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 March 31, 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 March 31, 2010 (unaudited) and December 31,
      2009
                                                                5Consolidated
      Statements of Operations for the three months ended March 31, 2010 and
      2009 (unaudited)
                                                                6Consolidated
      Statements of Equity as of March 31, 2010 (unaudited) and December 31,
      2009
                                                                7Consolidated
      Statements of Cash Flows for the three months ended March 31, 2010 and
      2009 (unaudited)
                                                                8Consolidated
      Statements of Comprehensive Income (Loss) for the three months ended March
      31, 2010 and 2009 (unaudited)
                                                                9Notes
      to Consolidated Financial Statements (unaudited)
                                                                10Item
      2.
                                                                
                                                                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                                32Item
      4.
                                                                
                                                                Controls
      and Procedures
                                                                51PART
      II.
                                                                
                                                                Other
      Information
                                                                52Item
      1.
                                                                
                                                                Legal
      Proceedings
                                                                52Item
      1A.
                                                                
                                                                Risk
      Factors
                                                                52Item
      2.
                                                                
                                                                Unregistered
      Sales of Equity Securities and Use of Proceeds
                                                                52Item
      6.
                                                                
                                                                Exhibits
                                                                53
  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;


·
            expected
      delivery of the anchor handling tug supply
  ships;


·
            estimated
      future maintenance capital
expenditures;


·
            the
      absence of future disputes or other
  disturbances;


·
            increasing
      emphasis on environmental and safety
concerns;


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


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




March
      31,
                                                        
                                                        
                                                        December
      31,2010
                                                        
                                                        
                                                        2009ASSETSCash
                                                        
                                                        $
                                                        30,101,240
                                                        
                                                        
                                                        $
                                                        18,267,260Related
      party receivables
                                                        
                                                        
                                                        1,493,007
                                                        
                                                        
                                                        
                                                        1,949,363Due
      from charterers
                                                        
                                                        
                                                        3,355,297
                                                        
                                                        
                                                        
                                                        3,263,009Other
      receivables
                                                        
                                                        
                                                        14,900
                                                        
                                                        
                                                        
                                                        28,788Prepaid
      assets
                                                        
                                                        
                                                        1,168,887
                                                        
                                                        
                                                        
                                                        214,490Current
      derivative assets
                                                        
                                                        
                                                        275,052
                                                        
                                                        
                                                        
                                                        2,773,820Other
      current assets
                                                        
                                                        
                                                        1,218,949
                                                        
                                                        
                                                        
                                                        1,142,499Current
      assets
                                                        
                                                        
                                                        37,627,332
                                                        
                                                        
                                                        
                                                        27,639,229Vessels
                                                        
                                                        
                                                        330,347,141
                                                        
                                                        
                                                        
                                                        168,478,062Vessel
      construction in progress
                                                        
                                                        
                                                        50,603,979
                                                        
                                                        
                                                        
                                                        111,152,161On
      board equipment
                                                        
                                                        
                                                        15,870,867
                                                        
                                                        
                                                        
                                                        11,912,779396,821,987
                                                        
                                                        
                                                        
                                                        291,543,002Less
      accumulated depreciation
                                                        
                                                        
                                                        (7,427,881
                                                        )
                                                        
                                                        
                                                        (5,003,164
                                                        )Vessels
      and equipment, net
                                                        
                                                        
                                                        389,394,106
                                                        
                                                        
                                                        
                                                        286,539,838Investment
      in unconsolidated entities
                                                        
                                                        
                                                        2,679,548
                                                        
                                                        
                                                        
                                                        2,977,432Deferred
      loan fees, net
                                                        
                                                        
                                                        3,299,262
                                                        
                                                        
                                                        
                                                        3,554,818Derivative
      assets, net of current portion
                                                        
                                                        
                                                        210,670
                                                        
                                                        
                                                        
                                                        2,797,433Other
      assets
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        207Total
      assets
                                                        
                                                        $
                                                        433,210,918
                                                        
                                                        
                                                        $
                                                        323,508,957LIABILITIES
      AND EQUITYAccounts
      payable and other accrued liabilities
                                                        
                                                        $
                                                        14,921,713
                                                        
                                                        
                                                        $
                                                        15,400,959Vessel
      construction installments payable
                                                        
                                                        
                                                        28,320,229
                                                        
                                                        
                                                        
                                                        65,019,372Accrued
      interest payable
                                                        
                                                        
                                                        347,880
                                                        
                                                        
                                                        
                                                        173,608Due
      to related party
                                                        
                                                        
                                                        2,316,222
                                                        
                                                        
                                                        
                                                        852,663Current
      derivative liabilities
                                                        
                                                        
                                                        8,439,400
                                                        
                                                        
                                                        
                                                        4,522,274Current
      portion of long-term debt
                                                        
                                                        
                                                        28,878,200
                                                        
                                                        
                                                        
                                                        17,858,391Current
      portion of note payable to related party
                                                        
                                                        
                                                        477,500
                                                        
                                                        
                                                        
                                                        -Current
      liabilities
                                                        
                                                        
                                                        83,701,144
                                                        
                                                        
                                                        
                                                        103,827,267Long-term
      derivative liabilities
                                                        
                                                        
                                                        12,112,061
                                                        
                                                        
                                                        
                                                        5,007,963Notes
      payable to related party
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        477,500Long-term
      debt, net of current portion
                                                        
                                                        
                                                        282,151,355
                                                        
                                                        
                                                        
                                                        140,527,679Total
      liabilities
                                                        
                                                        
                                                        377,964,560
                                                        
                                                        
                                                        
                                                        249,840,409Commitments
      and contingenciesIII
      to I Maritime Partners Cayman I, L.P. partners' equity:General
      partner
                                                        
                                                        
                                                        354,296
                                                        
                                                        
                                                        
                                                        514,138Class
      A limited partners (units issued and outstanding:March
      31, 2010 - 614,216, December 31, 2009 - 612,244)
                                                        
                                                        
                                                        26,752,590
                                                        
                                                        
                                                        
                                                        36,459,320Class
      B limited partners (units issued and outstanding:March
      31, 2010 - 84,313, December 31, 2009 - 84,313)
                                                        
                                                        
                                                        3,427,777
                                                        
                                                        
                                                        
                                                        4,789,036Class
      D limited partners (units issued and outstanding:March
      31, 2010 - 2,000, December 31, 2009 - 2,000)
                                                        
                                                        
                                                        (137,543
                                                        )
                                                        
                                                        
                                                        (105,253
                                                        )Accumulated
      other comprehensive (loss) income
                                                        
                                                        
                                                        (2,579,664
                                                        )
                                                        
                                                        
                                                        6,456,857III
      to I Maritime Partners Cayman I, L.P. partners' equity
                                                        
                                                        
                                                        27,817,456
                                                        
                                                        
                                                        
                                                        48,114,098Non-controlling
      interest
                                                        
                                                        
                                                        27,428,902
                                                        
                                                        
                                                        
                                                        25,554,450Total
      equity
                                                        
                                                        
                                                        55,246,358
                                                        
                                                        
                                                        
                                                        73,668,548Total
      liabilities and equity
                                                        
                                                        $
                                                        433,210,918
                                                        
                                                        
                                                        $
                                                        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 March 31,2010
                                  
                                  
                                  2009Time
      charter revenue
                                  
                                  $
                                  8,613,954
                                  
                                  
                                  $
                                  827,177Operating
      expenses:Vessel
      operating expenses
                                  
                                  
                                  7,470,337
                                  
                                  
                                  
                                  665,103Depreciation
      expense
                                  
                                  
                                  2,812,796
                                  
                                  
                                  
                                  120,142Professional
      fees
                                  
                                  
                                  524,377
                                  
                                  
                                  
                                  1,185,984Brokerage
      and representation fees
                                  
                                  
                                  -
                                  
                                  
                                  
                                  164,063Other
      operating expenses
                                  
                                  
                                  340,414
                                  
                                  
                                  
                                  16,213Total
      operating expenses
                                  
                                  
                                  11,147,924
                                  
                                  
                                  
                                  2,151,505Operating
      loss
                                  
                                  
                                  (2,533,970
                                  )
                                  
                                  
                                  (1,324,328
                                  )Other
      income (expense):Interest
      income
                                  
                                  
                                  30,433
                                  
                                  
                                  
                                  669,835Interest
      expense
                                  
                                  
                                  (1,709,054
                                  )
                                  
                                  
                                  (623,501
                                  )Net
      loss on interest rate swaps
                                  
                                  
                                  (10,666,098
                                  )
                                  
                                  
                                  (528,185
                                  )Foreign
      currency transaction gain (loss)
                                  
                                  
                                  620,858
                                  
                                  
                                  
                                  (3,457,533
                                  )Equity
      in loss of unconsolidated entities
                                  
                                  
                                  (118,936
                                  )
                                  
                                  
                                  (122,759
                                  )Total
      other expense
                                  
                                  
                                  (11,842,797
                                  )
                                  
                                  
                                  (4,062,143
                                  )Net
      loss
                                  
                                  
                                  (14,376,767
                                  )
                                  
                                  
                                  (5,386,471
                                  )Net
      loss attributable to thenon-controlling
      interest
                                  
                                  
                                  3,298,429
                                  
                                  
                                  
                                  147,225Net
      loss attributable to III to I Maritime
                                  
                                  
                                  (11,078,338
                                  )
                                  
                                  
                                  (5,239,246
                                  )Partners
      Cayman I, L.P.Less
      general partner interest in net loss
                                  
                                  
                                  (154,555
                                  )
                                  
                                  
                                  (78,267
                                  )Limited
      partner interest in net loss
                                  
                                  $
                                  (10,923,783
                                  )
                                  
                                  $
                                  (5,160,979
                                  )Net
      loss per general partner unit:Basic
      and diluted
                                  
                                  $
                                  (15.61
                                  )
                                  
                                  $
                                  (7.91
                                  )Weighted
      average general partner units outstanding
                                  
                                  
                                  9,900
                                  
                                  
                                  
                                  9,900Net
      loss per limited partner unit:Basic
      and diluted
                                  
                                  $
                                  (15.61
                                  )
                                  
                                  $
                                  (7.91
                                  )Weighted
      average limited partner units outstanding
                                  
                                  
                                  699,738
                                  
                                  
                                  
                                  652,827


See Notes
to Consolidated Financial Statements.




