June 30, 2010, was due to a
decrease in legal fees of approximately $183,000, which was related to legal
work surrounding our restructuring and our initial registration statement with
the SEC which was filed in April 2009, and a decrease in our audit fees of
$37,000 related to audit work surrounding our registration
statement.  Consulting fees also decreased from quarter to quarter by
approximately $27,000 between the two periods.  Our administrative and
professional services fees remained consistent between the two
periods.





38





The
decrease in professional fees of approximately $909,000, or 47%, from
approximately $1,940,000 for the six months ended June 30, 2009 compared to
approximately $1,031,000 for the six months ended June 30, 2010, was due to
expenses incurred during the six months ended June 30, 2009 surrounding our
restructuring and our initial registration statement with the SEC, which was
filed in April 2009.  This amount includes decreases in legal and
professional fees of $819,000, and a decrease in audit and tax consulting fees
of approximately $90,000.





We expect
that our legal and professional fees will increase over time as our regulatory
and compliance costs increase, both due to our status as an SEC registrant and
due to the increasing activity of our vessels.





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 fell
due during the fourth quarter of 2009.





Our
brokerage and professional fees for the three and six months ended June 30, 2010
as compared to that for the three and six months ended June 30, 2009 decreased
by approximately $164,000 and $328,000, respectively, due to the expiration of
our agreement related to consulting services in negotiations for the acquisition
of the AHTS 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 $250,000, or 115%, from
approximately $217,000 for the three months ended June 30, 2009 to approximately
$467,000 for the three months ended June 30, 2010, was due to an increase in
commissions related to the chartering of our vessels of approximately $159,000
and an increase in shipping costs of approximately $58,000.  There was
also an increase of approximately $68,000 in office and miscellaneous costs,
including bank fees unrelated to financing arrangements, from increasing
operations, which was offset by decreases in travel and other costs of
approximately $35,000 due to normal fluctuations.





The
increase in other operating expenses of approximately $574,000, or 246%, from
approximately $233,000 for the six months ended June 30, 2009 to approximately
$807,000 for the six months ended June 30, 2010, was due to an increase in
commissions related to the chartering of our vessels of approximately $304,000
and an increase in shipping costs of approximately $139,000, and increases in
office and miscellaneous costs of $170,000.  These increases were
partially offset by decreases in travel and other costs of $39,000 due to normal
fluctuations.





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
the three and six months ended June 30, 2009, funds were still held in these
interest bearing pledged accounts.  The related loans were repaid with
the pledged funds in mid-2009.  Interest was also earned on short-term
loans to a related party.





Interest
income decreased approximately $115,000, or 59%, from approximately $195,000 for
the three months ended June 30, 2009 to approximately $80,000 for the three
months ended June 30, 2010.  Interest income decreased approximately
$755,000, or 87%, from approximately $865,000 for the six months ended June 30,
2009 to approximately $110,000 for the six months ended June 30,
2010.  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 in mid-2009, and a decrease in interest income from our related party
notes receivable, which were repaid to us during the second and third quarters
of 2009.




39




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, two related party loans which were entered into during the
fourth quarter of 2008, and loan agreements entered into with Reederei Hartmann
GmbH & Co. KG (“RHKG Loan Agreements”) and their affiliate (“Hartmann Loan
Agreement”), discussed further under Financing Arrangements under the Liquidity
and Capital Resourcessection of this Item
2.  The amount included in interest 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 amount of interest allocated to our assets
under construction is capitalized rather than expensed.





The
increase in interest expense of approximately $2,971,000, or 244%, from
approximately $1,217,000 for the three months ended June 30, 2009 to
approximately $4,188,000 for the three months ended June 30, 2010, was primarily
due to interest expense related to the drawdowns on our Senior Loan facility for
the delivery of our AHTS vessels, interest costs to the shipyard on late payment
of construction installments, and interest expense incurred on our RHKG Loan
Agreements and Hartmann Loan Agreement.  These increases were
partially offset by the capitalization of approximately $425,000 to our assets
under construction a result of the allocation of interest costs for the three
months ended June 30, 2010.  The agency and commitment fees related to
the Senior Loan, the guarantee fees due under the guarantee provided by Reederei
Hartmann, and amortization expense on the deferred loan costs also contributed
to the increase in interest expense.





