UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
20-F


£
            REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE
      ACT OF 1934ORR
            ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2009OR£
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the transition period
      from                                           
                           toOR£
            SHELL COMPANY REPORT PURSUANT
      TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





Date
of event requiring this shell company report: Not applicable





Commission
file number: 001-33416





OCEANFREIGHT
INC.


(Exact
name of Registrant as specified in its charter)








(Translation
of Registrant's name into English)





Republic
of the Marshall Islands


(Jurisdiction
of incorporation or organization)





80
Kifissias Avenue, Athens 15125, Greece


(Address
of principal executive offices)





Mr.
Antonis Kandylidis


OceanFreight
Inc.


80
Kifissias Avenue, Athens 15125, Greece


Phone:
      +30-210-6140283, Fax:
+30-210-6140284


E-mail:
      management@oceanfreightinc.com





(Name,
      Telephone, E-mail and/or Facsimile number
and


Address
      of Company Contact Person)





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


Title of each class
            Name of each exchange on which registeredCommon stock, $0.01 par value
            Nasdaq Global Market





Securities
registered or to be registered pursuant to Section 12(g) of the Act:
None





Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None





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





As of
December 31, 2009, the registrant had 158,450,001 common shares, $0.01 par value
per share outstanding.





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





£
Yes           R
No







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





£
Yes           R
No





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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.





R
Yes           £
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 during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


[_]
      Yes
            [_]
      No





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


Large
      accelerated filer £
            Accelerated
      filer R
            Non-accelerated
      filer £(Do
      not check if a smaller reporting
company)





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


U.S.
      GAAP R
            International Financial
      Reporting Standards as issued by
              the International Accounting
      Standards £Other
      £





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





£ Item
17                      £ Item
18





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





£
Yes           R
No











TABLE OF
CONTENTS


PageFORWARD-LOOKING
      STATEMENTS
            
            1PART
      I
            2Item
      1. Identity of Directors, Senior Management and Advisers
            2Item
      2. Offer Statistics and Expected Timetable
            2Item
      3. Key Information
            2Item
      4. Information on the Company
            22Item
      4A. Unresolved Staff Comments
            40Item
      5. Operating and Financial Review and Prospects
            40Item
      6. Directors, Senior Management and Employees
            57Item
      7. Major Shareholders and Related Party Transactions
            61Item
      8. Financial Information
            64Item
      9. The Offer and Listing
            64Item
      10. Additional Information
            65Item
      11. Quantitative and Qualitative Disclosures about Market
    Risk
            75Item
      12. Description of Securities Other than Equity Securities
            76PART
      II
            76Item
      13. Defaults, Dividend Arrearages and Delinquencies
            76Item
      14. Material Modifications to the Rights of Security Holders and Use of
      Proceeds
            76Item
      15. Controls and Procedures
            76Item
      16A. Audit Committee Financial Expert
            77Item
      16B. Code of Ethics
            77Item
      16C. Principal Accountant Fees and Services
            77Item
      16D. Exemptions from the Listing Standards for Audit
      Committees
            77Item
      16E. Purchases of Equity Securities by the Issuer and Affiliated
      Purchasers
            78Item
      16F. Change in Registrant's Certifying Accountant
            78Item
      16G. Corporate Governance
            78PART
      III
            78Item
      17. Financial Statements
            78Item
      18. Financial Statements
            78INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS
            F-1







ii


FORWARD-LOOKING
STATEMENTS





Matters
discussed in this annual report may constitute forward-looking statements. The
Private Securities Litigation Reform Act of 1995 provides safe harbor
protections for forward-looking statements in order to encourage companies to
provide prospective information about their business. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and other statements, which
are other than statements of historical facts.




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





Please
note in this annual report, "we," "us," "our," and "the Company," all refer to
OceanFreight Inc. and its subsidiaries.





The
forward-looking statements in this document are based upon various assumptions,
many of which are based, in turn, upon further assumptions, including, without
limitation, management's examination of historical operating trends, data
contained in our records and other data available from third parties. Although
we believe that these assumptions were reasonable when made, because these
assumptions are inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and are beyond our
control, we cannot ensure that we will achieve or accomplish these expectations,
beliefs or projections.





In
addition to these important factors and matters discussed elsewhere in this
report, and in our filings with the U.S. Securities and Exchange Commission (the
"Commission"), important factors that, in our view, could cause actual results
to differ materially from those discussed in the forward-looking statements
include the strength of world economies and currencies, general market
conditions, including fluctuations in charter hire rates and vessel values,
changes in demand in the drybulk carrier and tanker markets, changes in the
company's operating expenses, including bunker prices, drydocking and insurance
costs, changes in governmental rules and regulations or actions taken by
regulatory authorities including those that may limit the commercial useful
lives of drybulk carriers and tankers, potential liability from pending or
future litigation, general domestic and international political conditions,
potential disruption of shipping routes due to accidents or political events,
and other important factors described from time to time in the reports we file
with the Commission and the Nasdaq Global Market.  We caution readers
of this report not to place undue reliance on these forward-looking statements,
which speak only as of their dates.  We undertake no obligation to
update or revise any forward-looking statements.  These forward
looking statements are not guarantees of our future performance, and actual
results and future developments may vary materially from those projected in the
forward looking statements.


1


PART
I





Item 1. Identity of Directors, Senior
Management and Advisers





Not
Applicable





Item
2. Offer Statistics and Expected Timetable





Not
Applicable





Item
3. Key Information





A.
            Selected Consolidated Financial
      and Other Data





The
following table sets forth our selected consolidated financial and other data as
of December 31, 2006, 2007, 2008 and 2009 and for the period from September 11,
2006 (date of inception) through December 31, 2006 and for the years ended
December 31, 2007, 2008 and 2009. We refer you to the notes to our consolidated
financial statements for a discussion of the basis on which our consolidated
financial statements are presented. The information provided below should be
read in conjunction with Item 5 "Operating and Financial Review and Prospects"
and the consolidated financial statements, related notes and other financial
information included herein.





(Expressed
in thousands of U.S. Dollars – except for share and per share data and average
daily results)




September
      11,
                    2006
      (inception)
                    to
      December 31,
                  
                  
                  Year
      ended December 31,
 2006
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2009Income
      Statement Data:Voyage
      revenue and imputed deferred revenue
                  
                  $
                  —
                  
                  
                  
                  41,133
                  
                  
                  
                  157,434
                  
                  
                  
                  132,935Gain
      on forward freight agreements
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  570Voyage
      expenses
                  
                  
                  —
                  
                  
                  
                  (1,958
                  )
                  
                  
                  (14,275
                  )
                  
                  
                  (5,549
                  )Vessels'
      operating expenses
                  
                  
                  —
                  
                  
                  
                  (9,208
                  )
                  
                  
                  (28,980
                  )
                  
                  
                  (43,915
                  )General
      and administrative expenses
                  
                  
                  (111
                  )
                  
                  
                  (3,460
                  )
                  
                  
                  (9,127
                  )
                  
                  
                  (8,540
                  )Survey
      and drydocking costs
                  
                  
                  —
                  
                  
                  
                  (1,685
                  )
                  
                  
                  (736
                  )
                  
                  
                  (5,570
                  )Impairment
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (52,700
                  )Depreciation
                  
                  
                  —
                  
                  
                  
                  (13,210
                  )
                  
                  
                  (43,658
                  )
                  
                  
                  (48,272
                  )Loss
      on sale of vessels
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (133,176
                  )Operating
      income/(loss )
                  
                  
                  (111
                  )
                  
                  
                  11,612
                  
                  
                  
                  60,658
                  
                  
                  
                  (164,217
                  )Interest
      income
                  
                  
                  6
                  
                  
                  
                  2,214
                  
                  
                  
                  776
                  
                  
                  
                  271Interest
      and finance costs
                  
                  
                  —
                  
                  
                  
                  (5,671
                  )
                  
                  
                  (17,565
                  )
                  
                  
                  (19,834
                  )Gain/(loss)
      on derivative instruments
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (16,147
                  )
                  
                  
                  5,098Net
      Income/(loss)
                  
                  $
                  (105
                  )
                  
                  
                  8,155
                  
                  
                  
                  27,722
                  
                  
                  
                  (178,682
                  )Earnings
      (losses) per common share, basic and diluted
                  
                  $
                  —
                  
                  
                  
                  0.84
                  
                  
                  
                  1.94
                  
                  
                  
                  (2.27
                  )Earnings
      (losses) per subordinated share, basic and diluted
                  
                  $
                  (0.05
                  )
                  
                  
                  0.57
                  
                  
                  
                  —
                  
                  
                  
                  —Weighted
      average number of common shares, basic and diluted
                  
                  
                  —
                  
                  
                  
                  8,353,270
                  
                  
                  
                  14,321,471
                  
                  
                  
                  78,556,327Weighted
      average number of subordinated shares, basic and diluted
                  
                  
                  2,000,000
                  
                  
                  
                  2,042,566
                  
                  
                  
                  —
                  
                  
                  
                  —Cash
      dividends declared per share
                  
                  
                  —
                  
                  
                  
                  0.90
                  
                  
                  
                  3.08
                  
                  
                  
                  —Balance
      Sheet Data:Cash and cash equivalents
                  
                  
                  499
                  
                  
                  
                  19,044
                  
                  
                  
                  23,069
                  
                  
                  
                  37,272Total
      current assets
                  
                  
                  503
                  
                  
                  
                  20,711
                  
                  
                  
                  28,677
                  
                  
                  
                  100,299Vessels, net of accumulated depreciation
                  
                  
                  
                  
                  
                  
                  485,280
                  
                  
                  
                  587,189
                  
                  
                  
                  423,242Total
      assets
                  
                  
                  776
                  
                  
                  
                  507,925
                  
                  
                  
                  625,570
                  
                  
                  
                  549,272Total
      current liabilities
                  
                  
                  285
                  
                  
                  
                  33,884
                  
                  
                  
                  116,381
                  
                  
                  
                  73,328Long-term
      imputed deferred revenue including current portion
                  
                  
                  —
                  
                  
                  
                  26,349
                  
                  
                  
                  16,031
                  
                  
                  
                  1,558Sellers'
      credit
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  25,000
                  
                  
                  
                  —Long
      – term debt including current portion
                  
                  
                  —
                  
                  
                  
                  260,600
                  
                  
                  
                  308,000
                  
                  
                  
                  265,674Total
      stockholders' equity
                  
                  
                  491
                  
                  
                  
                  213,410
                  
                  
                  
                  246,961
                  
                  
                  
                  256,611
  2
  2006
                
                
                
                2007
                
                
                
                2008
                
                
                
                2009Other
      Financial Data:Net
      cash flow provided by operating activities
                
                
                1
                
                
                
                24,434
                
                
                
                82,309
                
                
                
                26,552Net
      cash flow used in investing activities
                
                
                (2
                )
                
                
                (467,216
                )
                
                
                (120,665
                )
                
                
                (130,786
                )Net
      cash flow provided by financing activities
                
                
                500
                
                
                
                461,327
                
                
                
                42,381
                
                
                