6




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


CONSOLIDATED
STATEMENTS OF EQUITY


(Unaudited)




III
      to I Maritime Partners Cayman I, L.P.AccumulatedClass
      A
                          
                          
                          Class
      B
                          
                          
                          Class
      D
                          
                          
                          OtherGeneral
                          
                          
                          Limited
                          
                          
                          Limited
                          
                          
                          Limited
                          
                          
                          Comprehensive
                          
                          
                          Non-controllingPartner
                          
                          
                          Partners
                          
                          
                          Partners
                          
                          
                          Partners
                          
                          
                          Income
      (Loss)
                          
                          
                          Interest
                          
                          
                          TotalBalance
      at January 1, 2010
                          
                          $
                          514,138
                          
                          
                          $
                          36,459,320
                          
                          
                          $
                          4,789,036
                          
                          
                          $
                          (105,253
                          )
                          
                          $
                          6,456,857
                          
                          
                          $
                          25,554,450
                          
                          
                          $
                          73,668,548Contributions,
      net of syndication costs
                          
                          
                          (5,287
                          )
                          
                          
                          (130,401
                          )
                          
                          
                          (45,027
                          )
                          
                          
                          (1,068
                          )
                          
                          
                          -
                          
                          
                          
                          6,907,018
                          
                          
                          
                          6,725,235Net
      loss
                          
                          
                          (154,555
                          )
                          
                          
                          (9,576,329
                          )
                          
                          
                          (1,316,232
                          )
                          
                          
                          (31,222
                          )
                          
                          
                          -
                          
                          
                          
                          (3,298,429
                          )
                          
                          
                          (14,376,767
                          )Forward
      currency exchange contracts
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (4,518,534
                          )
                          
                          
                          (1,506,178
                          )
                          
                          
                          (6,024,712
                          )Foreign
      currency translation adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (4,517,987
                          )
                          
                          
                          (227,959
                          )
                          
                          
                          (4,745,946
                          )Balance
      at March 31, 2010
                          
                          $
                          354,296
                          
                          
                          $
                          26,752,590
                          
                          
                          $
                          3,427,777
                          
                          
                          $
                          (137,543
                          )
                          
                          $
                          (2,579,664
                          )
                          
                          $
                          27,428,902
                          
                          
                          $
                          55,246,358





See Notes
to Consolidated Financial Statements.




7





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


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


Three
      Months Ended March 31,2010
                            
                            
                            2009Operating
      activities:Net
      loss
                            
                            $
                            (14,376,767
                            )
                            
                            $
                            (5,386,471
                            )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
                            
                            
                            2,812,796
                            
                            
                            
                            120,142Amortization
      of deferred loan fees
                            
                            
                            38,924
                            
                            
                            
                            94,630Foreign
      currency transaction (gain) loss
                            
                            
                            (391,941
                            )
                            
                            
                            3,457,533Net
      gain on forward currency exchange contracts
                            
                            
                            (216,392
                            )
                            
                            
                            -Net
      loss on interest rate swap
                            
                            
                            10,666,098
                            
                            
                            
                            528,185Settlement
      of hedge instruments
                            
                            
                            (12,525
                            )
                            
                            
                            -Equity
      in loss of unconsolidated entities
                            
                            
                            118,936
                            
                            
                            
                            122,759Payment
      of interest on Berenberg Facility
                            
                            
                            -
                            
                            
                            
                            (554,890
                            )Changes
      in assets and liabilities:Due
      from charterers
                            
                            
                            (292,169
                            )
                            
                            
                            -Other
      receivables
                            
                            
                            12,123
                            
                            
                            
                            (835,345
                            )Prepaid
      and other assets
                            
                            
                            (1,113,188
                            )
                            
                            
                            31,610Accounts
      payable and accrued liabilities
                            
                            
                            398,798
                            
                            
                            
                            269,551Accrued
      interest payable
                            
                            
                            181,272
                            
                            
                            
                            (24,767
                            )Net
      cash used in operating activities
                            
                            
                            (2,174,035
                            )
                            
                            
                            (2,177,063
                            )Investing
      activities:Net
      related party receivable
                            
                            
                            452,496
                            
                            
                            
                            (189,500
                            )Advances
      for vessel acquisitions
                            
                            
                            (147,018,476
                            )
                            
                            
                            (34,607,206
                            )Advances
      for capitalized vessel construction costs
                            
                            
                            (4,484,408
                            )
                            
                            
                            (1,109,304
                            )Purchase
      of on board equipment
                            
                            
                            (4,687,831
                            )
                            
                            
                            (2,160,047
                            )Decrease
      in restricted cash
                            
                            
                            -
                            
                            
                            
                            11,748,025Net
      cash used in investing activities
                            
                            
                            (155,738,219
                            )
                            
                            
                            (26,318,032
                            )Financing
      activities:Proceeds
      from Berenberg Facility
                            
                            
                            -
                            
                            
                            
                            911,440Repayments
      on Berenberg Facility
                            
                            
                            -
                            
                            
                            
                            (8,618,220
                            )Proceeds
      from senior loan with Nord/LB
                            
                            
                            141,469,232
                            
                            
                            
                            46,290,738Repayments
      on senior loan with Nord/LB
                            
                            
                            (2,947,276
                            )
                            
                            
                            -Proceeds
      from RHKG Loan Agreements
                            
                            
                            23,499,158
                            
                            
                            
                            -Deferred
      loan fees
                            
                            
                            -
                            
                            
                            
                            (35,557
                            )Repayment
      of related party note payable
                            
                            
                            -
                            
                            
                            
                            (5,106,997
                            )Net
      accounts payable to related party
                            
                            
                            1,515,792
                            
                            
                            
                            1,057,544Contributions
      from partners
                            
                            
                            197,200
                            
                            
                            
                            2,674,100Unaccepted
      equity contributions
                            
                            
                            -
                            
                            
                            
                            (234,500
                            )Syndication
      costs
                            
                            
                            (168,936
                            )
                            
                            
                            -Contributions
      from non-controlling interests
                            
                            
                            7,033,346
                            
                            
                            
                            -Distributions
      to non-controlling interests
                            
                            
                            -
                            
                            
                            
                            (618,961
                            )Net
      cash provided by financing activities
                            
                            
                            170,598,516
                            
                            
                            
                            36,319,587Effect
      of exchange rate changes on cash
                            
                            
                            (852,282
                            )
                            
                            
                            (3,635,777
                            )Net
      increase in cash
                            
                            
                            11,833,980
                            
                            
                            
                            4,188,715Cash,
      beginning of year
                            
                            
                            18,267,260
                            
                            
                            
                            2,222,196Cash,
      end of period
                            
                            $
                            30,101,240
                            
                            
                            $
                            6,410,911Non-cash
      financing and investing activities:Syndication
      costs financed through accounts payable
                            
                            $
                            336,375
                            
                            
                            $
                            -




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 March 31,2010
                          
                          
                          2009Net
      loss
                          
                          $
                          (14,376,767
                          )
                          
                          $
                          (5,386,471
                          )Foreign
      currency exchange forward contracts
                          
                          
                          (6,024,712
                          )
                          
                          
                          -Foreign
      currency translation adjustment
                          
                          
                          (4,745,946
                          )
                          
                          
                          (921,970
                          )Comprehensive
      loss
                          
                          $
                          (25,147,425
                          )
                          
                          $
                          (6,308,441
                          )





See Notes
to Consolidated Financial Statements.




9




III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 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 March 31, 2010 and December 31, 2009, and the results
of operations and cash flows for the three months ended March 31, 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 March 31,
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 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 corporation (“General Partner”), believes such activities
will benefit our core business of shipping operations.  We are
authorized to issue Class A, Class B, Class C and Class D limited partner units
as well as general partner units.  To date we have issued Class A,
Class B and Class D limited partner units and general partner
units.  As of March 31, 2010, delivery of six of our AHTS vessels had
occurred from the shipyard, Fincantieri Cantieri Navali Italiani SpA
(“Fincantieri”) in Italy, and we had contracts to purchase three additional new
AHTS vessels currently under construction by Fincantieri.




10


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)


Delivery
of six AHTS vessels has occurred as follows:




AHTS
      SPV
                  Vessel
      Name
                  Delivery
      Date6160
      –  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, 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.  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 holds a
shipbuilding contract for one AHTS vessel which will be operated through the
respective SPV upon delivery.  Each SPV was formed for the purpose of
acquiring, managing and operating a single maritime vessel.  In
December 2007 and January 2008, we transferred our interest in three of the 12
AHTS SPVs 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
 MARCH
31, 2010
 (Unaudited)


In
addition to our AHTS acquisitions and the acquisition of interests in the
mini-bulkers, we had advanced funds for the potential purchase of a chemical
tanker to be held in an 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 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 March 31, 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 March 31,
2010, per FASB ASC 825 Financial Instruments and the
remainder was impaired as of December 31, 2009.  See Note 2. Maritime
Vessels for additional information regarding the option to acquire the chemical
tanker.





Profits
and losses are allocated among our partners in accordance with the Second
Amended and Restated Agreement of Limited Partnership (“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 accounting principles
generally accepted in the United States (“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 and net income or
loss.  Vessels will regularly move between countries in international
waters.  It is therefore impractible to assign revenues or earnings
from operations by geographical area.





Segment
Reporting


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





Use of
Estimates


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




12


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)


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.





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 receivables for
collectability and establish an allowance as necessary for individual customer
balances.  As of March 31, 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 within current derivative assets, derivative assets, current
derivative liabilities or long-term derivative liabilities on our consolidated
balance sheet.





Realized
and unrealized gains and losses related to our foreign currency exchange
contracts not classified as hedges are reported in our consolidated statements
of operations in foreign currency transaction gain (loss).  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 vessel’s 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.




13


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)


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 March 31, 2010.





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, which does not create a significant difference
from the effective interest method.  Deferred loan fees at March 31,
2010 and December 31, 2009 amounted to $3,299,262 and $3,554,818, respectively,
net of accumulated amortization of $97,392 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 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 owned by FLTC Fund I is delivered and
begins to participate in the UOS AHTS Pool, which is expected in
mid-2010.  After such time, our revenue will be recorded taking into
account potential pool adjustments for the period.