The
increase in interest expense of approximately $4,056,000, or 220%, from
approximately $1,841,000 for the six months ended June 30, 2009 to approximately
$5,897,000 for the six months ended June 30, 2010, was due to the same factors
mentioned above for the three month period, related to the additional deliveries
of vessels and related interest expense under our Senior Loan facility and the
RHKG Loan Agreements and Hartmann Loan Agreement, in addition to the interest
expense paid to the shipyard on the late payment of construction
installments.





Loss on Interest Rate
Swaps


The
increase in the loss on interest rate swaps of approximately $5,211,000, from
$3,040,000 for the three months ended June 30, 2009 to $8,251,000 for the three
months ended June 30, 2010 is due to the recognition of changes in the valuation
of the interest rate swap agreements related to the Nord/LB senior loan facility
for our nine AHTS SPVs.  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 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 $25,475,000, due to the relatively low variable rates being
experienced as compared with the fixed rates under the swap
agreements.





The
increase in the loss on interest rate swaps of approximately $15,349,000, from
$3,568,000 for the six months ended June 30, 2009 to $18,917,000 for the six
months ended June 30, 2010 is due to the same factors mentioned above for the
three month period.





The
losses recognized for the change in fair value of our swap positions from period
to period are indicative of current expectations regarding when, if at all, and
by how much the variable interest rate under our Senior Loan with Nord/LB will
increase.  We entered into the interest rate swap agreements to
mitigate the uncertainty in interest costs under the variable rate in our Senior
Loan.





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 three and six
months ended June 30, 2009 to the three and six months ended June 30, 2010 was
caused by a continuation of a period of relatively high volatility in exchange
rates.  The primary 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.  The relatively high balances in these accounts in 2009 as
compared with the relatively low balances in 2010 due to the funding of amounts
to the shipyard for vessel construction led to decreases in recognition of the
related gains and losses as our cash accounts are re-valued.  As we no
longer hold significant cash balances in these accounts, the gain (loss) related
to the re-valuation of these accounts is no longer a significant factor in the
amount of our foreign currency transaction gain (loss).




40




The
remaining change in our foreign currency transaction gain (loss) is primarily
related to the recording of the current fair value of our currency forward
exchange contracts which are not designated as cash flow hedges.  The
change in value of these contracts from period to period is recognized in our
results of operations.  The gains recognized on these contracts for
the three and six months ended June 30, 2010 are related to the strengthening of
the US dollar against the Euro, and the fact that the forward contracts allow us
to sell Euros and purchase US dollars at preferential rates versus those
available in the market as of June 30, 2010.  Future fluctuations
in rates will affect the recognition in gains and losses under these
contracts.





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
non-controlling interest.





The
decrease of approximately $16,000 in the loss recognized from the operations of
the bulk carrier vessels, from a loss of $186,000 for the three months ended
June 30, 2009 to a loss of $170,000 for the three months ended June 30, 2010,
and the decrease of approximately $20,000, from a loss of approximately $309,000
for the six months ended June 30, 2009 to a loss of $289,000 for the six months
ended June 30, 2010, represents normal fluctuations in the activity of the
vessels.





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 three and six months ended June 30, 2009 and the
three and six months ended June 30, 2010, was primarily due to the difference in
income for the periods presented.







Liquidity
and Capital Resources





As of
June 30, 2010, we had cash of $15,163,922.  Since inception through
June 30, 2010, we have raised approximately $66,100,081, net of syndication
costs of approximately $4,764,739, 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 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 were later utilized to repay
the loans under the Berenberg Facility, and that facility was
terminated.  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.





Upon the
deliveries of the AHTS vessels, funds were drawn on the Senior
Loan.  Those funds were used to repay outstanding balances on loans
from Reederei Hartmann in the case of the first two vessels, and to pay the
outstanding installments on each vessel to Fincantieri.  The remaining
funds, where available, were utilized to pay for outfitting costs for the AHTS
vessels and to provide operating reserves for the AHTS SPVs.  Loans
between our nine AHTS SPVs also contributed to payment of the outfitting costs
for our three most recently delivered vessels and to provide reserves necessary
for early operations of the respective vessels.