                118,437Cash
      dividends per common and subordinated share
                
                
                —
                
                
                
                0.90
                
                
                
                2.58
                
                
                
                —Cash
      paid for common and subordinated stock dividend
                
                
                —
                
                
                
                13,048
                
                
                
                47,772
                
                
                
                —Adjusted
      EBITDA (1)
                
                
                
                
                
                
                20,841
                
                
                
                96,699
                
                
                
                55,502Fleet
      Data:Average
      number of vessels (2)
                
                
                —
                
                
                
                3.7
                
                
                
                11.4
                
                
                
                12.7Number
      of vessels
                
                
                —
                
                
                
                10.0
                
                
                
                13
                
                
                
                13Average
      age of fleet
                
                
                —
                
                
                
                12.2
                
                
                
                13.9
                
                
                
                12.3Total
      calendar days for fleet (3)
                
                
                —
                
                
                
                1,364
                
                
                
                4,164
                
                
                
                4,650Total
      voyage days for fleet (4)
                
                
                —
                
                
                
                1,282
                
                
                
                4,125
                
                
                
                4,466Fleet
      utilization (5)
                
                
                —
                
                
                
                94.0
                %
                
                
                99.1
                %
                
                
                96.1
                %Average
      Daily Results:Time
      charter equivalent (TCE) rate (6)
                
                
                —
                
                
                
                30,558
                
                
                
                34,705
                
                
                
                28,523Daily
      vessel operating expenses (7)
                
                
                —
                
                
                
                6,208
                
                
                
                6,337
                
                
                
                8,401Daily
      management fees
                
                
                —
                
                
                
                543
                
                
                
                623
                
                
                
                1,043Daily
      general and administrative expenses (8)
                
                
                —
                
                
                
                2,536
                
                
                
                2,192
                
                
                
                1,836Total
      daily vessel operating expenses (9)
                
                
                —
                
                
                
                9,287
                
                
                
                9,152
                
                
                
                11,280


____________





(1)
            Adjusted
      EBITDA represents net income before interest, taxes, depreciation, loss on
      sale of vessels and impairment charges on vessels. Adjusted EBITDA does
      not represent and should not be considered as an alternative to net income
      or cash flow from operations, as determined by U.S. GAAP and our
      calculation of Adjusted EBITDA may not be comparable to that reported by
      other companies. Adjusted EBITDA is included in this annual report because
      it is a basis upon which we assess our liquidity position, because it is
      used by our lenders as a measure of our compliance with certain loan
      covenants and because we believe that it presents useful information to
      investors regarding our ability to service and/or incur indebtedness. The
      following table reconciles net cash from operating activities, as
      reflected in the 2007, 2008 and 2009 consolidated statements of cash
      flows, to Adjusted EBITDA.




2007
              
              
              2008
              
              
              2009Net
      cash from operating activities
              
              
              24,434
              
              
              
              82,309
              
              
              
              26,552Net
      increase in operating assets
              
              
              1,665
              
              
              
              3,941
              
              
              
              9,988Net
      increase in operating liabilities
              
              
              (7,556
              )
              
              
              (5,865
              )
              
              
              143Net
      interest expense
              
              
              3,457
              
              
              
              16,789
              
              
              
              19,563Amortization
      of deferred financing costs included in interest expense
              
              
              (1,159
              )
              
              
              (475
              )
              
              
              (744
              )Adjusted
      EBITDA
              
              
              20,841
              
              
              
              96,699
              
              
              
              55,502




(2)
            Average
      number of vessels is the number of vessels that constituted the fleet for
      the relevant period, as measured by the sum of the number of days each
      vessel was a part of the fleet during the period divided by the number of
      calendar days in the related
period.





(3)
            Calendar
      days are the total days the vessels were in the Company's possession for
      the relevant period including off-hire and drydock
  days.





(4)
            Total
      voyage days for the fleet are the total days the vessels were in the
      Company's possession for the relevant period net of
    off-hire.





(5)
            Fleet
      utilization is the percentage of time that the vessels were available for
      revenue generating voyage days, and is determined by dividing voyage days
      by fleet calendar days for the relevant
period.





(6)
            Time
      charter equivalent, or TCE, is a measure of the average daily revenue
      performance of a vessel on a per voyage basis. The Company's method of
      calculating TCE is consistent with industry standards and is determined by
      dividing gross revenues (net of voyage expenses) by voyage days for the
      relevant time period. Voyage expenses primarily consist of port, canal and
      fuel costs that are unique to a particular voyage, which would otherwise
      be paid by the charterer under a time charter contract, as well as
      commissions. TCE is a standard shipping industry performance measure used
      primarily to compare period-to-period changes in a shipping company's
      performance despite changes in the mix of charter types (i.e., spot
      charters, time charters and bareboat charters) under which the vessels may
      be employed between the periods.





(7)
            Daily
      vessel operating expenses, which include crew costs, provisions, deck and
      engine stores, lubricating oil, insurance, maintenance and repairs, are
      calculated by dividing vessel operating expenses by fleet calendar days
      for the relevant time period.





(8)
            Daily
      general and administrative expense is calculated by dividing general and
      administrative expense by fleet calendar days for the relevant time
      period.


(9)
              Total
      vessel operating expenses or TVOE is a measurement of our total expenses
      associated with operating our vessels. TVOE is the sum of vessel operating
      expenses, management fees and general and administrative expenses. Daily
      TVOE is calculated by dividing TVOE by fleet calendar days for the
      relevant time period.


3





B.
            Capitalization and
      Indebtedness





Not
applicable.





C.
            Reasons for the Offer and Use
      of Proceeds





Not
applicable.





D.
            Risk
    Factors





Some of
the following risks relate principally to the sectors of the seaborne
transportation industry in which we operate and our business in general. Other
risks relate principally to the securities market and ownership of our common
stock. You should carefully consider the following risks together with the other
information described in this section before deciding to invest in our common
stock. Any of the risk factors could significantly and negatively affect our
business, financial condition or operating results and the trading price of our
stock. You may lose all or part of your investment.





Industry
Specific Risk Factors





Charter hire rates for drybulk
carriersand tanker
vesselshave been very
volatile, which may adversely affect our
earnings





The
drybulk and tanker shipping industries are cyclical with attendant volatility in
charter hire rates and profitability. The degree of charter hire rate volatility
among different types of drybulk and tanker carriers has varied widely. For
example after reaching historical highs in mid-2008, charter hire rates for
Panamax and Capesize drybulk carriers reached near historically low levels in
2009. We currently employ our drybulk carriers and 50% of our tanker fleet on
long term time charters. We cannot ensure that we will be able to successfully
charter our vessels in the future or renew existing charters at rates sufficient
to allow us to meet our obligations in the future. Because the factors affecting
the supply and demand for vessels are outside of our control and are
unpredictable, the nature, timing, direction and degree of changes in industry
conditions are also unpredictable.





Factors
that influence demand for vessel capacity include:





•
            supply
      and demand for energy resources and
commodities;





•
            changes
      in the exploration or production of energy resources and
      commodities;





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





•
            the
      location of consuming regions for energy resources and
      commodities;





•
            the
      globalization of production and
manufacturing;





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





•
            developments
      in international trade;





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





•
            environmental
      and other regulatory developments;





•
            currency
      exchange rates; and





•
            weather.





The
factors that influence the supply of vessel capacity include:





•
            the
      number of newbuilding deliveries;





•
            port
      and canal congestion;


4





•
            the
      scrapping rate of older vessels;


•
              the
      price of steel;


•
            vessel
      casualties; and





•
            the
      number of vessels that are out of service or converted to other
      use.





We
anticipate that the future demand for our vessels will be dependent upon
continued economic growth in the world's economies, including China and India,
seasonal and regional changes in demand, changes in the capacity of the global
drybulk carrier and tanker fleets and the sources and supply of drybulk cargo
and oil and oil products to be transported by sea. The capacity of the global
drybulk carrier and tanker fleets seem likely to increase and there can be no
assurance that economic growth will continue. Adverse economic, political,
social or other developments could have a material adverse effect on our
business and operating results.





The downturns in the drybulk carrier
and tanker charter markets and related declines in vessel values may have
an adverse effect on our
earnings, affect compliance with our loan covenants, require us to raise additional
capital in order to comply with our loan covenants, and affect our ability to
pay dividends if reinstated in the future.





The
Baltic Dry Index (BDI), a daily index of charter rates in 26 shipping routes
measured on a time charter and voyage basis covering Supramax, Panamax and
Capesize drybulk carriers, recovered significantly in 2009 compared to the low
of the fourth quarter of 2008. The 2009 average of the BDI was 3,005, which is
about 300% higher than the December 2008 average of 743. However, this is still
below the BDI's high of 11,844 reached in May 2008.





A decline
in the drybulk market will result in lower charter rates for vessels exposed to
the spot market and time charters linked to the BDI. Our drybulk carriers are
presently employed under time charters that are not directly linked to the
BDI.





Drybulk
vessel values have also rebounded in part since 2008's steep decline. Charter
rates and vessel values were severely affected in 2008 in part by the lack of
availability of credit to finance both vessel purchases and purchases of
commodities carried by sea, resulting in a decline in cargo shipments, and the
excess supply of iron ore in China which resulted in falling iron ore prices and
increased stockpiles in Chinese ports. The increase in drybulk vessel values in
2009 resulted primarily from cheaper prices for raw materials from producing
countries like Brazil and Australia compared to raw materials produced
domestically in Asia; consequently China has increased its imports of raw
materials. In 2008, China's iron ore imports comprised about 65% of the total
volume of iron transported by sea. In 2009, this number increased to about
80%.  There can be no assurance as to how long charter rates and
vessel values will remain at their current levels or whether they will
experience significant volatility.




Lansing Richmond Juneau Pierre





The
tanker industry has an inherent volatility caused by seasonal demand
fluctuations. During the fall, refineries typically build stockpiles to cover
demand for heating distillates during the winter. Early in the spring the
refineries move into a maintenance period in order to switch production to
gasoline instead of heavy distillates. This results in the reduction of required
seaborne transportation of oil. As a general pattern, demand for petroleum
products during the summer is less than demand during the winter. This
seasonality is reflected in the time charter equivalent rate for a Suezmax
tanker route loading in West Africa and discharging in the U.S. Atlantic Coast,
where the average rate was $11,759 per day during July 2009 compared to $24,763
per day during the fourth quarter of 2009.





In
response to a significant decline in oil prices during 2008, OPEC significantly
reduced oil supply, causing WTI oil prices to recover from a low of $34 per
barrel in December 2008 to an average WTI oil price of approximately $62 per
barrel in 2009 and approximately $75 per barrel as of February 2,
2010.  During the last OPEC meeting, the ministers agreed to leave
existing output targets unchanged in order to help economic recovery by avoiding
further increases of oil prices during the economic recession. The decline in
oil supply had an adverse effect on the demand for tankers and tanker charter
rates.  Consistent with this trend, the value of the tankers in our
fleet has declined, resulting in the impairment loss and loss on vessels held
for sale recorded in 2009 of $116.6 million. However, we believe that the
potential phase out by 2010 of single hull tankers, which constitute
approximately 12% in terms of dwt of the global tanker fleet, may reduce tanker
supply and may therefore mitigate the adverse effect on demand for tankers
resulting from any potential future oil supply reduction.