14




III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)


Three
customers represented 82.8% of our revenue for the three months ended March 31,
2010.  During the three months ended March 31, 2009, one customer
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.  We are the primary obligor in the
arrangement.  Whether a supplier or our entity is responsible for
providing the product or service desired by the charterer is a strong indicator
of our entity’s role in the transaction. If we are responsible for fulfillment,
including the acceptability of the products or services ordered or purchased by
the charterer, that fact is a strong indicator that we have risks and rewards of
a principal in the transaction and that we should record revenue gross based on
the amount billed to the charterer. Representations (written or otherwise) made
by our entity during marketing and the terms of the sales contract generally
will provide evidence as to whether we or the supplier is responsible for
fulfilling the ordered product or service. Responsibility for arranging
transportation for the product ordered by a charterer is not responsibility for
fulfillment.  Unmitigated general inventory risk is a strong indicator
that we have risks and rewards as a principal in the transaction and, therefore,
revenue should be recorded gross based on the amount billed to the
charterer.





Foreign Currency
Translation


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





During
the periods ended March 31, 2010 and 2009, we incurred foreign currency
transaction gain (loss) of $620,858 and ($3,457,533), respectively. These
amounts include the effect of changes in the valuation of the forward currency
exchange contracts as well as translation of our deposit balances held in EUR to
USD at the reporting dates.





Included
in other accumulated comprehensive income (loss) are the changes in foreign
currency translation adjustments representing a gain (loss) of ($1,885,554) and
$2,632,434 for the periods ended March 31, 2010 and December 31, 2009,
respectively, which resulted from the translation of our financial statements
from the functional currency of EUR to the reporting currency of
USD.





We
exclude foreign currency transaction gains and losses resulting from
intercompany foreign currency transactions that are long-term in nature from the
determination of net income (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 March 31, 2010 and December
31, 2009.




15


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)


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





We are
subject to foreign income taxes in Cyprus and Germany.  Accordingly,
all tax years since inception are still subject to audit by the taxing
authorities in those jurisdictions.  Our AHTS SPVs are subject to the
tonnage tax regime in Germany, which results in the AHTS SPVs being taxed on the
net tonnage of the AHTS vessels rather than the income generated in the AHTS
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 March 31, 2010, the
construction and delivery of the first six AHTS vessels was
complete.  The estimated cost of each AHTS vessel ranges from
$49,997,435 (EUR 37,159,000) to $57,311,573 (EUR 42,595,000) for a total
commitment for the nine vessels of $484,849,580 (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 our Senior
Loan.  Amounts drawn on our Senior Loan require either that each AHTS
SPV is fully funded based on the capital as called for in the AHTS SPV company
agreements, or provision of a guarantee acceptable to Nord/LB.  A
guarantee from Reederei Hartmann, our non-controlling interest holder and, with
its affiliates, the 25% owner of the three AHTS SPVs of FLTC Fund I, (“Hartmann
Guarantee”) in the amount of $19,619,913 (EUR 14,581,875) and $43,119,070 (EUR
32,046,875) was outstanding at March 31, 2010 and December 31, 2009,
respectively.





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 March 31, 2010 and December 31, 2009, we incurred
$396,821,987 and $291,543,002, respectively, in connection with the acquisition
of the AHTS vessels.  The remaining three AHTS vessels are scheduled
to be delivered in May 2010, although delays of one to two months are
expected.  Each of our AHTS vessels 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.




16


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)


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





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, 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 March 31, 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 March 31, 2010, per FASB ASC
825 Financial
Instruments and the remainder was impaired as of December 31,
2009.





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.




17


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)


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




March
      31,
                                        
                                        
                                        December
      31,2010
                                        
                                        
                                        2009Assets
                                        
                                        $
                                        24,005,214
                                        
                                        
                                        $
                                        24,901,430Liabilities
                                        
                                        $
                                        18,440,751
                                        
                                        
                                        $
                                        18,722,777Equity
                                        
                                        
                                        5,564,463
                                        
                                        
                                        
                                        6,178,653Total
      liabilities and equity
                                        
                                        $
                                        24,005,214
                                        
                                        
                                        $
                                        24,901,430Three
      Months Ended March 31,2010
                                        
                                        
                                        2009For
      the PeriodRevenue
                                        
                                        $
                                        1,844,832
                                        
                                        
                                        $
                                        2,030,089Expenses
                                        
                                        
                                        (2,087,560
                                        )
                                        
                                        
                                        (2,278,741
                                        )Net
      loss
                                        
                                        $
                                        (242,728
                                        )
                                        
                                        $
                                        (248,652
                                        )Interest
      in net loss of unconsolidated entities
                                        
                                        $
                                        (118,936
                                        )
                                        
                                        $
                                        (122,759
                                        )


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 $47,039 between the amount at which the investment is reflected on
our consolidated balance sheet as of March 31, 2010, $2,679,548, and 49% of the
equity as shown on the financial information above, $2,726,587, 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 March
31, 2010.





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 as shown on the financial
information above, $3,027,540, is related to the difference in the rates
utilized to translate the equity accounts and the investment in unconsolidated
entities on our consolidated balance sheet at December 31, 2009.




18




III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)




4.      Long-Term
Debt




March
      31,
                              
                              
                              December
      31,2010
                              
                              
                              2009RHKG
      Loan Agreements
                              
                              $
                              30,650,490
                              
                              
                              $
                              7,617,990Nord/LB
      Facility
                              
                              
                              275,079,065
                              
                              
                              
                              145,468,080Schulte
      Group Facility
                              
                              
                              5,300,000
                              
                              
                              
                              5,300,000Total
      debt
                              
                              
                              311,029,555
                              
                              
                              
                              158,386,070Current
      portion of long-term debt
                              
                              
                              (28,878,200
                              )
                              
                              
                              (17,858,391
                              )Total
      debt classified as long-term
                              
                              $
                              282,151,355
                              
                              
                              $
                              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
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 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.




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




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 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.




19


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)




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.





As of
March 31, 2010, the balance of the RHKG Loans was $30,650,490 (EUR
22,780,000).  During the period ended March 31, 2010, we incurred
interest expense of $247,781 (EUR 178,826), related to the RHKG Loan
Agreements.





Nord/LB
Facility


On
December 19, 2008, we entered into a $565,876,935 (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 $113,175,387 (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 $13,455 (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 $6,728 (EUR 5,000) per year per vessel until the
Senior Loan is paid in full.  There is also a financial guarantee for
up to 70% of the loan balance issued by SACE S.P.A. of Roma, Italy, which is the
Italian export credit and reinsurance agency.





Interest
on the borrowings is based upon the EURIBOR, the Euro Interbank Offered
Rate.  For the portion of the Senior Loan not guaranteed by SACE
S.P.A., the applicable interest rate is EURIBOR plus 1.375% per annum plus a
fixed funds cost to be determined prior to each drawdown.  For the
portion of the Senior Loan that is guaranteed by SACE S.P.A, the applicable
interest rate is EURIBOR plus 1.375% per annum.  With respect to the
Revolving Credit Facility, the applicable interest rate is (i) EURIBOR plus
1.600% per annum or (ii) the lenders’ funding costs, as conclusively to be
agreed and determined by the lenders, plus 1.600% per annum.  Upon the
fifth anniversary of the Senior Loan, each interest rate will be subject to
renegotiation.  Interest incurred before the delivery of each AHTS
vessel will be rolled into the loan balance of the corresponding tranche of the
Senior Loan until ship delivery up to a maximum of $1,345,500 (EUR
1,000,000).  If interest incurred exceeds $1,345,500 (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
$13,744,283 (EUR 10,125,000) to $38,346,750 (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.  As of March 31,
2010, we have incurred expenses of $1,064,356 (EUR 768,155) related to the
guarantee.  The Hartmann Guarantee in the amount of $19,619,913 (EUR
14,581,875) and $43,119,070 (EUR 32,046,875) was outstanding at March 31, 2010
and December 31, 2009, respectively.




20


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)




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.  As a result, we were not in compliance with the terms of the
remaining shipbuilding contracts and Fincantieri would have had the right to
cease construction activities on the remaining vessels.  However,
Fincantieri acknowledged the delay and indicated to us that it does not intend
to cease construction pending resolutions of these matters.  In addition,
Fincantieri has not taken any action under the shipbuilding contracts to demand
payment.  As a result of these missed payments, we were not in compliance
with certain covenants of the Pre-Delivery Facility of our Senior Loan with
Nord/LB as of December 31, 2009, however such non-compliance did not
represent an event of default under the loan document.  Nord/LB is aware
that the payments have not been made, and has not taken any action under the
Senior Loan related to the non-compliance.





The
resolution to this situation is ongoing, and the deliveries of the last four
vessels, the UOS Columbia, UOS Discovery, UOS Endeavour, and UOS Explorer,
involved the granting of loans from Reederei Hartmann to our German Subsidiary
under the RHKG 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 three-month EURIBOR plus 2%,
currently 2.94%.





The
drawdowns on the Senior Loan to date as of March 31, 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
                      
                      $
                      47,871,380


At March
31, 2010 and December 31, 2009, a total of $275,079,066 (EUR 204,443,750) and
$136,557,108 (EUR 101,491,719), respectively, was outstanding under the Senior
Loan with an effective interest rate of 2.648% and 2.791%,
respectively.  The outstanding balance will be due in full in February
2021.  During the periods ended March 31, 2010 and 2009, we incurred
interest of $1,234,771 (EUR 891,145) and $165,046 (EUR 126,183), 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 $322,920,000
(EUR 240,000,000).  The guarantee commission is due and payable each
quarter that construction payments are outstanding up to and including the date
the construction payments are made.





We are
subject to various covenants 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.




21




III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)




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





Deutsche Schiffsbank
Facility/ Schulte Group Facility


On
November 20, 2008, Kronos entered into a $30,000,000 credit facility (“Deutsche
Schiffsbank Facility”) with Deutsche Schiffsbank Aktiengesellschaft (“Deutsche
Schiffsbank”), in preparation for the potential acquisition of a chemical
tanker.  The Deutsche Schiffsbank Facility also provided for a related
guarantee facility of up to $16,320,000 under which Deutsche Schiffsbank will
issue two separate guarantees in favor of the sellers of the chemical tanker,
Nantong Mingde Heavy Industry Stock Co., Ltd. and Jiangxi Topsky Technology Co.
Ltd. (“Nantong Mingde”).  The Deutsche Schiffsbank Facility 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 be paid in arrears on the last day of
each applicable interest period.  In the event the interest period is
longer than six months, interest 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.  This fee was paid by one of our affiliates and is
recorded on our consolidated balance sheet at March 31, 2010 as part of due to
related party.  Additionally, in relation to the advances and the
guarantee facility, a commitment fee of 0.3% per annum on the daily undrawn
amount of such advance and unutilized amount of the guarantee facility accrues
from the date of the Deutsche Schiffsbank Facility to and including the date of
payment thereof.  Such fee is payable quarterly in arrears and on the
last day of the commitment period applicable to such
advance.  Further, a guarantee commission is payable quarterly in
arrears at a rate equal to 1.4% per annum on the daily average maximum amount of
the liabilities and obligations of Deutsche Schiffsbank under or pursuant to the
guarantees to be issued by Deutsche Schiffsbank in favor of the sellers of the
chemical tanker.  There were no guarantees outstanding at March 31,
2010 and 2009.