41





Operating Cash
Flows


Operating
activities produced a net use of cash of approximately $7,430,000 for the six
months ended June 30, 2010, as compared to net cash used of approximately
$4,241,000 for the six months ended June 30, 2009, for an increase in net
cash used of approximately $3,189,000.  Net cash used in operations
increased between periods primarily due to our additional vessel deliveries, as
well as increases in accounts receivable due from charterers and decreases in
accounts payable and accrued expenses comparing the two
periods.  These affects were offset somewhat by decreases in prepaid
assets and increases in accrued interest payable comparing the two
periods.  The decrease in accounts payable and accrued expenses
relates to increases in accounts payable during the six months ended June 30,
2009 as vessels were under construction, in contrast with decreases in accounts
payable during the six months ended June 30, 2010 related to the payment of
accrued expenses upon delivery of six AHTS vessels during the six months ended
June 30, 2010.  The decrease in prepaid assets is mainly due to
vessels being placed in service and the related prepaid assets being recognized
in expense.





Investing Cash
Flows


Investing
activities used cash of approximately $238,924,000 for the six months ended June
30, 2010, as compared to $32,287,000 for the six months ended June 30, 2009, for
an increase in net cash used of approximately $206,637,000.  This was
due primarily to the use of approximately $233,642,000 for advances for vessel
acquisitions and construction costs during the six months ended June 30, 2010,
the majority of which was related to the deliveries of five vessels, the UOS
Discovery, UOS Endeavour, UOS Explorer, UOS Freedom, and UOS Liberty in
February, March, and June 2010, in comparison to $77,886,000 for the two vessels
delivered during the six months ended June 30, 2009, the UOS Atlantis and UOS
Challenger.  Related to our vessels, on board equipment totaling
approximately $6,188,000 was purchased during the six months ended June 30,
2010, whereas during the six months ended June 30, 2009, only $4,652,000 of on
board equipment was purchased.  Additionally, during the six months
ended June 30, 2009, restricted cash provided approximately $50,346,000 toward
investing activities, and due to our use of the restricted cash in 2009 to fund
our capital contributions to the AHTS SPVs, we no longer hold restricted
cash.  These factors were partially offset by a decrease of $1,003,000
in amounts due from related parties comparing the two periods.





Financing Cash
Flows


Net cash
provided by financing activities was approximately $246,465,000 for the six
months ended June 30, 2010 as compared to approximately $45,713,000 for the
six months ended June 30, 2009.  The difference is primarily related
to the evolution of our activity from fundraising to delivery of our AHTS
vessels.  The deliveries of UOS Discovery, UOS Endeavour, UOS
Explorer, UOS Freedom and UOS Liberty and the related proceeds drawn on the
Senior Loan of $213,930,000, and the RHKG Loans and Hartmann Loan proceeds
through which we funded our capital contributions to the AHTS SPVs Langeoog,
Amrum, Wangerooge, Neuwerk and Usedom of $29,403,000 occurred during the six
months ended June 30, 2010, in comparison with $98,469,000 of Senior Loan
proceeds drawn in the same period of 2009 for the deliveries of UOS Atlantis and
UOS Challenger.  Contributions from partners were approximately
$144,000 for the six months ended June 30, 2010, as compared with approximately
$4,680,000 for the six months ended June 30, 2009.





These
activities were offset slightly by principal repayments to Nord/LB of $8,022,000
during the six months ended June 30, 2010, versus only $1,026,000 in principal
repayments during the equivalent six month period in 2009.  During the
six months ended June 30, 2009, cash of approximately $46,837,000 was utilized
in net repayments on the Berenberg facility, and as we no longer utilize the
Berenberg facility, there were no similar expenditures in the current six month
period.  With respect to our related party loans, $9,207,000 was
repaid to related parties during the six months ended June 30, 2009, versus an
increase of $815,000 in accounts payable to related parties during the six
months ended June 30, 2010.  In addition, during the six months ended
June 30, 2010, our non-controlling interest contributed $10,798,000 to the AHTS
SPVs and received no distributions, and in contrast, only $1,673,000 was
received and distributions of $690,000 were recognized to the non-controlling
interest during the six months ended June 30, 2009.





Financing
Arrangements


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.  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, and satisfied the necessary
funding under the terms of the Senior Loan, allowing for delivery of the
respective vessel.




42




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
$30,650,490 (EUR 22,780,000) (“RHKG Loans”) 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, with the first of these dates falling between January and March
2011.  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 ownership
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 a potential increase
in the amount guaranteed by SACE S.P.A. of Roma, Italy, which is the Italian
export credit and reinsurance agency (“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.  Currently, we do not anticipate an increase in the amount
guaranteed by SACE leading to additional financing from Nord/LB.





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.