On
December 12, 2008, our Board of Directors determined, after careful
consideration of various factors, including the recent decline in charter rates
and vessel values in the drybulk sector, to suspend the payment of cash
dividends until such time as the Board of Directors shall determine in its
discretion, in order to preserve capital.


5


On
January 9, 2009, we entered into an amendment to our Nordea credit facility
waiving the December 9, 2008 breach of the collateral maintenance coverage ratio
contained in such credit facility resulting from the decrease in the market
value of our vessels and reducing the level of the collateral maintenance
coverage ratio for the remaining term of the agreement. Please see "Item 5.
Operating Financial Review and Prospects — B. Liquidity and Capital Resources —
Long Term Debt Obligations and Credit Arrangements and Note 6 to our financial
statements."





On
November 24, 2009, DVB consented to a reduction of the collateral maintenance
coverage ratio to 125% for the period from November 24, 2009 to December 17,
2010 and the deposit of $2.5 million in the retention account that will be
blocked during the above period and has been classified in restricted cash in
current assets in the 2009 consolidated balance sheet.





We
currently employ two of our tanker vessels in two separate spot market tanker
pools.  If the current low charter rates in the drybulk and tanker
markets continue through any significant period when time charters for our
vessels expire and we are consequently exposed to then-prevailing charter rates,
our earnings may be adversely affected. If these trends continue, in order to
remain viable, we may have to extend the period in which we suspend dividend
payments or reinstate dividend payments at a reduced level (subject to
restrictions in our credit facilities, including a prohibition on dividend
payments set forth in our amended Nordea credit facility, which matures in
October 2015), sell vessels in our fleet and/or seek to raise additional capital
in the equity markets. If we are able to sell additional shares at a time when
the charter rates in the drybulk and tanker charter markets are low, such sales
could be at prices below those at which shareholders had purchased their shares,
which could, in turn, result in significant dilution of our then existing
shareholders and affect our ability to pay dividends if reinstated in the future
and our earnings per share. During the period from February 6, 2009 to the date
of this Annual Report, we issued a total of 160.06 million common shares
pursuant to our Standby Equity Purchase Agreement ("SEPA") and Standby Equity
Distribution Agreement ("SEDA"), with YA Global Master SPV Ltd., or YA Global,
resulting in net proceeds of $208.1 million. Even if we are able to raise
additional capital in the equity markets, there is no assurance we will be able
to comply with our loan covenants.




An over-supply of drybulk carriers
may lead to reductions in charter hire rates and
profitability.





The market supply of
drybulk carriers has been increasing, and the number of drybulk carriers on
order is near historic highs. These newbuildings were delivered in significant
numbers starting at the beginning of 2006 and continuing through 2010. As of
December 31, 2009, newbuilding orders had been placed for an aggregate of
approximately 59.3% of the existing global drybulk fleet, with deliveries
expected during the next 36 months. The market supply of tankers is affected by
a number of factors such as demand for energy resources, oil and petroleum
products, as well as strong overall economic growth in part of the world
economy, including Asia.As of
December 31, 2009 newbuilding orders have been placed for an aggregate
of approximately 30.4% of the existing global tanker fleet.An
over-supply of drybulk carrier and/or tanker capacity may result in a reduction
of charter hire rates. If such a reduction occurs, upon the expiration or
termination of our vessels' current charters we may only be able to re-charter
our vessels at reduced or unprofitable rates or we may not be able to charter
these vessels at all.





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




We
evaluate the carrying amounts of our vessels to determine if events have
occurred that would require an impairment of their carrying amounts. The
recoverable amount of vessels is reviewed based on events and changes in
circumstances that would indicate that the carrying amount of the assets might
not be recovered. The review for potential impairment indicators and projection
of future cash flows related to the vessels is complex and requires us to make
various estimates including future freight rates, earnings from the vessels and
discount rates. All of these items have been historically volatile.




We
evaluate an asset's recoverable amount as the sum of its future undiscounted
cash flows generated through the asset's remaining useful life.  If the
recoverable amount is less than net book value of the vessel, the vessel is
deemed impaired. The carrying values of our vessels may not represent their fair
market value at any point in time because the new market prices of secondhand
vessels tend to fluctuate with changes in charter rates and the cost of
newbuildings. In the year ended December 31, 2009, charter rates in the drybulk
and tanker markets declined significantly and vessel values also declined. As a
result, we recorded an impairment loss and loss on vessels held for sale for the
year ended December 31, 2009 of $134 million. Any additional impairment charges
incurred as a result of further declines in charter rates could negatively
affect our business, financial condition, operating results or the trading price
of our common shares.




Changes in the economic and political
environment in China and policies adopted by the government to regulate its
economy may have a material adverse effect on our business, financial condition and
results of operations.





The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in such respects
as structure, government involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and balance of payments
position. Prior to 1978, the Chinese economy was a planned economy. Since 1978,
increasing emphasis has been placed on the utilization of market forces in the
development of the Chinese economy. Annual and five year State Plans are adopted
by the Chinese government in connection with the development of the
economy. Although state-owned enterprises still account for a substantial
portion of the Chinese industrial output, in general, the Chinese government is
reducing the level of direct control that it exercises over the economy through
State Plans and other measures. There is an increasing level of freedom and
autonomy in areas such as allocation of resources, production, pricing and
management and a gradual shift in emphasis to a "market economy" and enterprise
reform. Limited price reforms were undertaken, with the result that prices for
certain commodities are principally determined by market forces. Many of the
reforms are unprecedented or experimental and may be subject to revision, change
or abolition based upon the outcome of such experiments. If the Chinese
government does not continue to pursue a policy of economic reform, the level of
imports to and exports from China could be adversely affected by changes to
these economic reforms by the Chinese government, as well as by changes in
political, economic and social conditions or other relevant policies of the
Chinese government, such as changes in laws, regulations or export and import
restrictions, all of which could adversely affect our business, operating
results and financial condition.


6





Disruptions in world financial
markets and the resulting governmental action in the United States and in other parts
of the world could have a material adverse impact on our ability to obtain
financing, our results of operations, financial condition and cash flows and could
cause the market price of our common shares to decline.





The
United States and other parts of the world are exhibiting deteriorating economic
trends and have been in a recession. For example, the credit markets worldwide
and in the United States have experienced significant contraction, de-leveraging
and reduced liquidity, and the United States federal government, state
governments and foreign governments have implemented and are considering a broad
variety of governmental action and/or new regulation of the financial
markets.





Securities
and futures markets and the credit markets are subject to comprehensive
statutes, regulations and other requirements. The U.S. Securities and Exchange
Commission, other regulators, self-regulatory organizations and exchanges are
authorized to take extraordinary actions in the event of market emergencies, and
may effect changes in law or interpretations of existing laws.





During
2008 and 2009, a number of financial institutions have experienced serious
financial difficulties and, in some cases, have entered bankruptcy proceedings
or are in regulatory enforcement actions. The uncertainty surrounding the future
of the credit markets in the United States and the rest of the world has
resulted in reduced access to credit worldwide. As of the date of this Annual
Report, we had total outstanding indebtedness of $258.7 million under our
existing credit facilities.





We face
risks attendant to changes in economic environments, changes in interest rates,
and instability in certain securities markets, among other factors. Major market
disruptions and the current adverse changes in market conditions and regulatory
climate in the United States and worldwide may adversely affect our business or
impair our ability to borrow amounts under our credit facilities or any future
financial arrangements. The current market conditions may last longer than we
anticipate. These recent and developing economic and governmental factors may
have a material adverse effect on our results of operations, financial condition
or cash flows, have caused the price of our common shares to decline and could
cause the price of our common shares to decline further.





Acts of piracy on ocean-going vessels
have recently increased in frequency, which could adversely affect our
business.





Acts of
piracy have historically affected ocean-going vessels trading in regions of the
world such as the South China Sea and in the Gulf of Aden off the coast of
Somalia. Throughout 2009 the frequency of piracy incidents has increased
significantly, particularly in the Gulf of Aden off the coast of Somalia, with
drybulk vessels and tankers particularly vulnerable to such attacks. If these
piracy attacks result in regions in which our vessels are deployed being
characterized as "war risk" zones by insurers, as the Gulf of Aden temporarily
was in May 2008, or Joint War Committee (JWC) "war and strikes" listed areas,
premiums payable for such coverage could increase significantly and such
insurance coverage may be more difficult to obtain. In addition, crew costs,
including due to employing onboard security guards, could increase in such
circumstances. We may not be adequately insured to cover losses from these
incidents, which could have a material adverse effect on us. In addition, any
detention hijacking as a result of an act of piracy against our vessels, or an
increase in cost, or unavailability, of insurance for our vessels, could have a
material adverse impact on our business, financial condition, results of
operations and ability to reinstate the payment of dividends.





Fuel, or bunker prices, may adversely
affect profits.





While we
generally do not bear the cost of fuel, or bunkers, under our time charters,
fuel is a significant factor in negotiating charter rates. As a result, an
increase in the price of fuel beyond our expectations may adversely affect our
profitability at the time of charter negotiation or when our vessels trade in
the spot market. Fuel is also a significant, if not the largest, expense in our
shipping operations when vessels are under voyage charter. Increases in the
price of fuel may adversely affect our profitability. The price and supply of
fuel is unpredictable and fluctuates based on events outside our control,
including geopolitical developments,
supply and demand for oil and gas, actions by OPEC and other oil and gas
producers, war and unrest in oil producing countries and regions, regional
production patterns and environmental concerns.


7





Further,
fuel may become much more expensive in the future, which may reduce the
profitability and competitiveness of our business versus other forms of
transportation, such as truck or rail.





We are subject to complex laws and
regulations, including environmental regulations that can adversely affect
the cost, manner or feasibility of doing business.





Our
operations are subject to numerous laws and regulations in the form of
international conventions and treaties, national, state and local laws and
national and international regulations in force in the jurisdictions in which
our vessels operate or are registered, which can significantly affect the
ownership and operation of our vessels. These requirements include, but are not
limited to, the International Convention on Civil Liability for Oil Pollution
Damage of 1969, the International Convention for the Prevention of Pollution
from Ships of 1975, the International Maritime Organization, or IMO,
International Convention for the Prevention of Marine Pollution of 1973, the IMO
International Convention for the Safety of Life at Sea of 1974, the
International Convention on Load Lines of 1966, the U.S. Oil Pollution Act of
1990, or OPA, the U.S. Clean Air Act, the U.S. Clean Water Act and the U.S.
Marine Transportation Security Act of 2002. Compliance with such laws,
regulations and standards, where applicable, may require installation of costly
equipment or operational changes and may affect the resale value or useful lives
of our vessels. We may also incur additional costs in order to comply with other
existing and future regulatory obligations, including, but not limited to, costs
relating to air emissions, the management of ballast waters, maintenance and
inspection, elimination of tin-based paint, development and implementation of
emergency procedures and insurance coverage or other financial assurance of our
ability to address pollution incidents. These costs could have a material
adverse effect on our business, results of operations, cash flows and financial
condition. A failure to comply with applicable laws and regulations may result
in administrative and civil penalties, criminal sanctions or the suspension or
termination of our operations. Environmental laws often impose strict liability
for remediation of spills and releases of oil and hazardous substances, which
could subject us to liability without regard to whether we were negligent or at
fault. Under OPA, for example, owners, operators and bareboat charterers are
jointly and severally strictly liable for the discharge of oil within the
200-mile exclusive economic zone around the United States. An oil spill could
result in significant liability, including fines, penalties and criminal
liability and remediation costs for natural resource damages under other
federal, state and local laws, as well as third-party damages. We are required
to satisfy insurance and financial responsibility requirements for potential oil
(including marine fuel) spills and other pollution incidents. Although we have
arranged insurance to cover certain environmental risks, there can be no
assurance that such insurance will be sufficient to cover all such risks or that
any claims will not have a material adverse effect on our business, results of
operations, cash flows and financial condition.