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
(“Schulte Group Facility”) and to facilitate a bank guarantee for the second
installment payment of $8,300,000.




22


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)


IMS
Holdings repaid $3,000,000 of the Schulte Group Facility through its affiliate
by January 15, 2008, in compliance with the terms of the MOA.  We
advanced approximately $3,800,000 to IMS Holdings to allow IMS Holdings to
provide funds to make the required payments to the Schulte Group under the
MOA.  An addendum to the MOA was executed in July 2008 to extend the
loan through November 30, 2008, extend the time period allowed for IMS Holdings
to secure financing and increase the amount of possible liquidated
damages.  As of December 31, 2008, no agreement had been reached on a
further extension of the terms of the MOA, and IMS Holdings was technically in
default on their loan and required to pay liquidating damages.  An
amended and restated MOA was entered into on April 25, 2009, which 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%.  The effective
interest rate as of March 31,2010 was 4.77%.  Interest is due
quarterly.  As part of the changes, the parties to the MOA were
formally changed to be between Kronos in place of IMS Holdings and Conway
Shipping Co. Ltd (“Conway”) in place of the Schulte Group.





In 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 March 31, 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 March 31, 2010, per FASB ASC
825 Financial
Instruments and the remainder was impaired as of December 31,
2009.





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





·
            payment
      of dividends by Kronos;


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


·
            additional
      financing and/or encumbrances on
Kronos;


·
            making
      loans and advances from Kronos; and


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





As we are
re-evaluating our intentions, and currently do not expect to complete the
acquisition of the chemical tanker unless the shipyard constructing the tanker
were to grant significant concessions, we are unlikely to utilize the Deutsche
Schiffsbank Facility.  Please see Note 10. Subsequent Events, for
additional information.





23





III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)




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





March
      31,
                        
                        
                        March
      31,2010
                        
                        
                        2009Interest
      capitalized to vessel construction in progress:Beginning
      of period
                        
                        $
                        4,581,469
                        
                        
                        $
                        3,448,928Currency
      translation change related to beginning balance
                        
                        
                        (382,827
                        )
                        
                        
                        (217,500
                        )Interest
      incurred
                        
                        
                        2,844,939
                        
                        
                        
                        1,044,280Interest
      expense
                        
                        
                        (1,709,054
                        )
                        
                        
                        (623,501
                        )Amount
      reclassed to delivered vessels
                        
                        
                        (2,886,432
                        )
                        
                        
                        -End
      of period
                        
                        $
                        2,448,095
                        
                        
                        $
                        3,652,207Interest
      paid
                        
                        $
                        1,320,841
                        
                        
                        $
                        3,706,726Interest
      added to principal on borrowings on Berenberg Facility
                        
                        $
                        -
                        
                        
                        $
                        420,779





5.    Derivative
Instruments





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





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





On March
27, 2009, one of our AHTS SPVs, MS Juist, entered into an interest rate swap
agreement, which began February 2010 and expires February 2019 with a notional
value of $43,226,710 (EUR 32,126,875) at March 31, 2010, in order to hedge the
risk of rising interest rates related to the Senior Loan, which is based on the
three-month EURIBOR rate.  On May 25, 2009, the remaining eight of our
nine AHTS SPVs entered into similar interest rate swap agreements, which began
in March 2010 and expire from May 2019 to April 2020.  The total
notional value of these agreements is $364,479,762 (EUR 270,887,969) at March
31, 2010, bringing the total notional value under the nine interest rate swap
agreements to $407,706,473 (EUR 303,014,844) at March 31,
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.




24




III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 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, had
a notional value totaling $113,400,000.  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 $27,000,000.  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.





The fair
value of our derivative instruments as of March 31, 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
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        652,980
                        
                        
                        $
                        594,625Not
      designated as hedging instruments:Forward
      currency exchange contracts
                        
                        
                        275,052
                        
                        
                        
                        210,670
                        
                        
                        
                        -
                        
                        
                        
                        -Interest
      rate swap agreements
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        7,786,420
                        
                        
                        
                        11,517,436Total
      derivatives
                        
                        $
                        275,052
                        
                        
                        $
                        210,670
                        
                        
                        $
                        8,439,400
                        
                        
                        $
                        12,112,061




25


III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)





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 months ended March 31, 2010 and 2009, we recognized net gains and (losses)
on derivative instruments as follows:





For
      the Three Months EndedDerivatives
      by hedge designation
                      
                      Classification
      of gains (losses)
                      
                      March
      31, 2010
                      
                      
                      March
      31, 2009Designated
      as hedging instruments:Cash
      flow hedges:Forward
      currency exchange contracts
                      
                      Foreign
      currency transaction gain
                      
                      $
                      12,525
                      
                      
                      $
                      -Not
      designated as hedging instruments:Forward
      currency exchange contracts
                      
                      Foreign
      currency transaction gain
                      
                      $
                      216,392
                      
                      
                      $
                      460,293Interest
      rate swap agreements
                      
                      Loss
      on interest rate swaps
                      
                      $
                      (10,666,098
                      )
                      
                      $
                      (528,185
                      )




For the
three months ended March 31, 2010, the foreign currency transaction gain related
to forward currency exchange contracts designated as Cash Flow Hedges was
$12,525, of which a gain of $18,827 is related to the fair value of the
ineffective portion of the forward currency exchange contracts, offset by a loss
of $6,302 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 Hedge Foreign Currency Transaction
gain (loss).  The current effective loss portion of $647,477(EUR 481,217)
is expected to be reclassified into net income within the next twelve
months.





For the
three months ended March 31, 2010, the foreign currency transaction gain related
to derivatives not designated as hedging instruments is $216,392.  Of
this amount, $206,457 is related to a loss on the forward currency exchange
contracts not designated as hedging instruments which have matured, and the
residual gain of $422,850 is due to the fair value of the remaining
contracts.





For the
three months ended March 31, 2009, the foreign currency transaction gain related
to derivatives not designated as hedging instruments is
$460,293.  This amount was related to the fair value of the
contracts.





26





III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)




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 March 31, 2010 and December 31, 2009, the
amount receivable from SCMH in connection with the Letter Agreement was
$1,352,846 and $1,842,324 , respectively, including accrued interest of $226,112
and $209,340, respectively.  During the three months ended March 31,
2010 and 2009, we recognized interest income of $16,772 and $20,680,
respectively related to the advances to SCMH.





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 March 31, 2010, we had amounts receivable of $139,161,
including accrued interest income of $8,124, from IMS Holdings related to these
short-term advances.  During the period ended March 31, 2010, we
recognized interest income of $2,122.  This outstanding balance as of
March 31, 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 March 31, 2010 and December 31, 2009 was $477,500.  There was no
accrued interest at March 31, 2010 and $59,338 was accrued at December 31,
2009.  During the three months ended March 31, 2010 and 2009, we
incurred interest of $17,141 and $29,049, respectively.




27




III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)


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 March 31, 2010 and December
31, 2009, the loan is paid in full.  During the three months ended
March 31, 2009, we incurred interest of $6,540 related to this
loan.





In May
2007, the AHTS SPVs entered into a ship management agreement with Hartmann
Offshore, an affiliate of Reederei Hartmann, the non-controlling interest owner
of the AHTS SPVs.  The fees are included in vessel operation
expenses.  For the three months ended March 31, 2010 and 2009, we
incurred $319,694 (EUR 230,726) and $30,756 (EUR 23,514),
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 March 31, 2010
and  December 31, 2009 were $5,382,000 (EUR 4,000,000) and $4,877,438
(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 March 31, 2010 and December 31, 2009 were $2,522,813
(EUR 1,875,000) and $2,018,250 (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 $672,750 (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 March
31, 2010 and December 31, 2009, we incurred to date $4,036,500 (EUR 3,000,000)
and $3,658,078 (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.





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.




28




III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)




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





The
estimated fair value of cash, accounts receivable, accounts payable, accrued
interest, related party receivables and payables approximate their carrying
amounts due to the relatively short period to maturity of these
instruments.  The estimated fair value of all debt as of March 31,
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 one to three
months.  The estimates presented are not necessarily indicative of the
amounts that would be realized in a current market exchange.





The fair
value of the interest rate swaps and the forward currency exchange contracts
discussed in Note 5 are included in current and long-term derivative liabilities
in our consolidated balance sheet.  The fair value of the interest
rate swap (used for non-speculative purposes) is based on the relative fair
values of the discounted future stream of interest payments under the original
floating interest facility using rates derived based on a forward curve of the
three-month EURIBOR, upon which the terms of the Senior Loan are based, versus
the future interest payments due under the fixed rate obtained in the interest
rate swap agreement of 3.748%.  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
March 31, 2010.  The fair value of the derivative instruments are
determined with reference to observable rates which are commonly quoted on a
forward basis, and are therefore classified as Level 2 items.





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





March
      31, 2010Level
      1
                      
                      
                      Level
      2
                      
                      
                      Level
      3
                      
                      
                      TotalAssetsForward
      currency exchange contracts
                      
                      $
                      -
                      
                      
                      $
                      485,722
                      
                      
                      $
                      -
                      
                      
                      $
                      485,722LiabilitiesForward
      currency exchange contracts
                      
                      $
                      -
                      
                      
                      $
                      1,247,605
                      
                      
                      $
                      -
                      
                      
                      $
                      1,247,605Interest
      rate swap agreements
                      
                      $
                      -
                      
                      
                      $
                      19,303,856
                      
                      
                      $
                      -
                      
                      
                      $
                      19,303,856December
      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





29




III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)




The
following table presents information about the effect of the impairment loss
related to our deposit on asset acquisition, initially discussed in Notes 1, 2
and 4, which is measured at fair value on a non-recurring basis as of December
31, 2009:




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


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





8.      Legal
Proceedings





We may in
the future be involved as a party to various legal proceedings, which are
incidental to the ordinary course of business.  We regularly analyze
current information and, as necessary, provide accruals for probable liabilities
on the eventual disposition of these matters.  In the opinion of
management, as of March 31, 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:




March
      31,
                              
                              
                              March
      31,2010
                              
                              
                              2009Unrealized
      loss on forward currency exchange contract hedge
                              
                              $
                              (6,024,712
                              )
                              
                              $
                              -Foreign
      currency translation adjustment
                              
                              
                              (4,745,946
                              )
                              
                              
                              (921,970
                              )Other
      comprehensive loss
                              
                              
                              (10,770,658
                              )
                              
                              
                              (921,970
                              )Less
      other comprehensive loss attributable to non-controllinginterest
                              
                              
                              1,734,137
                              
                              
                              
                              1,053,897Other
      comprehensive (loss) income attributable to III to I
    MaritimePartners
      Cayman I, L.P.
                              