Hartmann Loan


On June
17, 2010, our German Subsidiary entered into a loan agreement with Captain
Alfred Hartmann (“Capt. Hartmann”), who is the chairman of the board for
Hartmann AG, which is a member of the Hartmann Group.  Reederei
Hartmann GmbH & Co., KG and certain other members of the Hartmann Group are
the non-controlling interest holders of our single purpose entities, each of
which holds an AHTS vessel.  Pursuant to the Hartmann Loan Agreement,
a total of $8,147,896 (EUR 6,620,000) was loaned to our German
Subsidiary.  The loan proceeds (“Hartmann Loan”) were paid to the
three AHTS SPVs which had not yet had their vessels delivered to them, and
resulted in the recognition of capital contributions from our German Subsidiary
to our AHTS SPVs Isle of Sylt, Isle of Neuwerk, and Isle of Usedom, totaling
$2,338,520 (EUR 1,900,000), $2,584,680 (EUR 2,100,000), and $3,224,696 (EUR
2,620,000), respectively.





These
capital contributions allowed us to draw on the Senior Loan facility, and as a
result, the vessels UOS Liberty, UOS Freedom, and UOS Enterprise were delivered
on June 23, June 29, and July 2, 2010, respectively to our AHTS SPVs Isle of
Usedom, Isle of Neuwerk, and Isle of Sylt.




43




The
Hartmann Loan Agreement matures 5 years from the date of signing.  The
agreement calls for interest to be calculated at 6% per annum, due annually at
the anniversary of the date of signing.  There is no penalty for
pre-payment of all or any portion of the loan prior to the end of the loan
period.  The terms of the agreement include the include the granting
of a security interest in our ownership interest in the corresponding AHTS SPVs,
and in the dividends from the AHTS SPVs arising from the pro-rata percentage of
the loan amount as compared to our total share capital.





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





Nord/LB
Facility


On
December 19, 2008, we entered into a $513,431,856 (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 Senior Loan were used to fund outstanding balances due to the shipyard at
delivery, and any excess will be retained toward working capital requirements of
each AHTS SPV.  A post-delivery credit facility (“Revolving Credit
Facility”) in the amount of $102,686,371 (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 internal rating class assigned within Nord/LB based
on the unused Senior Loan balance and the elapsed days within the
year.  An agency fee of $12,208 (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 $6,104 (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 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, 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, 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 $1,220,800 (EUR
1,000,000).  If interest incurred exceeds $1,220,800 (EUR 1,000,000),
the excess interest will be due at each interest payment date which can be every
three to six months.





Amounts
drawn on the Pre-Delivery Facility of the Senior Loan, which would be available
to fund installments to the shipyard during constructions, 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
$9,719,857 (EUR 7,961,875) and $45,932,786 (EUR 32,046,875) was outstanding at
June 30, 2010 and December 31, 2009, respectively.




44




At
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 delayed our
ability to make 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.  
The resolution to this situation is ongoing, and to date has included the
granting of loans from Reederei Hartmann and their affiliate to our German
Subsidiary under the RHKG and Hartmann Loan Agreements described above, leading
to the delivery of the remaining vessels.  In addition, the
shipbuilding contracts for those vessels were amended 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 six-month EURIBOR plus 2%,
currently 3.04%.





The
drawdowns accepted under the Senior Loan are as follows:




AHTS
      SPV
                              AHTS
      Vessel
                              Date
      of Drawdown
                              
                              Proceeds
                              
                              
                              Amounts
      paid
                                to
      FincantieriMS
      Juist
                              UOS
      Atlantis
                              February
      25, 2009
                              
                              $
                              44,689,067
                              
                              
                              $
                              38,092,384
                              (1)MS
      Norderney
                              UOS
      Challenger
                              May
      25, 2009
                              
                              $
                              49,080,519
                              
                              
                              $
                              42,249,368
                              (1)Isle
      of Baltrum
                              UOS
      Columbia
                              October
      2, 2009
                              
                              $
                              51,120,284
                              
                              
                              $
                              49,179,033Isle
      of Langeoog
                              UOS
      Discovery
                              February
      15, 2010
                              
                              $
                              47,790,771
                              
                              
                              $
                              46,304,079Isle
      of Amrum
                              UOS
      Endeavour
                              March
      10, 2010
                              
                              $
                              47,629,553
                              
                              
                              $
                              50,840,227Isle
      of Wangerooge
                              UOS
      Explorer
                              March
      12, 2010
                              
                              $
                              47,871,380
                              
                              
                              $
                              52,817,807Isle
      of Neuwerk
                              UOS
      Freedom
                              June
      25, 2010
                              