We are subject to international
safety regulations and the failure to comply with these regulations may subject us
to increased liability, may adversely affect our insurance coverage and may
result in a denial of access to, or detention in, certain
ports.





The
operation of our vessels is affected by the requirements set forth in the IMO's
International Management Code for the Safe Operation of Ships and Pollution
Prevention, or ISM Code. The ISM Code requires shipowners, ship managers and
bareboat charterers to develop and maintain an extensive "Safety Management
System" that includes the adoption of a safety and environmental protection
policy setting forth instructions and procedures for safe operation and
describing procedures for dealing with emergencies. The failure of a shipowner
or bareboat charterer to comply with the ISM Code may subject it to increased
liability, may invalidate existing insurance or decrease available insurance
coverage for the affected vessels and may result in a denial of access to, or
detention in, certain ports. As of the date of this Annual Report, each of our
vessels is ISM code-certified.





Compliance
with safety and other vessel requirements imposed by classification societies
may be very costly and may adversely affect our business.





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





A vessel
must undergo annual surveys, intermediate surveys and special surveys. In lieu
of a special survey, a vessel's machinery may be placed on a continuous survey
cycle, under which the machinery would be surveyed periodically over a five-year
period.





Our
vessels are on special survey cycles for hull inspection and continuous survey
cycles for machinery inspection. Every vessel is also required to be dry docked
every two to three years for inspection of the underwater parts of such
vessel.





If a
vessel does not maintain its class and/or fails any annual survey, intermediate
survey or special survey, the vessel will be unable to trade between ports and
will be unemployable, which will negatively impact our revenues and results from
operations.


8





Our vessels may suffer damage due to
the inherent operational risks of the seaborne transportation industry and
we may experience unexpected drydocking costs, which may adversely affect our
business and financial condition.





Our
vessels and their cargoes will be at risk of being damaged or lost because of
events such as marine disasters, bad weather, business interruptions caused by
mechanical failures, grounding, fire, explosions and collisions, human error,
war, terrorism, piracy and other circumstances or events. These hazards may
result in death or injury to persons, loss of revenues or property,
environmental damage, higher insurance rates, damage to our customer
relationships, delay or rerouting. If our vessels suffer damage, they may need
to be repaired at a drydocking facility. The costs of drydock repairs are
unpredictable and may be substantial. We may have to pay drydocking costs that
our insurance does not cover in full. The loss of earnings while these vessels
are being repaired and repositioned, as well as the actual cost of these
repairs, would decrease our earnings. In addition, space at drydocking
facilities is sometimes limited and not all drydocking facilities are
conveniently located. We may be unable to find space at a suitable drydocking
facility or our vessels may be forced to travel to a drydocking facility that is
not conveniently located to our vessels' positions. The loss of earnings while
these vessels are forced to wait for space or to steam to more distant
drydocking facilities would decrease our earnings.





Maritime claimants could arrest our
vessels, which would interrupt our business.





Crew
members, suppliers of goods and services to a vessel, shippers of cargo and
other parties may be entitled to a maritime lien against that vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien
holder may enforce its lien by arresting a vessel through foreclosure
proceedings. The arrest or attachment of one or more of our vessels could
interrupt our business or require us to pay large sums of funds to have the
arrest lifted, which would have a negative effect on our cash
flows.





In
addition, in some jurisdictions, such as South Africa, under the "sister ship"
theory of liability, a claimant may arrest both the vessel which is subject to
the claimant's maritime lien and any "associated" vessel, which is any vessel
owned or controlled by the same owner. Claimants could try to assert "sister
ship" liability against one vessel in our fleet for claims relating to another
of our ships.





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





A
government could requisition for title or seize our vessels. Requisition for
title occurs when a government takes control of a vessel and becomes the owner.
Also, a government could requisition our vessels for hire. Requisition for hire
occurs when a government takes control of a vessel and effectively becomes the
charterer at dictated charter rates. Generally, requisitions occur during a
period of war or emergency. Government requisition of one or more of our vessels
may negatively impact our business, financial condition, results of operations
and ability to pay dividends if reinstated in the future.





We
operate our vessels worldwide and as a result, our vessels are exposed to
international risks which may reduce revenue or increase expenses.




The
international shipping industry is an inherently risky business involving global
operations. Our vessels are at a risk of damage or loss because of events such
as mechanical failure, collision, human error, war, terrorism, piracy, cargo
loss and bad weather. In addition, changing economic, regulatory and political
conditions in some countries, including political and military conflicts, have
from time to time resulted in attacks on vessels, mining of waterways, piracy,
terrorism, labor strikes and boycotts. These sorts of events could interfere
with shipping routes and result in market disruptions which may reduce our
revenue or increase our expenses.




International
shipping is subject to various security and customs inspection and related
procedures in countries of origin and destination and trans-shipment
points.  Inspection procedures can result in the seizure of the cargo
and/or our vessels, delays in the loading, offloading or delivery and the
levying of customs duties, fines or other penalties against us. It is possible
that changes to inspection procedures could impose additional financial and
legal obligations on us. Furthermore, changes to inspection procedures could
also impose additional costs and obligations on our customers and may, in
certain cases, render the shipment of certain types of cargo uneconomical or
impractical. Any such changes or developments may have a material adverse effect
on our business, results of operations, cash flows, financial condition and
available cash and ability to pay dividends if reinstated in the
future.





Political instability, terrorist
attacks and international hostilities can affect the seaborne transportation industry, which could
adversely affect our business.





We
conduct most of our operations outside of the United States, and our business,
results of operations, cash flows, financial condition and ability to pay
dividends if reinstated in the future may be adversely affected by changing
economic, political and government
conditions in the countries and regions where our vessels are employed or
registered. Moreover, we operate in a sector of the economy that is likely to be
adversely impacted by the effects of political instability, terrorist or other
attacks, war or international hostilities. Terrorist attacks such as the attacks
on the United States on September 11, 2001, the bombings in Spain on March 11,
2004, in London on July 7, 2005 and in Mumbai on November 26, 2008 and the
continuing response of the United States and other countries to these attacks,
as well as the threat of future terrorist attacks, continue to contribute to
world economic instability and uncertainty in global financial markets. Future
terrorist attacks could result in increased volatility of the financial markets
in the United States and globally and could result in an economic recession in
the United States or the world. These uncertainties could also adversely affect
our ability to obtain additional financing on terms acceptable to us or at
all.


9




In the
past, political conflicts have also resulted in attacks on vessels, such as the
attack on the Limburgin October 2002, mining of waterways and other efforts to disrupt
international shipping, particularly in the Arabian Gulf region. Acts of
terrorism and piracy have also affected vessels trading in regions such as the
South China Sea. Any of these occurrences could have a material adverse impact
on our business, financial condition, results of operations and ability to pay
dividends if reinstated in the future.




Company
Specific Risk Factors





We may not be able to comply with the
collateral maintenance coverage ratio covenants in our credit facilities,
which may affect our ability to conduct our business if we are unable to obtain
waivers or covenant modifications from our lenders.





Our two
credit facilities, with Nordea Bank Norge ASA, or Nordea, and DVB Bank SE, or
DVB, require us to maintain a minimum ratio of the fair market value of our
vessels mortgaged thereunder to our aggregate outstanding balance under each
respective credit facility (please see Item 5. Operating Financial Review and
Prospects — B. Liquidity and Capital Resources - Long-Term Debt Obligations and
Credit Arrangements). The market value of drybulk and tanker vessels is
sensitive to, among other things, changes in the drybulk and tanker charter
markets, respectively, with vessel values deteriorating in times when drybulk
and tanker charter rates, as applicable, are falling and improving when charter
rates are anticipated to rise. The current decline in charter rates in the
drybulk market coupled with the prevailing difficulty in obtaining financing for
vessel purchases have adversely affected drybulk vessel values. The recent fall
in oil prices has also led to lower tanker charter rates and tanker vessel
values. These conditions have led to a significant decline in the fair market
values of our vessels since December 31, 2008, particularly our drybulk
carriers.





On
January 9, 2009, we entered into an amendatory agreement to our Nordea credit
facility, or the Nordea Amendatory Agreement, which became effective on January
23, 2009. The amendatory agreement waives the breach of the collateral
maintenance coverage ratio covenant contained in such credit facility resulting
from the decrease in the market value of our vessels and reduces the level of
the collateral maintenance coverage ratio to a level between 90% and 125% for
the remaining term of the agreement, with such waiver taking effect from the
date of prior breach to the effective date of the amendatory agreement. Although
we expect to be in compliance with the collateral maintenance coverage ratio
covenants under our two credit facilities, in the future we may fall out of
compliance if our vessel values experience further declines. If this were to
occur, under the terms of our two credit facilities, our lenders could require
us to post additional collateral or pay down our indebtedness to a level where
we are in compliance with our loan covenants and, if we are unable to post this
collateral, make these prepayments or obtain a waiver, our lenders could
accelerate our indebtedness, which would impair our ability to continue to
conduct our business. In such an event, our auditors may give either an
unqualified opinion with an explanatory paragraph relating to the disclosure in
the notes to our financial statements as to the substantial doubt of our ability
to continue as a going concern, or a qualified, adverse or disclaimer of
opinion, which could lead to additional defaults under our loan
agreements.





If the
current low charter rates in the drybulk market and the tanker market and low
vessel values continue or decrease further, our ability to comply with various
other covenants in our loan agreements may be adversely affected. In such event,
we may have to seek additional covenant modifications or waivers. Any default by
or the failure of our charterers to honor their obligations to us under our
charter agreements would reduce the likelihood that our lenders would be willing
to provide waivers or covenant modifications or other accommodations. If our
indebtedness is accelerated in full or in part, it would be very difficult in
the current financing environment for us to refinance our debt or obtain
additional financing and we could lose our vessels if our lenders foreclose
their liens.