                              $
                              (9,036,521
                              )
                              
                              $
                              131,927




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




March
      31,
                        
                        
                        December
      31,2010
                        
                        
                        2009Unrealized
      (loss) income on forward currency exchange contract hedge
                        
                        $
                        (694,110
                        )
                        
                        $
                        3,824,423Foreign
      currency translation adjustment
                        
                        
                        (1,885,554
                        )
                        
                        
                        2,632,434Accumulated
      other comprehensive (loss) income
                        
                        $
                        (2,579,664
                        )
                        
                        $
                        6,456,857


30




III
TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (Unaudited)




10.   Subsequent
Events





In
December 2009 we impaired our option to purchase the chemical tanker 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 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 officially elected to abandon our option to purchase the chemical
tanker.  Our decision to abandon the chemical tanker acquisition stems
from the lack of concessions significant enough to make proceeding with the
acquisition a viable option given current market and economic
conditions.




31




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 months ended
March 31, 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 March 31,
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. as our general
partner.  Through our subsidiaries, we own majority interests in nine
anchor-handling tug supply (“AHTS”) vessels, six of which are in operation, and
non-controlling interests in two multipurpose bulk carrier vessels
(“mini-bulkers”) currently in operation.  Our first three AHTS vessels
were delivered in 2009, with three more AHTS vessels being delivered so far 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.  The average charter rate per day of
our contracts currently in place as of March 31, 2010 was $30,000 per
day.  Our most recently delivered vessels, which were delivered on
February 16, March 11, and March 15, 2010, are not currently under
charter.  Considering all of our delivered vessels, including these
three recently delivered vessels, the average charter rate per day of our AHTS
fleet is $15,000 per day as of March 31, 2010.





·
            The
      UOS Atlantis is under charter through March
  2011.


·
            The
      UOS Challenger is under charter through December
  31,2010.


·
            The
      UOS Columbia is under charter through mid-May 2010, with potential
      extensions through November 2010.


·
            The
      UOS Endeavour has been placed in the North Sea spot market and is
      available for hire.  The vessel performed under its first spot
      charter in April, and has performed under four spot charters to
      date.


·
            The
      UOS Discovery and UOS Explorer, delivered in February and March 2010,
      respectively, have not yet been
chartered.





Each of
the entities holding one of our AHTS vessels (each an “AHTS SPV”) has entered
into a ship management agreement with Hartmann Offshore for the management of
its respective vessel.  The commercial management of the vessel under
this agreement has been sub-contracted to United Offshore Support GmbH & Co.
KG (“UOS”).  Each of our mini-bulkers is managed by Reederei
Hesse.  Reederei Hesse and their affiliates and affiliates of the
Hartmann Group collectively own the remaining ownership of each of the
mini-bulkers and AHTS vessels.




32




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 and mini-bulker acquisitions, we had advanced funds
for the potential purchase of a chemical tanker to be held in a separate special
purpose entity (“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 have terminated our option to acquire 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.  In April 2010, we formally forfeited our option to
acquire the tanker.  Therefore, we anticipate recognizing gain on the
extinguishment of debt of $5,300,000 during the second quarter of 2010, and
expect that the net result of the termination of our option to purchase the
chemical tanker to be a loss of approximately $4,600,000, which in the end
represents liquidating damages of $3,000,000 as called for under the option
agreement, plus the loss of our capitalized costs approximating
$1,600,000.





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





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





In March
2009, we entered into an agreement (“AHTS Pool Agreement”) with United Offshore
Support GmbH & Co. KG (“UOS”), an affiliate of Hartmann Offshore and a
member of the Hartmann Group, to participate in a revenue pool comprised of our
nine AHTS SPVs and three AHTS SPVs owned by our affiliate, FLTC Fund I (the
“Pool Members,” together the “UOS AHTS Pool”).  The agreement names
UOS as the “Pool Manager,” with responsibility for the management and accounting
of the pool and also for monitoring Pool Members’ compliance with the AHTS Pool
Agreement.  Under the AHTS Pool Agreement, each of our AHTS SPVs has
agreed to pool its revenue less voyage expenses (“Voyage Results”) with the
other Pool Members to achieve an even distribution of the risks resulting from
the fluctuation in the offshore chartering business.  The AHTS Pool
Agreement will have no effect on our consolidated revenues until such time as
one of the FLTC Fund I vessels is placed in service, which is expected to occur
in mid-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 will typically be responsible for vessel
operating expenses such as crew wages, class costs, insurance on the vessel and
routine maintenance, as well as management fees as described below.  A
vessel’s net daily earnings will consist of the revenue earned under that
vessel’s charters less that vessel’s operating expenses, which would not include
interest expense on acquisition debt.  A description of the current
AHTS vessels and their net daily earning during the three months ended March 31,
2010, is set forth below.




33




·
            UOS
      Atlantis – Our first AHTS vessel, UOS Atlantis, began operating under
      charter on March 15, 2009.  Currently, it operates under an
      extension of its original charter.  Our net daily earnings for
      UOS Atlantis averaged $16,248 for the three months ended March 31,
      2010.  Included in this vessel’s operating expenses are
      management fees paid to Hartmann Offshore totaling $124,039 for the three
      months ended March 31, 2010.  In addition to the vessel
      operating expenses included in the net daily earnings, we incurred
      $688,990 of depreciation expense for the three months ended March 31,
      2010.





·
            UOS
      Challenger – Our second AHTSvessel, UOS
      Challenger, was placed in service upon delivery on May 28, 2009, and
      began operating under an extension of its original charter in February
      2010.  Our net daily earnings for UOS Challenger averaged
      $23,864 for the three months ended March 31, 2010.  Included in
      this vessel’s operating expenses are management fees paid to Hartmann
      Offshore totaling $155,453 for the three months ended March 31,
      2010.  Also included are charges related to continuing repairs
      resulting from damage to the AHTS vessel’s main winch sustained in 2009
      during charter operations totaling $125,650.  In addition to the
      vessel operating expenses included in the net daily earnings, we incurred
      $705,273 of depreciation expense for the three months ended March 31,
      2010.





·
            UOS
      Columbia – Our third AHTS vessel, UOS Columbia, was delivered in 2009 and
      began operating under its current charter, which has a term of three
      months, in February 2010.  This charter includes the potential
      for one three month extension and ninety one-day
      extensions.  Our net daily earnings for UOS Columbia averaged
      $1,614 for the three months ended March 31, 2010.  Included in
      this vessel’s operating expenses are management fees paid to Hartmann
      Offshore totaling $40,202 for the three months ended March 31,
      2010.  In addition to the vessel operating expenses included in
      the net daily earnings, we incurred $716,556 of depreciation expense for
      the three months ended March 31,
2010.





·
            UOS
      Discovery – Our fourth AHTS vessel, UOS Discovery, was delivered on
      February 16, 2010, and is not currently under charter.  Our net
      daily earnings (deficit) for UOS Discovery averaged ($27,260) for the
      three months ended March 31, 2010, which represented 44 days in
      service.  Included in this vessel’s operating expenses is fuel
      cost of $609,945 for initial fueling of the tanks and for the vessel’s
      journey to the Australasia area, where it is currently
      located.  No management fees were paid to Hartmann Offshore
      during the three months ended March 31, 2010, as no charter revenue was
      earned during the period.  In addition to the vessel operating
      expenses included in the net daily earnings, we incurred $348,947 of
      depreciation expense for the three months ended March 31,
      2010.





·
            UOS
      Endeavour – Our fifth 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 ($43,549) for the three months ended March 31, 2010, which
      represented 21 days in service.  Included in this vessel’s
      operating expenses is fuel cost of $585,129 for initial fueling of the
      tanks for the journey to the North Sea.  No management fees were
      paid to Hartmann Offshore during the three months ended March 31, 2010, as
      no charter revenue was earned during the period.  In addition to
      the vessel operating expenses included in the net daily earnings, we
      incurred $183,608 of depreciation expense for the three months ended March
      31, 2010.  The vessel did not perform under its first spot
      charter until April, and has performed under four spot charters since that
      date.  During the month of April the vessel was employed for 15
      days at daily rates varying from $13,000 to $35,000.  This
      volatility in rates is consistent with our expectations for the North Sea
      spot market at this time.





·
            UOS
      Explorer – Our sixth AHTS vessel, UOS Explorer, was delivered on March 15,
      2010, and is currently not under charter. Our net daily earnings (deficit)
      for UOS Explorer averaged ($20,597) for the three months ended March 31,
      2010, which represented 17 days in service.  Included in this
      vessel’s operating expenses is fuel cost of $110,507 for initial fueling
      of the tanks.  No management fees were paid to Hartmann Offshore
      during the three months ended March 31, 2010, as no charter revenue was
      earned during the period.  In addition to the vessel operating
      expenses included in the net daily earnings, we incurred $169,221 of
      depreciation expense for the three months ended March 31,
      2010.





34





Our
commercial manager, UOS, is currently pursuing opportunities with charterers for
our idle vessels.  The remaining three AHTS vessels were to be
delivered in April 2010, but delays of one to three months are
expected.





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 over the
past 24 months, combined with the contraction in the credit markets, and the
resulting decrease in the price of oil.  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.