                              $
                              43,175,015
                              
                              
                              $
                              47,626,402Isle
      of Usedom
                              UOS
      Liberty
                              June
      22, 2010
                              
                              $
                              43,413,338
                              
                              
                              $
                              47,817,206Isle
      of Sylt
                              UOS
      Enterprise
                              July
      1, 2010
                              
                              $
                              42,936,692
                              
                              
                              $
                              46,193,217


(1)
            Amounts
      paid to Fincantieri for UOS Atlantis and UOS Challenger included
      $4,698,317 and $5,150,531 due to Reederei Hartmann for advances to pay for
      the 4th
      installment under the shipbuilding
contracts.





In each
case above, any remaining cash from each of the drawdowns was used to fund
operations and provide cash reserves to the respective SPV for future
operations.  Any shortfalls between the Senior Loan proceeds and the
amount outstanding to the shipyard at delivery were funded with cash reserves
from the respective AHTS SPV, or with proceeds from borrowings between the AHTS
SPVs.





At June
30, 2010 and December 31, 2009, a total of $329,808,657 (EUR 270,157,812) and
$145,468,080 (EUR 101,491,719), respectively, was outstanding under the Senior
Loan with an effective interest rate of 2.584% and 2.791%,
respectively.  The outstanding balance will be due in full in February
2021.  During the three and six months ended June 30, 2010 and 2009,
we incurred interest expense of $1,742,826 (EUR 1,365,744) and $3,002,789 (EUR
2,256,888) and $549,279 (EUR 403,259) and $706,910 (EUR 529,441), respectively,
related to the drawdowns on the Senior Loan.





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 $292,992,000
(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.  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 for the duration of the Senior Loan, associated,
for example, with the amount of capital infusions from outside investors into
the AHTS SPVs, limits on additional financing, restrictions of cargo and
weapons, directives regarding the structure and duration of charters related to
the ships, and certain restrictions on distributions.





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 Senior Loan 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.




45




Berenberg
Facility


In
November 2006, we entered into the Berenberg Facility with Berenberg Bank, a
German financial institution, allowing for borrowings up to $32,229,120 (EUR
26,400,000).  The Berenberg Facility was amended in March and May
2007, increasing the available borrowings to $61,406,240 (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.





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 June 30, 2010 and December 31, 2009 was 0%, as there were no outstanding
balances.  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 is 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 June 30, 2010 and December 31, 2009, there were no
borrowings and correspondingly no compensating balances held as restricted
cash.  We do not intend to utilize the Berenberg Facility in the
future.





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, the Schulte Group placed an order for
the chemical tanker for IMS Holdings 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 formed Anthos Shipping Co. Limited
(“Anthos”), a Cyprus SPV, to own the chemical tanker.  The equity of
Anthos would have been 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 June 30, 2010
and December 31, 2009, $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.




46




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.





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.





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 have elected to
abandon our option to purchase the chemical tanker.  We recognized an
impairment to the deposit on asset acquisition on our balance sheet as of
December 31, 2009 to reduce the carrying value of this asset, resulting in the
recognition of a loss on impairment of $9,874,907.  On April 9, 2010,
we abandoned our option to acquire the tanker, and under the terms of the
Amended MOA, we became subject to the $3,000,000 in liquidated damages and the
principal balance of $5,300,000 due under the facility was extinguished,
resulting in recognition of a $5,300,000 gain on the extinguishment of
debt.  The result is a net loss between these two events of
approximately $4,574,907, which in the end represents liquidating damages of
$3,000,000, plus the loss of our capitalized costs approximating
$1,574,907.  In addition, we recognized interest expense on the
Schulte Group Facility for the period ended June 30, 2010 totaling
$62,946.
 
 Since
that time, we have undertaken a review of the Schulte Group’s role in the
acquisition of the tanker.  This review includes a review of their
contractual responsibilities with respect to efforts to achieve pricing for the
tanker consistent with market fluctuations, and their construction oversight for
our vessels and the other pool vessels to assure that the shipyard was in a
position to timely fulfill its responsibilities under the shipbuilding
contracts, among other items.  Management is reviewing all options
available to us should we determine that further action is required against
either the Schulte Group, Conway Shipping I, Ltd, or the Hanseatic Tanker
Pool.





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.