Furthermore,
as a result of the decline in our vessel values, we recorded an impairment loss
of $52.7 million and incurred loss on sale of vessels and vessels held for
sale of $133.2 million for the year ended December 31, 2009 (please also
see "Vessel Lives and Impairment" in this Annual Report and Note 2(k) to the
consolidated financial statements for the year ended December 31, 2009 included
herein) and if the current low charter rates in the drybulk market and the
tanker market continue or decrease further, we may have to record further
impairment adjustments to our financial statements which would adversely affect
our financial results and further hinder our ability to raise
capital.  If we find it necessary to sell our vessels
at a time when vessel prices are low, we will recognize losses and a reduction
in our earnings which could affect our ability to raise additional capital
necessary to comply with our loan covenants.


10





We depend upon a few significant
customers for a large part of our revenues and the loss of one or more of these
customers could adversely affect our financial performance.





We derive
a significant part of our revenue from a small number of customers, with 42% of
our revenues for the year ended December 31, 2009 generated from three
charterers. Our fleet is currently employed under fixed rate period charter
arrangements to seven customers. If one or more of these customers is unable to
perform under one or more charters with us and we are not able to find a
replacement charter, or if a customer exercises certain rights to terminate the
charter, we could suffer a loss of revenues that could materially adversely
affect our business, financial condition and results of operations.





We could
lose a customer or the benefits of a time charter if, among other
things:





•
            the
      customer fails to make charter payments because of its financial
      inability, disagreements with us or
otherwise;





•
            the
      customer terminates the charter because we fail to deliver the vessel
      within a fixed period of time, the vessel is lost or damaged beyond
      repair, there are serious deficiencies in the vessel or prolonged periods
      of off-hire, or if we are otherwise in default under the charter;
      or





•
            the
      customer terminates the charter because the vessel has been subject to
      seizure for more than a specified number of
  days.





If we
lose a key customer, we may be unable to obtain charters on comparable terms or
may become subject to the volatile spot market, which is highly competitive and
subject to significant price fluctuations. The time charters on which we deploy
12 of the vessels in our fleet provide for charter rates that are significantly
above current market rates, particularly spot market rates that most directly
reflect the current depressed levels of the drybulk and tanker charter markets.
If it were necessary to secure substitute employment, in the spot market or on
time charters, for any of these vessels due to the loss of a customer in these
market conditions, such employment would be at a significantly lower charter
rate than currently generated by such vessel, or we may be unable to secure a
charter at all, in either case, resulting in a significant reduction in
revenues. For example, our tanker vessel M/T Olindawas time
charteredat a
rate of $41,025 per day with Industrial Carriers Corp. and on October 11, 2008,
the charter was terminated by mutual agreement as a result of the charterer's
insolvency. We subsequently deployed the vessel in the Blue Fin Tankers Inc.
spot market pool where the vessel generates revenues based on spot market
charter rates. The loss of any of our customers, time charters or vessels, or a
decline in payments under our charters, could have a material adverse effect on
our business, results of operations and financial condition and our ability to
pay dividends, if any, in the future. Please also refer to Item 4.A on page
40.





The failure of our counterparties to
meet their obligations under our time charter agreements could cause us to
suffer losses or otherwise adversely affect our
business.





Eleven of
our vessels are currently employed under time charters with seven customers,
with 42% of our revenues for the year ended December 31, 2009 generated from
three customers chartering our drybulk carriers. The ability and willingness of
each of our counterparties to perform its obligations under a time charter
agreement with us will depend on a number of factors that are beyond our control
and may include, among other things, general economic conditions, the condition
of the drybulk shipping and tanker industries and the overall financial
condition of the counterparty. In addition, in depressed market conditions,
there have been reports of charterers renegotiating their charters or defaulting
on their obligations under charters and our customers may fail to pay
charterhire or attempt to renegotiate charter rates. For example, we agreed to
reduce the contracted charter rate for one of our drybulk vessels, the M/V Augusta, from $42,100 per day
to $16,000 per day upon its commencement in November 2008.





The time
charters on which we deploy 11 of the vessels in our fleet provide for charter
rates that are above current market rates. Should a counterparty fail to honor
its obligations under agreements with us, it may be difficult to secure
substitute employment for such vessel, and any new charter arrangements we
secure in the spot market or on time charters could be at lower rates given a
decreased charter rate level, particularly in the drybulk carrier market. For
example, we had entered into a time charter for one of our tanker vessels, the
M/T Olinda, at a rate
of $41,025 per day with Industrial Carriers Corp. and in October 2008, the
charter was terminated by mutual agreement as a result of the charterer's
insolvency. We have since deployed the vessel in the Blue Fin spot market pool
where the vessel generates revenues based on spot market charter rates. If our
charterers fail to meet their obligations to us or attempt to renegotiate our
charter agreements, we could sustain significant losses which could have a
material adverse effect on our business, financial condition, results of
operations and cash flows, as well as our ability to pay dividends, if any, in
the future, and comply with covenants in our credit facilities. Please also
refer to Item 4.A on page 40.


11


The market price of our common shares
has fluctuated widely and the market price of our common shares may
fluctuate in the future.





The
market price of our common shares has fluctuated widely since our initial public
offering in April 2007 and may continue to do so as a result of many factors,
including our actual results of operations and perceived prospects, the
prospects of our competition and of the shipping industry in general and in
particular the drybulk and tanker sectors, differences between our actual
financial and operating results and those expected by investors and analysts,
changes in analysts' recommendations or projections, changes in general
valuations for companies in the shipping industry, particularly the drybulk and
tanker sectors, changes in general economic or market conditions and broad
market fluctuations.





Since
January 12, 2009, the market price of our common shares has dropped below $5.00
per share, and the last reported closing price on The Nasdaq Global Market on
March 8, 2010 was $0.83 per share. If the market price of our common shares
remains below $5.00 per share, under stock exchange rules, our shareholders will
not be able to use such shares as collateral for borrowing in margin accounts.
This inability to continue to use our common shares as collateral may lead to
sales of such shares creating downward pressure on and increased volatility in
the market price of our common shares.





In
addition, under the rules of The Nasdaq Stock Market, listed companies are
required to maintain a share price of at least $1.00 per share and if the
closing share price stays below $1.00 for a period of 30 consecutive business
days, then the listed company would have a cure period of at least 180 days to
regain compliance with the $1.00 per share minimum.  Recently, our
stock price has declined below $1.00 per share for a period of 30 consecutive
business days, and on March 1, 2010 we received notice from The Nasdaq Stock
Market that we are not in compliance with the minimum bid price rule and as a
result, we are required to take action during the relevant cure period, such as
a reverse stock split, in order to comply with Nasdaq rules.





Our earnings may be adversely
affected if we do not successfully employ our vessels.





Our
strategy is to employ our vessels on fixed rate period charters, four of which
expire in 2010. In addition, two of our vessels, the M/T Olinda and M/T Tigani, are
employed in separate spot market pools. Current charter rates have sharply
declined from historically high levels and the charter market remains volatile.
In the past, charter rates for vessels have declined below operating costs of
vessels. If our vessels become available for employment in the spot market or
under new period charters during periods when charter rates are at depressed
levels, we may have to employ our vessels at depressed charter rates which would
lead to reduced or volatile earnings. We cannot ensure that future charter rates
will be at a level that will enable us to operate our vessels profitably or to
reinstate dividend payments or repay our debt.





The aging of our fleet may result in
increased operating costs in the future, which could adversely affect our
earnings.





In
general, the costs to maintain a vessel in good operating condition increase
with the age of the vessel. As of the date of this Annual Report, our fleet has
a weighted average age of 10.9 years. Older vessels are typically less fuel
efficient and more costly to maintain than more recently constructed vessels due
to improvements in engine technology. Cargo insurance rates increase with the
age of a vessel, making older vessels less desirable to charterers. Governmental
regulations, safety or other equipment standards related to the age of vessels
may require expenditures for alterations or the addition of new equipment to our
vessels and may restrict the type of activities in which our vessels may engage.
We cannot ensure that, as our vessels age, market conditions will justify those
expenditures or enable us to operate our vessels profitably during the remainder
of their useful lives.





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





Even
following a physical inspection of secondhand vessels prior to purchase, we do
not have the same knowledge about their condition and cost of any required (or
anticipated) repairs that we would have had if these vessels had been built for
and operated exclusively by us. Accordingly, we may not discover defects or
other problems with such vessels prior to purchase. Defects or problems
discovered after purchase may be expensive to repair, and if not detected, may
result in accidents or other incidents for which we may become liable to third
parties. Generally, we do not receive the benefit of warranties on secondhand
vessels. Increased drydocking costs or vessels off-hire may adversely affect our
earnings.


12





Unless we set aside reserves or are
able to borrow funds for vessel replacement, at the end of a vessel's
useful life our revenue will decline, which would adversely affect our
business, results of operations and financial condition.





Unless we
maintain reserves or are able to borrow or raise funds for vessel replacement we
will be unable to replace the vessels in our fleet upon the expiration of their
remaining useful lives, which we expect to range from 25 years to 30 years,
depending on the type of vessel. Our cash flows and income are dependent on the
revenues earned by the chartering of our vessels to customers. If we are unable
to replace the vessels in our fleet upon the expiration of their useful lives,
our business, results of operations, financial condition and ability to pay
dividends will be materially and adversely affected. Any reserves set aside for
vessel replacement may not be available for dividends if reinstated in the
future.





Investors may experience significant
dilution as a result of the offering pursuant to our Standby Equity
Distribution Agreement, or SEDA, and future offerings.





On
January 30, 2009, we entered into the Standby Equity Purchase Agreement, or the
SEPA, which is described under Note 7 (i) to our consolidated financial
statements. As of May 21, 2009, the date we terminated the SEPA, we had issued
and sold an aggregate of 71,850,000 common shares pursuant to the SEPA resulting
in net proceeds of $109.9 million representing an increase of 387% in our issued
and outstanding common shares from December 31, 2008.





On July
13, 2009, during the Company's annual general meeting of shareholders, the
Company's shareholders approved an amendment to the Company's articles of
incorporation to increase the Company's authorized common shares from
ninety-five million (95,000,000) common shares to one billion (1,000,000,000)
common shares.





On July
24, 2009, we entered into the SEDA, which is described under Note 7 (k) to our
consolidated financial statements. Pursuant to the SEDA, we may offer and sell
such number of common shares equal to $450 million. As of the date of this
Annual Report we had issued and sold an aggregate of 88,208,508 common shares
pursuant to the SEDA resulting in net proceeds of $98.2 million. If we sell the
remaining dollar amount of our common shares offered pursuant to the SEDA, at an
average price equal to $0.83 per share, which was the last reported closing sale
price for our common shares on The Nasdaq Global Market on March 8, 2010, we
would have approximately 600,620,221 common shares outstanding , which
would represent an increase of 279% in our issued and outstanding common shares
from December 31, 2009.





On
January 12, 2010, we filed a shelf registration statement on Form F-3, which was
declared effective on January 21, 2010, pursuant to which we may sell up to $400
million of an undeterminable number of securities. No shares had been issued
under this shelf registration statement as of the date of this Annual
Report.