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




35




Results of Operations




Three
      Months Ended March 31,2010
                              
                              
                              2009Time
      charter revenue
                              
                              $
                              8,613,954
                              
                              
                              $
                              827,177Operating
      expenses:Vessel
      operating expenses
                              
                              
                              7,470,337
                              
                              
                              
                              665,103Depreciation
      expense
                              
                              
                              2,812,796
                              
                              
                              
                              120,142Professional
      fees
                              
                              
                              524,377
                              
                              
                              
                              1,185,984Brokerage
      and representation fees
                              
                              
                              -
                              
                              
                              
                              164,063Other
      operating expenses
                              
                              
                              340,414
                              
                              
                              
                              16,213Total
      operating expenses
                              
                              
                              11,147,924
                              
                              
                              
                              2,151,505Operating
      loss
                              
                              
                              (2,533,970
                              )
                              
                              
                              (1,324,328
                              )Other
      income (expense):Interest
      income
                              
                              
                              30,433
                              
                              
                              
                              669,835Interest
      expense
                              
                              
                              (1,709,054
                              )
                              
                              
                              (623,501
                              )Net
      loss on interest rate swaps
                              
                              
                              (10,666,098
                              )
                              
                              
                              (528,185
                              )Foreign
      currency transaction gain (loss)
                              
                              
                              620,858
                              
                              
                              
                              (3,457,533
                              )Equity
      in loss of unconsolidated entities
                              
                              
                              (118,936
                              )
                              
                              
                              (122,759
                              )Total
      other expense
                              
                              
                              (11,842,797
                              )
                              
                              
                              (4,062,143
                              )Net
      loss
                              
                              
                              (14,376,767
                              )
                              
                              
                              (5,386,471
                              )Net
      loss attributable to thenon-controlling
      interest
                              
                              
                              3,298,429
                              
                              
                              
                              147,225Net
      loss attributable to III to I Maritime
                              
                              
                              (11,078,338
                              )
                              
                              
                              (5,239,246
                              )Partners
      Cayman I, L.P.Less
      general partner interest in net loss
                              
                              
                              (154,555
                              )
                              
                              
                              (78,267
                              )Limited
      partner interest in net loss
                              
                              $
                              (10,923,783
                              )
                              
                              $
                              (5,160,979
                              )Net
      loss per general partner unit:Basic
      and diluted
                              
                              $
                              (15.61
                              )
                              
                              $
                              (7.91
                              )Weighted
      average general partner units outstanding
                              
                              
                              9,900
                              
                              
                              
                              9,900Net
      loss per limited partner unit:Basic
      and diluted
                              
                              $
                              (15.61
                              )
                              
                              $
                              (7.91
                              )Weighted
      average limited partner units outstanding
                              
                              
                              699,738
                              
                              
                              
                              652,827


36


Three
Months Ended March 31, 2010 Compared to the Three Months Ended March 31,
2009





Revenues


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




Revenues
increased approximately $7,787,000 for the three months ended March 31, 2010
compared to the three months ended March 31, 2009, during which our first vessel
entered into its initial charter.  This increase is due to the charter
revenue of our first three AHTS vessels in service for the full three months
ended March 31, 2010, in contrast with the partial month of charter revenue for
our first vessel included in the three months ended March 31, 2009.





Vessel Operating
Expenses


Vessel
operating expenses consist of expenses related to the operation of our vessels,
and include depreciation but do not include interest expense related to
acquisition debt.





Vessel
operating expenses increased approximately $6,805,000, from approximately
$665,000 for the three months ended March 31, 2009 compared to approximately
$7,470,000 for the three months ended March 31, 2010.  The increase is
due to our having six vessels in operation during the current three months,
whereas during the three months ended March 31, 2009, only one of our AHTS
vessels had been delivered.  Vessel operating expenses for the three
months ended March 31, 2010 include approximately $232,000 of charges related to
vessel repairs, about half of which is related to damage to the main winch of
UOS Challenger sustained during operations.





Depreciation
expense


Depreciation
expense increased approximately $2,693,000, from approximately $120,000 for the
three months ended March 31, 2009 compared to approximately $2,813,000 for the
three months ended March 31, 2010.  The increase is due to our having
six vessels in operation during the current three months, whereas during the
three months ended March 31, 2009, only one 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 $662,000, or 56%, from
approximately $1,186,000 for the three months ended March 31, 2009 compared to
approximately $524,000 for the three months ended March 31, 2010, was due to a
decrease in legal fees of approximately $378,000, 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
$50,000 related to audit work surrounding our registration
statement.  Consulting fees also decreased from quarter to quarter by
approximately $236,000 related toanon-recurring
fee of $250,000 paid during the three months ended March 31, 2009 in connection
with the abandonment of our efforts to secure a bridge financing
arrangement.  Our administrative and professional services fees
remained consistent between the two periods.





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 months ended March 31, 2010 as
compared to that for the three months ended March 31, 2009 decreased by
approximately $164,000 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 $324,000, from
approximately $16,000 for the three months ended March 31, 2009 to approximately
$340,000 for the three months ended March 31, 2010, was due to an increase in
commissions related to the chartering of our vessels of approximately $145,000
and an increase in shipping costs of approximately $82,000.  There was
also an increase of $111,000 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 $14,000 due to
normal fluctuations.




37




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 months ended March 31, 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 $640,000, or 95%, from approximately $670,000 for
the three months ended March 31, 2009 to approximately $30,000 for the three
months ended March 31, 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 during the second and
third quarters of 2009.





Interest
Expense


Interest
expense was incurred on the senior loan facility (“Senior Loan”) with
Norddeutsche Landesbank Girozentrale (“Nord/LB”) which was entered into on
December 19, 2008, and two related party loans which were entered into during
the fourth quarter of 2008.





The
increase in interest expense of approximately $1,086,000, or 57%, from
approximately $623,000 for the three months ended March 31, 2009 to
approximately $1,709,000 for the three months ended March 31, 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
loans from Reederei Hartmann.  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 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.





Loss on Interest Rate
Swaps


The
increase in the loss on interest rate swaps of approximately $10,138,000, from
$528,000 for the three months ended March 31, 2009 to $10,666,000 for the three
months ended March 31, 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 $19,304,000, due to the relatively low variable
rates being experienced as compared with the fixed rates under the swap
agreements.





Foreign Currency Transaction
Gain (Loss)


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





The
change in our foreign currency transaction gain (loss) from the three months
ended March 31, 2009 to the three months ended March 31, 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.  As we no longer hold these funds, the gain (loss) related to
these accounts is no longer a factor in the amount of our foreign currency
transaction gain (loss).




38




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 $4,000 in the loss recognized from the three months
ended March 31, 2009 compared to the three months ended March 31, 2010 is due to
normal fluctuations in the activity of the vessels.





Noncontrolling
interest


Noncontrolling
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 noncontrolling
interest holders between the three months ended March 31, 2009 and the three
months ended March 31, 2010, was primarily due to the difference in income for
the periods presented.





Liquidity
and Capital Resources





As of
March 31, 2010, we had cash of $30,101,240.  Since inception through
March 31, 2010, we have raised approximately $66,636,607, net of syndication
costs of approximately $4,406,313, 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 have now been utilized to
repay the loans under the Berenberg Facility.  The net result of this
is that the majority of the funds raised were ultimately used to pay the first
two of five installments to Fincantieri for the construction of the AHTS
vessels.





Upon the
deliveries of the six AHTS vessels we currently operate, 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 were utilized to pay for outfitting costs for the AHTS vessels
and to provide operating reserves for the AHTS SPVs.





Operating Cash
Flows


Operating
activities produced a net use of cash of approximately $2,174,000 for the three
months ended March 31, 2010, as compared to net cash used of approximately
$2,177,000 for the three months ended March 31, 2009, for a decrease in net cash
used of approximately $3,000.  Net cash used decreased between periods
primarily due to decreases in net cash expended in operations, as well as
decreases in accounts receivable due from charterers and increases in accrued
interest payable comparing the two periods.  These affects were offset
somewhat by increases in prepaid assets and decreases in accounts payable
comparing the two periods.  The increase in prepaid assets is mainly
due to vessels being placed in service and related supplies and expenditures
being made, a portion of which is correctly recorded to prepaid
assets.





Investing Cash
Flows


Investing
activities used cash of approximately $155,738,000 for the three months ended
March 31, 2010, as compared to $26,318,000 for the three months ended March 31,
2009, for an increase in net cash used of approximately
$129,420,000.  This was due primarily to the use of approximately
$156,191,000 for advances for vessel acquisitions and construction costs, the
majority of which was related to the deliveries of three vessels, the UOS
Discovery, UOS Endeavour and UOS Explorer in February and March 2010, in
comparison to $37,877,000 for one  vessel delivered during the three
months ended March 31, 2009, the UOS Atlantis.  Related to our
vessels, on board equipment totaling approximately $4,688,000 was purchased
during the three months ended March 31, 2010, whereas during the three months
ended March 31, 2009, only $2,160,000 of on board equipment was
purchased.  Additionally, during the three months ended March 31,
2009, restricted cash provided approximately $11,748,000 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 $642,000
in amounts due from related parties comparing the two periods.




39




Financing Cash
Flows


Net cash
provided by financing activities was approximately $170,599,000 for the three
months ended March 31, 2010 as compared to approximately $36,320,000 for the
three months ended March 31, 2009.  The difference is primarily
related to the deliveries of UOS Discovery, UOS Endeavour and UOS Explorer and
the related proceeds drawn on the Senior Loan of $141,469,000 in comparison with
$46,291,000 of Senior Loan proceeds in the same quarter of 2009, and a loan from
Hartmann Reederei through which we funded our capital contributions to the AHTS
SPVs Langeoog, Amrum and Wangerooge of $23,499,000.  In addition,
during the three months ended March 31, 2009, cash of approximately $7,707,000
was utilized in net repayments on the Berenberg facility and $5,107,000 in
repayments to related parties, and no such expenditures were made in the current
quarter.  Payables to related parties also increased $458,000
comparing the two periods.





In
addition, during the current quarter our noncontrolling interest contributed
$7,033,000 to the AHTS SPVs and received no distributions, and in contrast, no
contributions were received and distributions of $619,000 were made to the
noncontrolling interest during the three months ended March 31,
2009.  These effects were partially offset by principal repayments to
Nord/LB, which utilized cash of approximately $2,947,000 and payment of
syndication costs, which utilized cash of approximately
$169,000.  Contributions from partners were approximately $197,000 for
the three months ended March 31, 2010, as compared with approximately $2,674,000
for the three months ended March 31, 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 (the “RHKG Loan Agreements”).  Each of the agreements
is related to a corresponding AHTS SPV, and provides for loans equal to the
remaining amount of capital outstanding from our German Subsidiary to the AHTS
SPV to which the agreement relates.  The execution of the agreements
and the subsequent recognition of the contribution of capital by the AHTS SPV
results in our satisfying the capital contribution in the full amount called for
under the Company Agreement of the respective AHTS SPV, and satisfied the
necessary funding under the terms of the Senior Loan, allowing for delivery of
the respective vessel.