June
      30,
                            
                            
                            December
      31,2010
                            
                            
                            2009Cash
      and cash equivalents
                            
                            $
                            164
                            
                            
                            $
                            956Related
      party receivable
                            
                            
                            -
                            
                            
                            
                            -Deferred
      loan fees
                            
                            
                            -
                            
                            
                            
                            -Total
      assets
                            
                            
                            164
                            
                            
                            
                            956Accounts
      payable and other accrued liabilities
                            
                            
                            95,946
                            
                            
                            
                            97,297Due
      to related party
                            
                            
                            137,117
                            
                            
                            
                            137,117Schulte
      Group note payable
                            
                            
                            -
                            
                            
                            
                            5,300,000Total
      liabilities
                            
                            
                            233,063
                            
                            
                            
                            5,534,414Net
      liabilities
                            
                            $
                            (232,899
                            )
                            
                            $
                            (5,533,458
                            )


47





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 have issued 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 was 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 have taken ownership of Anthos upon fulfilling the terms of
the MOA.  Each pre-delivery advance would have been required to be
repaid in full upon delivery of the chemical tanker to Anthos, but no later than
March 31, 2012.  Additionally, each delivery advance would have been
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 would have been paid in arrears on the last
day of each applicable interest period.  In the event the interest
period were longer than six months, interest would have been paid every six
months during such interest period and on the last day of any such interest
period.  Interest on the borrowings would be 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 would have been 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 would have been required to
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 would have been required to 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 would have been required to
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.





On April
9, 2010, we elected to abandon our option to purchase the chemical
tanker.  Therefore, we terminated the Deutsche Schiffsbank Facility
effective August 2, 2010.





Ongoing Capital
Expenditures


We had a
commitment to purchase one remaining AHTS vessel under construction as of June
30, 2010 at an estimated cost of $50,486,184 (EUR 41,355,000).  This
acquisition was completed on July 2, 2010.  Under the AHTS
shipbuilding contracts, installments were due in five stages based upon certain
milestones being met during construction.  Approximately 30% of the
total construction costs required deposits, some of which were to be funded with
equity while others were expected to 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.  For the three and six months ended June 30,
2010, we have incurred expenses of $90,758 (EUR 71,121) and $276,144 (EUR
207,549), respectively, related to the guarantee. The Hartmann Guarantee in
the amount of $9,719,857 (EUR 7,961,875) and $45,932,786 (EUR 32,046,875) was
outstanding at June 30, 2010 and December 31, 2009, respectively.




48




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 resolution to this situation is ongoing, and to date has
included the granting of loans from Reederei Hartmann and their affiliate to our
German Subsidiary under the RHKG and Hartmann Loan Agreements described above,
leading to the delivery of the remaining vessels.  In addition, the
shipbuilding contracts for those vessels were amended 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 six-month EURIBOR plus 2%,
currently 3.04%.





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 June 30, 2010 and
December 31, 2009, we incurred $442,823,010and $291,543,002,
respectively, in connection with the AHTS vessel acquisitions.





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 $610,400 (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.





Discussion of Short- and
Long-Term Liquidity Needs


Our
short- and long-term liquidity needs relate primarily to the funding of our
remaining capital contribution obligations to our AHTS SPVs to provide
sufficient reserves during the start-up period for our vessels, sufficient
liquidity for operations, and to provide funds necessary to comply with the 75%
restriction under the Senior Loan Facility, and funding of our debt service,
including the RHKG and Hartmann Loan Agreements, and our Senior Loan with
Nord/LB.





We expect
the delivery of the last of the twelve AHTS vessels to occur in October 2010 to
one of the three AHTS SPVs owned by FLTC Fund I.  Prior to this
delivery, an evaluation will be performed of the aggregate investment costs of
all twelve AHTS vessels financed under the Senior Loan facility for purposes of
determining the extent of restrictions on proceeds available under the Senior
Loan, under which total loan proceeds are limited to 75% of the aggregate
investment costs, 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.  To the extent the amount due to the
shipyard exceeds the amount available under the Senior Loan, and/or to the
extent that the total drawn under the Senior Loan must be equalized between our
nine AHTS SPVs and the three AHTS SPVs of FLTC Fund I, loans will be made from
our AHTS SPVs to the FLTC Fund I AHTS SPV to which the last vessel is delivered,
in order to comply with the terms of the Senior Loan Agreement.  Our
current estimation of the amount that will be required from our nine AHTS SPVs
due to this restriction on the aggregate Senior Loan proceeds is $17,579,520
(EUR 14,400,000).  We expect that net profits from operations over the
next two months will contribute to the funding of this amount.  Any
additional actions required to fund this amount are heavily dependent upon the
existence and extent of those net profits.