As our
loan agreements contain provisions providing that a change-of-control will be
deemed to have occurred if a person or entity, that was not a beneficial owner
of our capital stock at the respective times of our entry into such agreements,
becomes the beneficial owner, directly or indirectly, of more than 20% of the
voting or ownership interest in our company, such issuances of common shares
could result in a change of control constituting an event of default under these
loan agreements that entitles our lenders to declare all of our indebtedness
thereunder immediately due and payable.





Because
the sales pursuant to the SEDA and related prospectus supplements will be made
at market prices or prices related to such market prices, the prices at which we
sell these shares will vary and these variations may be significant. Purchasers
of the shares we sell, as well as our existing shareholders, will experience
significant dilution if we sell shares at prices significantly below the price
at which they invested.





In
addition, we may have to attempt to sell additional shares in the future in
order to satisfy our capital needs; however there can be no assurance that we
will be able to do so. Lenders may be unwilling to provide future financing or
will provide future financing at significantly increased rates. If we are able
to sell shares in the future, the prices at which we sell these future shares
will vary, and these variations may be significant. Our existing shareholders
will experience significant dilution if we sell these future shares at prices
significantly below the price at which previous shareholders
invested.





We intend to expand our operations
into other sectors and own and operate a diversified fleet of vessels which
will expose us to a greater number of risks.





Our fleet
is comprised of nine secondhand drybulk carriers that mainly transport iron ore,
coal, grains and minerals, fertilizers and four secondhand tanker vessels that
transport crude oil. We intend to grow our fleet and expand our operations into
other sectors, as well. Operating a diversified fleet of vessels as opposed to a
fleet concentrated in one sector of the seaborne transportation industry
requires expertise in multiple sectors and the ability to avoid a greater
variety of vessel management risks in order to maintain effective
operations.


13


Cardiff
Marine Inc., or Cardiff, provides technical and commercial vessel management
services for our fleet. We refer to Cardiff as our Fleet Manager.  We
cannot ensure that we or our Fleet Manager will have the requisite expertise to
address the greater variety of vessel management risks to which we expect to be
exposed as we expand into other sectors.





We are entirely dependent on our
Fleet Manager to perform the day-to-day management of our
fleet.





Our
executive management team consists of our Chief Executive Officer, our President
and Chief Operating Officer, our Chief Financial Officer and Treasurer and our
Chief Accounting Officer. As we subcontract the day-to-day vessel management of
our fleet, including crewing, maintenance and repair to our Fleet Manager, we
are dependent on our Fleet Manager and the loss of our Fleet Manager's services
or failure to perform obligations to us could materially and adversely affect
the results of our operations. Although we may have rights against our Fleet
Manager if it defaults on its obligations to us, you will have no recourse
directly against our Fleet Manager. Further, we expect that we will need to seek
approval from our lenders to change our Fleet Manager. If our Fleet Manager
suffers material damage to its reputation or relationships it may harm our
ability to:


•
              continue
      to operate our vessels and service our
  customers;
 •
                renew
      existing charters upon their
  expiration;
 •
                  obtain
      new charters;
 •
                    obtain
      financing on commercially acceptable
  terms;
 •
                      obtain
      insurance on commercially acceptable
  terms;
 •
                        maintain
      satisfactory relationships with our customers and suppliers;
      and
 •
                          successfully
      execute our growth
strategy.


Our Fleet Manager is a privately held
company and there may be limited or no publicly available information about
it.





Our Fleet
Manager, Cardiff Marine Inc. is a privately held company. The ability of our
Fleet Manager to continue providing services for our benefit will depend in part
on their own financial strength. Circumstances beyond our control could impair
our Fleet Manager's financial strength, and there may be limited publicly
available information about their financial strength. As a result, an investor
in our common shares might have little advance warning of problems affecting our
Fleet Managers, even though these problems could have a material adverse effect
on us.





Our Fleet Manager may have conflicts
of interest between us and other clients of our Fleet
Manager.





We have
subcontracted the day-to-day technical and commercial management of our fleet,
including crewing, maintenance, supply provisioning and repair to our Fleet
Manager. Our contracts with our Fleet Manager have an initial term of one year
which will automatically extend for successive one year terms, unless, in each
case, at least two months' advance notice of termination is given by either
party. Our Fleet Manager will be providing similar services for vessels owned by
other shipping companies including companies with which they are affiliated.
These responsibilities and relationships could create conflicts of interest
between our Fleet Manager's performance of its obligations to us, on the one
hand, and our Fleet Manager's performance of its obligations to its other
clients on the other hand. These conflicts may arise in connection with the
crewing, supply provisioning and operations of the vessels in our fleet versus
vessels owned by other clients of our Fleet Managers. In particular, our Fleet
Managers may give preferential treatment to vessels owned by other clients whose
arrangements provide for greater economic benefit to our Fleet Manager. These
conflicts of interest may have an adverse effect on our results of
operations.





Companies affiliated with Cardiff own
and will acquire vessels that compete with our fleet.





Cardiff
provides commercial and technical management for the vessels in our fleet.
Cardiff is owned by a company controlled by Mrs. Chryssoula Kandylidis, who is
the wife of one of our directors, Konstandinos Kandylidis, and is the mother of
our Chief Executive Officer, Antonis Kandylidis, and by a foundation, which is
controlled by Mr. George Economou. Mrs. Chryssoula Kandylidis is the sister of
Mr. Economou. Cardiff currently manages 39 drybulk carriers for DryShips Inc.
and also manages 27 tankers and 19 drybulk carriers and supervises the
construction of 2 crude oil tankers, and 2 drybulk carriers with scheduled
delivery dates in 2010 and 2011 on behalf of companies controlled by members of
the Economou family and the construction of four ultra deep water drilling rigs.
Moreover, Mr. Economou, members of his family and companies affiliated with
Cardiff own and will acquire additional vessels in the future. These vessels
could be in competition with our fleet. Cardiff may be faced with conflicts of
interest with respect to its interests and its obligations to
us.


14


In the highly competitive
international shipping industry, we may not be able to compete for charters with new
entrants or established companies with greater resources.





We employ
our vessels in a highly competitive market that is capital intensive and highly
fragmented. Competition arises primarily from other vessel owners, some of whom
have substantially greater resources than we do. Competition for the
transportation of drybulk cargo by sea is intense and depends on price,
location, size, age, condition and the acceptability of the vessel and its
operators to the charterers. Due in part to the highly fragmented market,
competitors with greater resources could enter the drybulk shipping industry and
operate larger fleets through consolidations or acquisitions and may be able to
offer lower charter rates and higher quality vessels than we are able to
offer.





We may be unable to effectively
manage our growth.





We intend
to continue to grow our fleet. Our growth will depend on:


•
              locating
      and acquiring suitable
  vessels;
 •
                identifying
      and consummating acquisitions or joint
      ventures;
 •
                  obtaining
      required
financing;
 •
                    integrating
      any acquired business successfully with our existing
      operations;
 •
                      enlarging
      our customer
base;
 •
                        hiring
      additional shore-based employees and seafarers;
      and
 •
                          managing
      our expansion.


We intend
to finance our growth with the net proceeds of future debt and equity offerings.
Growing any business by acquisition presents numerous risks such as undisclosed
liabilities and obligations, difficulty in obtaining additional qualified
personnel and managing relationships with customers and suppliers and
integrating newly acquired operations into existing infrastructures. The
expansion of our fleet may impose significant additional responsibilities on our
management and staff, and the management and staff of our Fleet Manager, and may
necessitate that we, and they, increase the number of personnel. We cannot give
any assurance that we will be successful in executing our growth plans or that
we will not incur significant expenses and losses in connection
therewith.





If our Fleet Manager is unable to
recruit suitable seafarers for our fleet or as we expand our fleet, our results
of operations may be adversely affected.





We rely
on our Fleet Manager to recruit suitable senior officers and crews for our
fleet. In addition, as we expand our fleet, we will have to rely on our Fleet
Manager to recruit suitable additional seafarers. We cannot ensure that our
Fleet Manager will be able to continue to hire suitable employees as we expand
our fleet. If our Fleet Manager's crewing agents encounter business or financial
difficulties, they may not be able to adequately staff our vessels. The
seafarers who are employed on the ships in our fleet are covered by
industry-wide collective bargaining agreements that set basic standards. We
cannot ensure that these agreements will prevent labor interruptions. If our
Fleet Manager is unable to recruit suitable seafarers as we expand our fleet,
our business, results of operations, cash flows and financial condition and our
ability to pay dividends if reinstated in the future may be materially adversely
affected.





Labor interruptions could disrupt our
business.





Our
vessels are manned by masters, officers and crews that are employed by our
shipowning subsidiaries. If not resolved in a timely and cost-effective manner,
industrial action or other labor unrest could prevent or hinder our operations
from being carried out normally and could have a material adverse effect on our
business, results of operations, cash flows, financial condition and ability to
pay dividends if reinstated in the future.





We may be unable to attract and
retain key senior management personnel and other employees in the seaborne
transportation industry, which may negatively affect the effectiveness of our
management and our results of operations.





Our
success depends upon our ability to hire and retain key members of our senior
management team. The loss of any of these individuals could adversely affect our
business prospects and financial condition. Difficulty in hiring and retaining
personnel could adversely affect our business, results of operations and ability
to pay dividends if reinstated in the future. We do not intend to maintain "key
man" life insurance on any of our officers.


15


The operation of drybulk carriers and
tankers each involve certain unique operational
risks.





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





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





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





Our insurance may not be adequate to
cover our losses that may result from our operations due to the inherent
operational risks of the seaborne transportation industry.





We carry
insurance to protect us against most of the accident-related risks involved in
the conduct of our business, including marine hull and machinery insurance,
protection and indemnity insurance, which includes pollution risks, crew
insurance and war risk insurance. However, we may not be adequately insured to
cover losses from our operational risks, which could have a material adverse
effect on us. Additionally, our insurers may refuse to pay particular claims and
our insurance may be voidable by the insurers if we take, or fail to take,
certain action, such as failing to maintain certification of our vessels with
applicable maritime regulatory organizations. Any significant uninsured or
under-insured loss or liability could have a material adverse effect on our
business, results of operations, cash flows and financial condition and our
ability to pay dividends if reinstated in the future. In addition, we may not be
able to obtain adequate insurance coverage at reasonable rates in the future
during adverse insurance market conditions.





As a
result of the September 11, 2001 attacks, the U.S. response to the attacks and
related concern regarding terrorism, insurers have increased premiums and
reduced or restricted coverage for losses caused by terrorist acts generally.
Accordingly, premiums payable for terrorist coverage have increased
substantially and the level of terrorist coverage has been significantly
reduced.





In
addition, we may not carry loss-of-hire insurance, which covers the loss of
revenue during extended vessel off-hire periods, such as those that occur during
an unscheduled drydocking due to damage to the vessel from accidents.
Accordingly, any loss of a vessel or extended vessel off-hire, due to an
accident or otherwise, could have a material adverse effect on our business,
results of operations and financial condition and our ability to pay dividends
if reinstated in the future.





We may be subject to calls because we
obtain some of our insurance through protection and indemnity
associations.