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





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





Under the
RHKG Loan Agreements, if additional financing is granted by Nord/LB to one of
the AHTS SPVs to which an RHKG Loan Agreement relates via a potential increase
in the amount guaranteed by SACE under the Senior Loan, the RHKG Loan Agreements
state that our German Subsidiary shall use its best endeavors to have the AHTS
SPV receiving the proceeds distribute funds from the financing to our German
Subsidiary sufficient to allow it to repay the RHKG Loan Agreement. 
However there can be no assurances that we will be able to negotiate any further
guarantees from SACE.




40




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





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





Nord/LB
Facility


On
December 19, 2008, we entered into a $565,876,935 (EUR 420,570,000) senior loan
facility (“Senior Loan”) with Nord/LB as administrative agent and lender, with a
term of 12 years from the delivery of each ship.  The proceeds from
the loan will be 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 $113,175,387 (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 $13,455 (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 $6,728 (EUR 5,000) per year per vessel until the
Senior Loan is paid in full.  There is also a financial guarantee for
up to 70% of the loan balance issued by SACE S.P.A. of Roma, Italy, which is the
Italian export credit and reinsurance agency.





Interest
on the borrowings is based upon the EURIBOR, the Euro Interbank Offered
Rate.  For the portion of the Senior Loan not guaranteed by SACE
S.P.A., the applicable interest rate is EURIBOR plus 1.375% per annum plus a
fixed funds cost determined prior to each drawdown.  For the portion
of the Senior Loan that is guaranteed by SACE S.P.A, the applicable interest
rate is EURIBOR plus 1.375% per annum.  With respect to the Revolving
Credit Facility, the applicable interest rate is (i) EURIBOR plus 1.600% per
annum or (ii) the lenders’ funding costs, as conclusively to be agreed and
determined by the lenders, plus 1.600% per annum.  Upon the fifth
anniversary of the Senior Loan, each interest rate will be subject to
renegotiation.  Interest incurred before the delivery of each AHTS
vessel will be rolled into the loan balance of the corresponding tranche of the
Senior Loan until ship delivery up to a maximum of $1,345,500 (EUR
1,000,000).  If interest incurred exceeds $1,345,500 (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
$19,619,913 (EUR 14,581,875) and $53,550,775 (EUR 37,361,875 was outstanding at
March 31, 2010 and December 31, 2009, respectively.




41




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.  As a result, we were not in compliance with the terms of the
remaining shipbuilding contracts and Fincantieri would have had the right to
cease construction activities on the remaining vessels.  However,
Fincantieri acknowledged the delay and indicated to us that it does not intend
to cease construction pending resolutions of these matters.  In addition,
Fincantieri has not taken any action under the shipbuilding contracts to demand
payment.  As a result of these missed payments, we were not in compliance
with certain covenants of the Pre-Delivery Facility of our Senior Loan with
Nord/LB as of December 31, 2009, however such non-compliance did not
represent an event of default under the loan document.  Nord/LB is aware
that the payments have not been made, and has not taken any action under the
Senior Loan related to the non-compliance.





The
resolution to this situation is ongoing, and with respect to the deliveries of
the last four vessels delivered, the UOS Columbia, UOS Discovery, UOS Endeavour,
and UOS Explorer, involved the granting of loans from Reederei Hartmann to our
German Subsidiary under the RHKG 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 three-month EURIBOR
plus 2%, currently 2.94%.





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





The
drawdowns accepted through March 31, 2010 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
                                        
                                        
                                        $
                                        38,362,384
                                        (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
                                        
                                        
                                        $
                                        45,873,986Isle
      of Amrum
                                        UOS
      Endeavour
                                        March
      10, 2010
                                        
                                        $
                                        47,629,553
                                        
                                        
                                        $
                                        50,233,960Isle
      of Wangerooge
                                        UOS
      Explorer
                                        March
      12, 2010
                                        
                                        $
                                        47,871,380
                                        
                                        
                                        $
                                        52,283,121


(1)
              Amounts
      outstanding for UOS Atlantis and UOS Challenger included $4,598,317 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.





At March
31, 2010 and December 31, 2009, a total of $275,079,066 (EUR 204,443,750) and
$136,557,108 (EUR 101,491,719), respectively, was outstanding under the Senior
Loan with an effective interest rate of 2.648% and 2.791%,
respectively.  The outstanding balance will be due in full in February
2021.  During the periods ended March 31, 2010 and 2009, we incurred
interest expense of $1,234,771 (EUR 891,145) and $165,046 (EUR 126,183),
respectively, related to the drawdowns on the Senior Loan.




42




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 $322,920,000
(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.





Berenberg
Facility


In
November 2006, we entered into the Berenberg Facility with Berenberg Bank, a
German financial institution, allowing for borrowings up to $38,522,880 (EUR
26,400,000).  The Berenberg Facility was amended in March and May
2007, increasing the available borrowings to $73,397,760 (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 September 30, 2009 and December 31, 2008 was 0% and 3.97%,
respectively.  Interest was due quarterly but was rolled into the
principal amount instead of being paid.  Principal payments were due
on each tranche upon the earlier of the delivery date, sale of the related
vessel or September 30, 2010.





The
compensating balances represented the original tranche balance plus interest
earned since the original deposit date.  The tranche balance
represented the original loan plus all incurred interest which 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 March 31, 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 March 31,
2010 and December 31, 2009, $8,300,000 had been paid toward the option to
purchase the chemical tanker.




43




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





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





The
Amended MOA was entered into on April 25, 2009.  It extended the term
of the loan and bank guarantee through July 30, 2010, increased the interest
rate and the possible liquidated damages, required us to pay a lump sum amount
of $200,000 as a fee for providing the extension of the bank guarantee, waived
any prior default and clarified certain other terms of the original
MOA.  The interest on the Schulte Group Facility is based on the
three-month US LIBOR rate plus a margin of 4.50%.  Interest is due
quarterly.  As part of the changes, the parties to the MOA were
formally changed to be between Kronos in place of IMS Holdings and Conway in
place of the Schulte Group.  As a result of the amended MOA, the
payable to Schulte Group and the offsetting deposits on the chemical tanker
transaction were recorded on the books of Kronos.  At March 31, 2010,
a total of $5,300,000 was outstanding under the Schulte loan agreement at an
effective interest rate of 4.77%.  During the period ended March 31,
2010, we incurred interest of $62,946 related to the loan.





In light
of the global downturn in the economy and the resulting decrease in charter
rates for chemical tankers, and product tankers in general, we 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.  Due to our
decision to abandon our option to acquire the tanker, we expect to recognize
gain on the extinguishment of debt of $5,300,000 during the second quarter of
2010, and expect that the net result of the abandonment of our option to
purchase the chemical tanker to be a loss of approximately $4,600,000, which in
the end represents liquidating damages of $3,000,000 as called for under the
option agreement, plus the loss of our capitalized costs approximating
$1,600,000.





44





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.





March
      31,
                                
                                
                                December
      31,2010
                                
                                
                                2009Cash
      and cash equivalents
                                
                                $
                                164
                                
                                
                                $
                                956Related
      party receivable
                                
                                
                                -
                                
                                
                                
                                -Deferred
      loan fees
                                
                                
                                -
                                
                                
                                
                                -Total
      assets
                                
                                
                                164
                                
                                
                                
                                956Accounts
      payable and other accrued liabilities
                                
                                
                                73,446
                                
                                
                                
                                97,297Due
      to related party
                                
                                
                                137,117
                                
                                
                                
                                137,117Schulte
      Group note payable
                                
                                
                                5,300,000
                                
                                
                                
                                5,300,000Total
      liabilities
                                
                                
                                5,510,563
                                
                                
                                
                                5,534,414Net
      assets
                                
                                $
                                (5,510,399
                                )
                                
                                $
                                (5,533,458
                                )




Deutsche
Schiffsbank Facility


On
November 20, 2008, Kronos entered into a $30,000,000 credit facility (“Deutsche
Schiffsbank Facility”) with Deutsche Schiffsbank.  The Deutsche
Schiffsbank Facility also provided for a related guarantee facility of up to
$16,320,000 under which Deutsche Schiffsbank would issue two separate guarantees
in favor of the sellers of the chemical tanker, Nantong Mingde Heavy Industry
Stock Co., Ltd. and Jiangxi Topsky Technology Co., Ltd. (“Nantong
Mingde”).  The Deutsche Schiffsbank Facility 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 be 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 is payable quarterly in
arrears at a rate equal to 1.4% per annum on the daily average maximum amount of
the liabilities and obligations of Deutsche Schiffsbank under or pursuant to the
guarantees to be issued by Deutsche Schiffsbank in favor of the sellers of the
chemical tanker.





From the
date of transfer of ownership in Anthos to Kronos through the date of payment of
the second installment for the chemical tanker to Nantong Mingde pursuant to the
building contract, the Deutsche Schiffsbank Facility 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:




45




·
            payment
      of dividends by Kronos;


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


·
            additional
      financing and/or encumbrances on Kronos;
and


·
            making
      loans and advances from Kronos.





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





Ongoing Capital
Expenditures


We had
commitments to purchase the three remaining AHTS vessels under construction as
of March 31, 2010.  The cost of each vessel is denominated in EUR, and
amounts in USD related to future payments are determined using the exchange rate
as of March 31, 2010.  The estimated cost of each of the remaining
three AHTS vessels ranges from $55,643,153 (EUR 41,355,000) to $57,311,573 (EUR
42,595,000), for a total commitment for the remaining vessels of $170,266,298
(EUR 126,545,000).  Under the AHTS shipbuilding contracts,
installments are due in five stages based upon certain milestones being met
during construction.  Approximately 30% of the total construction
costs require deposits, some of which are to be funded with equity while others
are 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.  As of March 31, 2010, we have incurred expenses of $189,035
(EUR 136,428) related to the guarantee. The Hartmann Guarantee in
the amount of $19,619,913 (EUR 14,581,875) and $53,550,775 (EUR 37,361,875 was
outstanding at March 31, 2010 and December 31, 2009, respectively.





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 with
respect to the deliveries of the last four vessels delivered, the UOS Columbia,
UOS Discovery, UOS Endeavour, and UOS Explorer, involved the granting of loans
from Reederei Hartmann to our German Subsidiary under the RHKG 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 three-month EURIBOR plus 2%, currently 2.94%.





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 March 31, 2010
and December 31, 2009, we incurred $396,821,987 and $291,543,002, respectively,
in connection with the AHTS vessel acquisition.