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 resolution is ongoing, and to date has included the
granting of loans from Reederei Hartmann and their affiliate to our German
Subsidiary under the RHKG and Hartmann Loan Agreements described
above.  Through the RHKG Loan Agreements, we funded our full capital
contribution to our AHTS SPVs Isle of Baltrum, Isle of Langeoog, Isle of Amrum,
and Isle of Wangerooge.  Through the Hartmann Loan Agreement, we
partially funded our capital contribution to our AHTS SPVs Isle of Sylt, Isle of
Neuwerk, and Isle of Usedom.  The borrowings and the resulting capital
contributions allowed for the funding by Nord/LB of the drawdowns under the
Senior Loan, leading to the delivery of our remaining AHTS vessels.




49




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 SPVs, including the obligation
related to the aggregate Senior Loan proceeds discussed above, 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.  The addendum to the Share Transfer Agreement executed on
February 10, 2010 calls for funding by Reederei Hartmann to give rise to a
loan from Reederei Hartmann to our German Subsidiary.  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 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.  There can be no guarantee
that Reederei Hartmann will be willing or able to extend additional RHKG Loan
Agreements on the same terms or at all for the remaining capital contribution
obligations.  In the event that Reederei Hartmann is unable or
unwilling to fund our unfunded capital to meet the obligations of the AHTS SPVs,
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.





Under the
AHTS SPV formation documents (“Company Agreements”), we have committed to
contribute capital to these entities totaling $128,184,000 (EUR 105,000,000)
(“Capital Commitment”).  This amount reflects an increase in our share
capital commitment for the Isle of Usedom SPV from $12,360,600 (EUR 10,125,000)
to $34,792,800 (EUR 28,500,000) in order to comply with the terms of the Senior
Loan.  Through contributions made to each SPV, we had funded
$86,548,616 (EUR 70,895,000) as of June 30, 2010, leaving our remaining capital
contribution obligation of $41,635,384 (EUR 34,105,000).





The table
below provides a schedule of unfunded capital commitments for each AHTS SPV as
of June 30, 2010:




Remaining
                                
                                
                                
                                Our
      share ofCapital
      Contribution
                                
                                Vessel
                                
                                Outstanding
      CapitalVessel
      Name
                                Vessel
      Name
                                
                                Obligation
      (1)
                                
                                Delivery
      Date
                                
                                Contributions6160
      –  MS Juist
                                UOS
      Atlantis
                                
                                $
                                1,825,096
                                
                                February
      27, 2009
                                
                                $
                                1,825,0966161
      –  MS Norderney
                                UOS
      Challenger
                                
                                
                                2,771,216
                                
                                May
      28, 2009
                                
                                
                                2,771,2166169
      –  Isle of Sylt
                                UOS
      Enterprise
                                
                                
                                4,883,200
                                
                                July
      2, 2010
                                
                                
                                4,883,2006172
      –  Isle of Neuwerk
                                UOS
      Freedom
                                
                                
                                4,877,096
                                
                                June
      29, 2010
                                
                                
                                4,877,0966173
      –  Isle of Usedom
                                UOS
      Liberty
                                
                                
                                32,589,256
                                
                                June
      23, 2010
                                
                                
                                27,278,776$
                                46,945,864
                                
                                
                                
                                $
                                41,635,384




(1)
            Pursuant
      to the AHTS SPV Agreements, the non-controlling interest holders are
      committed to contribute $5,310,480 (EUR 4,350,000) of this
      amount.





The
remaining capital contributions, if called, will be utilized by the AHTS SPVs
for outfitting of our recently delivered vessels and for operations to 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 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.




50




We
continue to raise funds through private placement of our limited partner units,
both to new and existing investors.  The proceeds from future
fundraising efforts through the continued offering of limited partner units 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 provide reserves for the operations of each
SPV.  Additionally, to the extent we are able to operate our AHTS SPVs
profitably, if at all, our share of profits will be utilized to service our debt
and to fund our remaining capital contributions obligations.





In
summary, through June 30, 2010, we had contributed capital totaling $86,548,616
(EUR 70,895,000) 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, supplemented by proceeds
from the RHKG Loan Agreements and the Hartmann Loan Agreement.  Our
AHTS vessels have been delivered.  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.  Our remaining capital contribution obligation to the AHTS
SPV’s approximates $41,635,384 (EUR 34,105,000).  Funding this amount
would represent full funding of our obligation under the current Company
Agreements for each AHTS SPV.