We may be
subject to increased premium payments, or calls, in amounts based on our claim
records and the claim records of our fleet managers as well as the claim records
of other members of the protection and indemnity associations through which we
receive insurance coverage for tort liability, including pollution-related
liability. In addition, our protection and indemnity associations may not have
enough resources to cover claims made against them. Our payment of these calls
could result in significant expense to us, which could have a material adverse
effect on our business, results of operations, cash flows, financial condition
and ability to pay dividends if reinstated in the future.





Servicing
our debt limits funds available for other purposes and if we cannot service our
debt, we may lose our vessels.




Borrowing
under our credit facilities requires us to dedicate a part of our cash flow from
operations to paying interest on our indebtedness. These payments limit funds
available for working capital and capital expenditures.  We expect our
earnings and cash flow to vary from year to year due to the cyclical nature of
the drybulk carrier and tanker industries. If we do not generate or reserve
enough cash flow from operations to satisfy our debt obligations, we may have to
undertake alternative financing plans, such as:


•
              seeking
      to raise additional
capital;
 •
                  refinancing
      or restructuring our
debt;
 •
                      selling
      vessels; or
 •
                          reducing
      or delaying capital
  investments.
 16
 
 However,
these alternative financing plans, if necessary, may not be sufficient to allow
us to meet our debt obligations. If we are unable to meet our debt obligations
or if some other default occurs under our credit facilities, our lenders could
elect to declare that debt, together with accrued interest and fees, to be
immediately due and payable and proceed against the collateral vessels securing
that debt, which would have a material adverse effect on our
business.




We cannot ensure that we will be able
to borrow amounts under our senior secured credit facilities and
restrictive covenants in our senior secured credit facilities may impose
financial and other restrictions on us.





Our
senior credit facilities, as amended, impose operating and financial
restrictions on us. These restrictions may limit our ability to, among other
things:


•
              incur
      additional indebtedness, including through the issuance of
      guarantees;
 •
                    create
      or permit liens on our
  assets;
 •
                          sell
      our vessels or the capital stock of our
      subsidiaries;
 •
                                make
      investments;
 •
                                      change
      the flag or classification society of our
      vessels;
 •
                                            reinstate
      the payment of dividends (as described under "Item 5 — Operating Financial
      Review and Prospects-B, Liquidity and Capital
      Resources);
 •
                                                  make
      capital
expenditures;
 •
                                                        compete
      effectively to the extent our competitors are subject to less onerous
      financial restrictions;
  and
 •
                                                              change
      the management of our vessels or terminate or materially amend the
      management agreement relating to each
      vessel.


These
restrictions could limit our ability to finance our operations or capital needs,
make acquisitions or pursue available business opportunities. In addition, as
discussed above, our credit facilities require us to maintain specified
financial ratios and satisfy financial covenants. We expect to be able to comply
with all of these specified financial ratios and financial covenants. However,
should our charter rates or vessel values further decline in the future due to
any of the reasons discussed in the industry specific risk factors set forth
above or otherwise, we may be required to take action to reduce our debt or to
act in a manner contrary to our business objectives to meet these ratios and
satisfy these covenants. Events beyond our control, including changes in the
economic and business conditions in the shipping markets in which we operate,
may affect our ability to comply with these covenants. We cannot ensure that we
will meet these ratios or satisfy these covenants or that our lenders will waive
any failure to do so. A breach of any of the covenants in, or our inability to
maintain the required financial ratios under, our senior secured credit
facilities would prevent us from borrowing additional money under our credit
facility agreements and could result in a default under these agreements. If a
default occurs under our credit facility agreements, the lenders could elect to
declare the outstanding debt, together with accrued interest and other fees, to
be immediately due and payable and proceed against the collateral securing that
debt, which could constitute all or substantially all of our
assets.





Therefore,
our discretion is limited because we may need to obtain consent from our lenders
in order to engage in certain corporate actions. Our lenders' interests may be
different from ours, and we cannot guarantee that we will be able to obtain our
lenders' consent when needed. This may prevent us from taking actions that are
in our best interest.





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




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


17





We cannot ensure that we will be able
to refinance any indebtedness incurred under our credit
facilities.





We have
partially financed the acquisition of our vessels with secured indebtedness
drawn under our credit facilities. We cannot ensure that we will be able to
refinance amounts drawn under our credit facilities at an interest rate or on
terms that are acceptable to us or at all. If we are not able to refinance these
amounts with the net proceeds of debt and equity offerings at an interest rate
or on terms acceptable to us or at all, we will have to dedicate a portion of
our cash flow from operations to pay the principal and interest of this
indebtedness. If we are not able to satisfy these obligations, we may have to
undertake alternative financing plans.





The
actual or perceived credit quality of our charterers, any defaults by them, and
the market value of our fleet, among other things, may materially affect our
ability to obtain alternative financing. In addition, debt service payments
under our credit facilities or alternative financing may limit funds otherwise
available for working capital, capital expenditures, the payment of dividends
and other purposes. If we are unable to meet our debt obligations, or if we
otherwise default under our credit facilities or an alternative financing
arrangement, our lenders could declare the debt, together with accrued interest
and fees, to be immediately due and payable and foreclose on our fleet, which
could result in the acceleration of other indebtedness that we may have at such
time and the commencement of similar foreclosure proceedings by other
lenders.




Trading
and complementary hedging activities in Forward Freight Agreements (FFAs)
subject us to trading risks, and we may suffer trading losses which could
adversely affect our financial condition and results of operations.




Due to
drybulk shipping market volatility, success in this shipping industry requires
constant adjustment of the balance between chartering-out vessels for long
periods of time and trading them on a spot basis. A long term contract to
charter a vessel might lock us into a profitable or unprofitable situation
depending on the direction of freight rates over the term of the contract. From
time to time and as our management sees fit, we may seek to manage and mitigate
that risk through trading and complementary hedging activities in forward
freight agreements, or FFAs. We are exposed to market risk in relation to our
FFAs and could suffer losses from these activities in the event that our
expectations are incorrect. There can be no assurance that we will be able at
all times to successfully protect ourselves from volatility in the shipping
market. We may not successfully mitigate our risks, leaving us exposed to
unprofitable contracts, and may suffer trading losses resulting from these
hedging activities.





The FFA
market has experienced significant volatility in the past few years and,
accordingly, recognition of the changes in the fair value of FFAs has caused,
and could in the future cause, significant volatility in earnings.





The derivative contracts we have
entered into to hedge our exposure to fluctuations in interest rates could
result in higher than market interest rates and charges against our
income.





We have
entered into two interest rate swaps for purposes of managing our exposure to
fluctuations in interest rates applicable to indebtedness under our Nordea
credit facility which was advanced at a floating rate based on LIBOR. Our
hedging strategies, however, may not be effective and we may incur substantial
losses if interest rates move materially differently from our expectations.
Since our existing interest rate swaps do not, and future derivative contracts
may not, qualify for treatment as hedges for accounting purposes we recognize
fluctuations in the fair value of such contracts in our income statement. In
addition, our financial condition could be materially adversely affected to the
extent we do not hedge our exposure to interest rate fluctuations under our
financing arrangements, including under our new DVB credit facility, under which
loans have been advanced at a floating rate based on LIBOR and for which we have
not entered into an interest rate swap or other hedging
arrangement.





Any
hedging activities we engage in may not effectively manage our interest rate
exposure or have the desired impact on our financial conditions or results of
operations. At December 31, 2009, the fair value of our interest rate swaps was
an unrealized gain of $5.1 million. Due to the decline in interest rates since
December 31, 2009, the fair value of our interest rate swaps at February 26,
2010, which is the most recent date for which the Company has received a fair
value estimate, was an unrealized loss of approximately $3.3 million. See
Note 9 to our consolidated financial statements as of and for the year ended
December 31, 2009.





We may be subject to tax on United
States source income, which would reduce our earnings.





Under the
United States Internal Revenue Code of 1986, or the Code, 50% of the gross
shipping income of a vessel owning or chartering corporation, such as ourselves
and our subsidiaries, that is attributable to transportation that begins or
ends, but that does not begin and end, in the United States is characterized as
United States source shipping income and as such is subject to a four percent
United States federal income tax without allowance for deduction, unless that
corporation qualifies for exemption from tax under Section 883 of the Code and
the Treasury Regulations promulgated hereunder.


18


We expect
that we and each of our subsidiaries will qualify for this statutory tax
exemption and we intend to take this position for United States federal income
tax return reporting purposes for the 2009 taxable year. However, there are
factual circumstances beyond our control that could cause us to lose the benefit
of this tax exemption and thereby become subject to United States federal income
tax on our United States source income. For example, if 5% shareholders owned
50% or more of our outstanding common shares for more than half the days of a
taxable year, then we would not be eligible for this statutory tax exemption
unless we were able to establish that among our 5% shareholders, there are
sufficient 5% shareholders that are qualified shareholders for purposes of
Section 883 to preclude non-qualified 5% shareholders from owning 50% or more of
our common shares for more than half the number of days during the taxable year.
In order to establish this, 5% shareholders would have to provide us with
certain information in order to substantiate their identity as qualified
shareholders. Due to the factual nature of the issues involved, we can give no
assurances on our tax-exempt status or that of any of our subsidiaries in the
future.





If we or
our subsidiaries are not entitled to this exemption under Section 883 for any
taxable year, we or our subsidiaries would be subject for those years to a four
percent United States federal income tax on our U.S. source shipping income. The
imposition of this taxation could have a negative effect on our business and
would result in decreased earnings available for distribution to our
shareholders.





U.S. tax authorities could treat us
as a "passive foreign investment company", which could have adverse U.S. federal
income tax consequences to U.S. holders.





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




We do not
believe that we were a PFIC during the 2009 taxable year or that we will be a
PFIC with respect to any future taxable year. In this regard, we intend to treat
the gross income we derive or are deemed to derive from our time chartering
activities as services income, rather than rental income. Accordingly, we
believe that our income from our time chartering activities does not constitute
"passive income," and the assets that we own and operate in connection with the
production of that income do not constitute passive assets.





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





If the
IRS were to find that we are or have been a PFIC for any taxable year, our U.S.
shareholders will face adverse U.S. tax consequences. Under the PFIC rules,
unless those shareholders make an election available under the Code (which
election could itself have adverse consequences for such shareholders), such
shareholders would be liable to pay U.S. federal income tax at the then highest
income tax rates on ordinary income plus interest upon excess distributions and
upon any gain from the disposition of our common shares, as if the excess
distribution or gain had been recognized ratably over the shareholder's holding
period of our common shares. Please read "Tax Considerations—United States
Federal Income Taxation of U.S. Holders—Tax Treatment of Common Stock — Passive
Foreign Investment Company Status and Significant Tax Consequences" for a more
comprehensive discussion of the U.S. federal income tax consequences to U.S.
shareholders if we are treated as a PFIC.





Obligations associated with being a
public company require significant company resources and management
attention.





We
completed our initial public offering in April 2007 and are subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, and the other rules and regulations of the SEC, including the
Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act requires that
we evaluate and determine the effectiveness of our internal control over
financial reporting. If we have a material weakness in our internal control over
financial reporting, we may not detect errors on a
timely basis and our financial statements may be materially misstated. We will
continue to need to dedicate a significant amount of time and resources to
ensure compliance with these regulatory requirements.