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





Discussion of Short- and
Long-Term Liquidity Needs


Our
short- and long-term liquidity needs relate primarily to the funding of our
capital expenditure obligations on our vessels.  In the case of our
AHTS vessels, we anticipate that these capital expenditure obligations will be
funded through the fulfilling of our capital contribution obligations to our
AHTS SPV’s, some of which may be funded through the proceeds of the RHKG Loan
Agreements discussed above.  We anticipate that the balance of our
capital expenditure obligations will be funded through our Nord/LB Senior Loan.
However, there can be no assurances that we will be able to draw on the Nord/LB
Senior Loan or that Reederei Hartmann will be willing to extend additional RHKG
Loan Agreements on the same terms or at all.





Through
March 31, 2010, we have funded payments related to the first two of the five
installments on all of our nine AHTS vessels marking the completion of the
initial funding stage, which was funded primarily with equity from limited
partners’ contributions.  Additionally, these contributions funded the
third installment on our first two AHTS vessels, which were delivered in
February and May 2009.  Through the RHKG Loan Agreements, we funded
our full capital contribution to our AHTS SPVs Isle of Baltrum, Isle of
Langeoog, Isle of Amrum, and Isle of Wangerooge.




46




In order
to fund our remaining commitments to Fincantieri, we entered into the Senior
Loan discussed above under the caption Financing
Arrangements.  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, and these discussions
and the resolution is ongoing.  Upon delivery of each AHTS vessel, we
will draw on the Senior Loan in the amount of $47,156,411 (EUR
35,047,500).  The proceeds will be used to pay the third and fourth
installments under the shipbuilding contract and the accrued interest thereon if
the installment payments are outstanding, fund the fifth installment to
Fincantieri and, where amounts are available, fund the outfitting of each
vessel.  The schedule below reflects the anticipated deficit in each
AHTS SPV upon delivery for the remaining three AHTS vessels under construction
based on the remaining capital expenditure obligation for the vessel as compared
to the anticipated Senior Loan proceeds as of March 31, 2010.




RemainingCapital
                                    
                                    
                                    
                                    
                                    
                                    Reserves
      orExpenditure
                                    
                                    
                                    Senior
      Loan
                                    
                                    
                                    (Deficit)
      in SPVSPV
      Name
                                    Vessel
      Name
                                    
                                    Obligation
                                    
                                    
                                    Proceeds
                                    
                                    
                                    at
      Delivery6169
      –  Isle of Sylt
                                    UOS
      Enterprise
                                    
                                    $
                                    53,326,336
                                    
                                    
                                    $
                                    47,156,411
                                    
                                    
                                    $
                                    (6,169,925
                                    )6172
      –  Isle of Neuwerk
                                    UOS
      Freedom
                                    
                                    
                                    55,120,560
                                    
                                    
                                    
                                    47,156,411
                                    
                                    
                                    
                                    (7,964,149
                                    )6173
      –  Isle of Usedom
                                    UOS
      Liberty
                                    
                                    
                                    55,197,523
                                    
                                    
                                    
                                    47,156,411
                                    
                                    
                                    
                                    (8,041,112
                                    )$
                                    163,644,419
                                    
                                    
                                    $
                                    141,469,233
                                    
                                    
                                    $
                                    (22,175,186
                                    )




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





Under the
AHTS SPV formation documents (“Company Agreements”), we have committed to
contribute capital to these entities totaling $150,496,500 (EUR 105,000,000)
(“Capital Commitment”).  This amount reflects an increase in our share
capital commitment for the Isle of Usedom SPV from $14,512,163 (EUR 10,125,000)
to $40,849,050 (EUR 28,500,000) in order to comply with the terms of the Senior
Loan.  Through contributions made to each SPV, we had funded
$86,482,013 (EUR 64,275,000) as of March 31, 2010.





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




47




The table
below provides a schedule of unfunded capital commitments for each AHTS SPV as
of March 31, 2010, and also includes the information from the table above
regarding the deficit resulting from the difference between our remaining
capital expenditure obligation and the anticipated Senior Loan
proceeds:





AnticipatedRemaining
                        
                        
                        Reserves
      orCapital
      Contribution
                        
                        
                        (Deficit)
      in SPV
                        
                        Anticipated
      VesselSPV
      Name
                        Vessel
      Name
                        
                        Commitment
      (1)
                        
                        
                        at
      Delivery
                        
                        Delivery
      Date6160
      –  MS Juist
                        UOS
      Atlantis
                        
                        $
                        2,011,523
                        
                        
                        
                        -
                        
                        February
      27, 2009 (delivered)6161
      –  MS Norderney
                        UOS
      Challenger
                        
                        
                        3,054,285
                        
                        
                        
                        -
                        
                        May
      28, 2009 (delivered)6169
      –  Isle of Sylt
                        UOS
      Enterprise
                        
                        
                        8,665,020
                        
                        
                        
                        (6,169,925
                        )
                        May
      20106172
      –  Isle of Neuwerk
                        UOS
      Freedom
                        
                        
                        9,754,875
                        
                        
                        
                        (7,964,149
                        )
                        May
      20106173
      –  Isle of Usedom
                        UOS
      Liberty
                        
                        
                        43,540,380
                        
                        
                        
                        (8,041,112
                        )
                        May
      2010$
                        67,026,083


_____________


(1)
            Pursuant
      to the AHTS SPV Agreements, the non-controlling interest holders are
      committed to contribute $12,230,595 of this
  amount.





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





In
summary, through March 31, 2010, we had contributed capital totaling $86,482,013
(EUR 64,275,000) 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.  Six of our nine
AHTS vessels had been delivered, and the remaining capital obligations of the
AHTS SPVs for the vessels totaled $163,644,419 (EUR 121,623,500).  We
anticipated receiving $141,469,234 (EUR 105,142,500) in loan proceeds through
the Senior Loan.  The remaining obligations of each AHTS SPV will be
funded by both us and Reederei Hartmann from additional capital contributions to
the AHTS SPVs, as called for under the Company Agreements.  Our
remaining capital contribution obligation to the AHTS SPV’s approximates
$54,795,488 (EUR 40,725,000).  Funding this amount would represent
full funding of our obligation under the current Company Agreements for each
AHTS SPV.




If we are
unable to obtain sufficient funds to satisfy our equity commitments and fulfill
the requirements of the Senior Loan for funding of the payments due at delivery,
and Reederei Hartmann is unwilling or unable to fulfill their obligations under
the guarantee and the Share Transfer Agreement, we may be unable to take
delivery of the remaining vessels.  If that were to occur, we would be
in default of the shipbuilding contracts and our Senior Loan
agreement.  In the event we were to default on the Senior Loan
agreement, Nord/LB could foreclose on our vessels or avail itself of the other
rights and remedies contained in the Senior Loan documents.  If we
were to default on the shipbuilding contracts, Fincantieri could cease
construction on the vessels, and could seek payment for completed work, plus a
10 percent profit on the remaining work to complete the vessel.
  Outlook for
Distributions


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





48





Critical
Accounting Estimates





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





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





Revenue
Recognition


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





Valuation of Derivative
Financial Instruments


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





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





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.




49




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




50





Item
4. Controls and Procedures





As of
March 31, 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 quarter ended March 31, 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.




51





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 March 31, 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 March 31, 2010, we issued and sold approximately 1,972
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 $197,200.





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 provide for our operating
activities.




52




Item
6. Exhibits





Exhibit
      Number
            
            Title
      of Document10.1
            
            Loan
      Agreement, dated effective as of October 2, 2009, by and between Suresh
      Capital Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann
      GmbH & Co. KG, as Lender (Incorporated by reference to Exhibit 10.1 to
      our Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.2
            
            Loan
      Agreement, dated as of February 10, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.2 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.3
            
            Loan
      Agreement, dated as of March 5, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.3 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.4
            
            Loan
      Agreement, dated as of March 5, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.4 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.5
            
            Addendum
      to the Shipbuilding Contract – Langeoog, dated February 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Langeoog” KG (Incorporated by reference to Exhibit 10.5 to
      our Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.6
            
            Addendum
      to the Shipbuilding Contract – Amrum, dated 2nd
      of March 2010, between Fincantieri Cantieri Navali Italiani S.p.A. and ATL
      Offshore GmbH & Co. “Isle of Amrum” KG (Incorporated by reference to
      Exhibit 10.6 to our Current Report on Form 8-K filed with the SEC on March
      11, 2010)10.7
            
            Addendum
      to the Shipbuilding Contract – Wangerooge, dated 2nd
      of March 2010, between Fincantieri Cantieri Navali Italiani S.p.A. and ATL
      Offshore GmbH & Co. “Isle of Wangerooge” KG (Incorporated by reference
      to Exhibit 10.7 to our Current Report on Form 8-K filed with the SEC on
      March 11, 2010)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.




53





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:           May
      14, 2010





54





Exhibits


Exhibit
      Number
              
              Title
      of Document10.1
              
              Loan
      Agreement, dated effective as of October 2, 2009, by and between Suresh
      Capital Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann
      GmbH & Co. KG, as Lender (Incorporated by reference to Exhibit 10.1 to
      our Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.2
              
              Loan
      Agreement, dated as of February 10, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.2 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.3
              
              Loan
      Agreement, dated as of March 5, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.3 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.4
              
              Loan
      Agreement, dated as of March 5, 2010, by and between Suresh Capital
      Maritime Partners Germany GmbH, as Borrower and Reederei Hartmann GmbH
      & Co. KG, as Lender (Incorporated by reference to Exhibit 10.4 to our
      Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.5
              
              Addendum
      to the Shipbuilding Contract – Langeoog, dated February 2010, between
      Fincantieri Cantieri Navali Italiani S.p.A. and ATL Offshore GmbH &
      Co. “Isle of Langeoog” KG (Incorporated by reference to Exhibit 10.5 to
      our Current Report on Form 8-K filed with the SEC on March 11,
      2010)10.6
              
              Addendum
      to the Shipbuilding Contract – Amrum, dated 2nd
      of March 2010, between Fincantieri Cantieri Navali Italiani S.p.A. and ATL
      Offshore GmbH & Co. “Isle of Amrum” KG (Incorporated by reference to
      Exhibit 10.6 to our Current Report on Form 8-K filed with the SEC on March
      11, 2010)10.7
              
              Addendum
      to the Shipbuilding Contract – Wangerooge, dated 2nd
      of March 2010, between Fincantieri Cantieri Navali Italiani S.p.A. and ATL
      Offshore GmbH & Co. “Isle of Wangerooge” KG (Incorporated by reference
      to Exhibit 10.7 to our Current Report on Form 8-K filed with the SEC on
      March 11, 2010)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