Outlook for
Distributions


We do not
anticipate making distributions in the future until the funding stage is
completed.  Additionally, the combined terms of the Share Transfer
Agreement as amended and the RHKG Loan Agreements and Hartmann Loan Agreement
require the German Subsidiary to reserve distributions from the AHTS SPV’s for
repayment of the RHKG and Hartmann Loan Agreements, and additionally require
that distributions either outside the scope of the RHKG and Hartmann Loan
Agreements or beyond amounts required to repay the RHKG and Hartmann 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 the dividend restrictions currently in the Senior Loan, and
ultimately will depend 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 September 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.




51




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, non-current 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 (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.





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.





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.





Dry
Docking


We
estimate expenses for periodic maintenance, which is referred to as dry docking
expense.  These costs are incurred approximately every two and
one-half years, and are accrued monthly in our vessel operating
expense.  If actual expenses differ materially from our estimates, it
could have a material effect on our results of operations and our net daily
earnings for any given period.





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 were re-evaluating our intentions
with respect to the chemical tanker, and have since terminated our option to
acquire the tanker.  We recorded an impairment to the deposit on asset
acquisition on our balance sheet as of December 31, 2009 to reduce the carrying
value of this asset to zero, resulting in the recognition of a loss on
impairment of $9,874,907.







New
Accounting Pronouncements





None




52




Item
4. Controls and Procedures





As of
June 30, 2010, 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 period ended June 30, 2010, 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.




53





PART
II.  Other Information





Item
1. 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 June 30, 2010, 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.







Item
1A.  Risk Factors





Investing
in us involves a degree of risk, including the risks described in our Annual
Report on Form 10-K for the year ended December 31, 2009 as filed with the SEC.
Our 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 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 risks referred to above 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.







Item
2. Unregistered Sales of Equity Securities and Use of Proceeds





During
the three months ended June 30, 2010, we issued and sold approximately 219 Class
A limited partnership units to our partners at a purchase price of $100.00 per
unit.





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 $21,900.





Use
of Proceeds of Registered Securities


The
proceeds from the sale of limited partnership units have been used to provide
equity in our AHTS vessel entities and to provide funding for our operating
activities.




54




Item
6. Exhibits





Exhibit
      Number
            
            Title
      of Document10.1
            
            Loan
      Agreement, dated effective as of June 17, 2010, by and between Suresh
      Capital Maritime Partners Germany GmbH, as Borrower and Capt. Alfred
      Hartmann, as Lender (Incorporated by reference to Exhibit 10.1 to our
      Current Report on Form 8-K filed with the SEC on June 23,
      2010)10.2
            
            Addendum
      to the Shipbuilding Contract – Usedom, dated June 17, 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Usedom” KG (Incorporated by reference to Exhibit 10.2 to our
      Current Report on Form 8-K filed with the SEC on June 23,
      2010)10.3*
            
            Addendum
      to the Shipbuilding Contract – Neuwerk, dated June 22, 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Neuwerk” KG.10.4*
            
            Addendum
      to the Shipbuilding Contract – Sylt, dated June 25, 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Sylt” KG.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.




55





SIGNATURE




Pursuant
to the requirements 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/  Jason
      M. MortonJason
      M. MortonDirector
      and Chief Financial Officer(Duly
      authorized to sign this report on behalf of the
  Registrant)Date: August
      16, 2010




56





Exhibits





Exhibit
      Number
            
            Title
      of Document10.1
            
            Loan
      Agreement, dated effective as of June 17, 2010, by and between Suresh
      Capital Maritime Partners Germany GmbH, as Borrower and Capt. Alfred
      Hartmann, as Lender (Incorporated by reference to Exhibit 10.1 to our
      Current Report on Form 8-K filed with the SEC on June 23,
      2010)10.2
            
            Addendum
      to the Shipbuilding Contract – Usedom, dated June 17, 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Usedom” KG (Incorporated by reference to Exhibit 10.2 to our
      Current Report on Form 8-K filed with the SEC on June 23,
      2010)10.3*
            
            Addendum
      to the Shipbuilding Contract – Neuwerk, dated June 22, 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Neuwerk” KG.10.4*
            
            Addendum
      to the Shipbuilding Contract – Sylt, dated June 25, 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Sylt” KG.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.




57