19





We will
continue to work with our legal, accounting and financial advisors to identify
any areas in which changes should be made to our financial and management
control systems to manage our growth and our obligations as a public company. We
will evaluate areas such as corporate governance, corporate control, internal
audit, disclosure controls and procedures as well as financial reporting and
accounting systems. We will make changes in any of these and other areas,
including our internal control over financial reporting, which we believe are
necessary. However, these and other measures we may take may not be sufficient
to allow us to satisfy our obligations as a public company on a timely and
reliable basis. In addition, compliance with reporting and other requirements
applicable to public companies will create additional costs for us and will
require the time and attention of management. Our limited management resources
may exacerbate the difficulties in complying with these reporting and other
requirements while focusing on executing our business strategy. We cannot
predict or estimate the amount of the additional costs we may incur, the timing
of such costs or the degree of impact that our management's attention to these
matters will have on our business.





Because we generate all of our
revenues in dollars but incur a significant portion of our expenses in other
currencies, exchange rate fluctuations could have an adverse impact on our results
of operations.





We
generate all of our revenues in dollars but we incur a portion of our expenses
in currencies other than the dollar. This difference could lead to fluctuations
in net income due to changes in the value of the dollar relative to the other
currencies, in particular the Euro. Expenses incurred in foreign currencies
against which the dollar falls in value can increase, decreasing our revenues.
Further declines in the value of the dollar could lead to higher expenses
payable by us.





We are a holding company, and we
depend on the ability of our subsidiaries to distribute funds to us in order to
satisfy our financial obligations.





We are a
holding company and our subsidiaries conduct all of our operations and own all
of our operating assets. We have no significant assets other than the equity
interests in our subsidiaries. As a result, our ability to satisfy our financial
obligations depends on our subsidiaries and their ability to distribute funds to
us. If we are unable to obtain funds from our subsidiaries, we may not be able
to satisfy our financial obligations.





There is no guarantee that there will
continue to be an active and liquid public market for shareholders to
resell our common stock in the future.





The price
of our common stock may be volatile and may fluctuate due to factors such
as:





•
            actual
      or anticipated fluctuations in our quarterly and annual results and those
      of other public





•
            companies
      in our industry;





•
            mergers
      and strategic alliances in the shipping
  industry;





•
            market
      conditions in segments of the shipping industry in which we
      operate;





•
            changes
      in government regulation;





•
            shortfalls
      in our operating results from levels forecast by securities
      analysts;





•
            announcements
      concerning us or our competitors;
and





•
            the
      general state of the securities
market.





The
drybulk and tanker industries have been highly unpredictable and volatile. The
market for our common stock may be equally volatile.




20





Our Board of Directors has determined
to suspend the payment of cash dividends as a result of market conditions in
the international shipping industry, and until such market conditions
significantly improve, it is unlikely that we will reinstate the payment of dividends
and if reinstated, it is likely that any dividend payments would be at reduced
levels.


We
previously paid regular cash dividends on a quarterly basis from our operating
surplus, in amounts substantially equal to our available cash from operations in
the previous quarter, less any cash reserves for drydockings and working
capital, as determined by our Board of Directors.





Our Board
of Directors has determined to suspend the payment of cash dividends as a result
of market conditions in the international shipping industry and in particular
the sharp decline in charter rates and vessel values in the drybulk sector.
Until such market conditions significantly improve, it is unlikely that we will
reinstate the payment of dividends and if reinstated, it is likely that any
dividend payments would be at reduced levels. Furthermore, the amendatory
agreement to our Nordea credit facility, which matures in October 2015,
prohibits us from paying dividends. In addition, in the event that we are
permitted to pay cash dividends under our Nordea credit facility, our DVB loan
agreement contains additional restrictions. Specifically, we will be required to
obtain our lender's consent for dividend payments in excess of 50% of our
quarterly net profit. Accordingly, pursuant to the restrictions on dividend
payments contained in our DVB credit facility, had it been in effect when we
declared our dividend of $0.77 per share in respect of the third quarter of
2008, we would have been required to obtain the consent of our lender thereunder
in order to pay a dividend above $0.31 per share, or reduce our dividend by
60.0%, on a per share basis, to $0.31 per share.





As a
result of deteriorating market conditions and restrictions imposed by our
lenders, we will not reinstate the payment of dividends until our Nordea credit
facility matures in October 2015 or the prohibition on our payment of dividends
is removed from our amended Nordea credit facility agreement. If reinstated, it
is likely that any dividend payments would be at reduced levels.





Future sales of shares by our major
shareholder could cause the market price of our common shares to
decline.





On
September 3, 2008, we filed a resale shelf registration statement on Form F-3,
as amended on October 30, 2008, to register under the Securities Act 2,085,150
common shares on behalf of the selling shareholders Basset Holdings Inc., Steel
Wheel Investments Limited, and Seabert Shipping Co. This resale shelf
registration statement was declared effective on December 22, 2008. Basset
Holdings Inc. and Steel Wheel Investments Limited are owned and controlled by
Mr. Antonis Kandylidis, our Chief Executive Officer. Seabert Shipping Co. is
controlled by Mr. Michael Gregos, our former Chief Operating Officer. Companies
controlled by Mr. Antonis Kandylidis beneficially own, in the aggregate,
5,080,000 common shares, which represents approximately 2.84% of our outstanding
common shares as of the date of this Annual Report. These common shares may be
sold in registered transactions and may also be resold subject to the holding
period, volume, manner of sale and notice requirements of Rule 144 under the
Securities Act. Sales or the possibility of sales of substantial amounts of our
common shares by these shareholders in the public markets could adversely affect
the market price of our common shares. Under our loan agreements, the failure of
our Chief Executive Officer, Mr. Antonis Kandylidis, to maintain his existing
beneficial ownership in our company would violate an affirmative covenant.
 As of the date of this Annual Report, Mr. Antonis Kandylidis had not sold
any shares out of the 5,080,000 common shares.  See "Item 5. Operating
Financial Review and Prospects — B. Liquidity and Capital Resources — Long-Term
Debt Obligations and Credit Arrangements" for a summary of our loan agreement
covenants.





We are incorporated in the Republic
of the Marshall Islands, which does not have a well-developed body of
corporate law and as a result, shareholders may have fewer rights and protections
under Marshall Islands law than under a typical jurisdiction in the United
States.





Our
corporate affairs are governed by our Amended and Restated Articles of
Incorporation and by-laws and by the Marshall Islands Business Corporations Act,
or BCA. The provisions of the BCA resemble provisions of the corporation laws of
a number of states in the United States. However, there have been few judicial
cases in the Republic of the Marshall Islands interpreting the BCA. The rights
and fiduciary responsibilities of directors under the law of the Republic of the
Marshall Islands are not as clearly established as the rights and fiduciary
responsibilities of directors under statutes or judicial precedent in existence
in certain United States jurisdictions. Shareholder rights may differ as well.
While the BCA does specifically incorporate the non-statutory law, or judicial
case law, of the State of Delaware and other states with substantially similar
legislative provisions, our public shareholders may have more difficulty in
protecting their interests in the face of actions by the management, directors
or controlling shareholders than would shareholders of a corporation
incorporated in a United States jurisdiction.





It may not be possible for investors
to enforce U.S. judgments against us.





We and
all of our subsidiaries are incorporated in jurisdictions outside the U.S. and
substantially all of our assets and those of our subsidiaries are located
outside the U.S. In addition, most of our directors and officers are
non-residents of the U.S., and all or a substantial portion of the assets of
these non-residents are located outside the U.S. As a result, it may be
difficult or impossible for U.S. investors to serve process within the U.S. upon
us, our subsidiaries or our directors and officers or to enforce a judgment
against us for civil liabilities in U.S. courts. In addition, you should not
assume that courts in the countries in which we or our subsidiaries are
incorporated or where our assets or the assets of our subsidiaries are located
(1) would enforce judgments of U.S. courts
obtained in actions against us or our subsidiaries based upon the civil
liability provisions of applicable U.S. federal and state securities laws or (2)
would enforce, in original actions, liabilities against us or our subsidiaries
based on those laws.


21





Anti-takeover
provisions in our organizational documents could make it difficult for our
shareholders to replace or remove our current board of directors or have the
effect of discouraging, delaying or preventing a merger or acquisition, which
could adversely affect the market price of our common shares.


Several
provisions of our Amended and Restated Articles of Incorporation and bylaws
could make it difficult for our shareholders to change the composition of our
board of directors in any one year, preventing them from changing the
composition of management. In addition, the same provisions may discourage,
delay or prevent a merger or acquisition that shareholders may consider
favorable.
  These
provisions include:


•
                authorizing
      our board of directors to issue ''blank check'' preferred stock without
      shareholder approval;
 •
                  providing
      for a classified board of directors with staggered, three year
      terms;
 •
                    prohibiting
      cumulative voting in the election of
directors;
 •
                      authorizing
      the removal of directors only for cause and only upon the affirmative vote
      of the holders of a two-thirds majority of the outstanding shares of our
      common and subordinated shares, voting as a single class, entitled to vote
      for the directors;
 •
                        limiting
      the persons who may call special meetings of
  shareholders;
 •
                          establishing
      advance notice requirements for election to our board of directors or
      proposing matters that can be acted on by shareholders at shareholder
      meetings; and
 •
                            limiting
      our ability to enter into business combination transactions with certain
      shareholders.


In
addition, we have adopted a stockholder rights plan or "poison
pill."  These anti-takeover provisions could substantially impede the
ability of public shareholders to benefit from a change in control and, as a
result, may adversely affect the market price of our common shares and your
ability to realize any potential change of control premium.




Item
4. Information on the Company





A.
            History and
      Development of the Company





OceanFreight
Inc. was incorporated on September 11, 2006 under the laws of the Marshall
Islands. Our principal executive offices are at 80 Kifissias Avenue, Athens
15125, Greece. Our telephone number at that address is +30 210 614 0283.Our
website is www.oceanfreightinc.com. The information on our website or accessible
through our website shall not be deemed a part of this report. Our agent and
authorized representative in the United States is Puglisi & Associates,
located at 850 Library Ave, Newark, DE 19711.


22


We are a
global provider of shipping transportation services. We specialize in
transporting drybulk cargoes, including such commodities as iron ore, coal,
grain and other materials and crude oil cargoes through the ownership and
operation of nine drybulk carriers and four tanker vessels. As of December 31,
2009, our fleet consisted of six Panamax and three Capesize drybulk carriers,
three Aframax and one Suezmax tanker vessels with a total capacity of 1.4
million dead weight tons (dwt) and a weighted average age of 10.7
years.





On
September 26, 2006, we issued 1,000 common shares, par value $0.01 per share, to
Basset Holdings Inc., or Basset, a company controlled by Mr. Antonis Kandylidis,
in exchange for a capital contribution of $500,000. Under our Amended and
Restated Articles of Incorporation, these shares were converted into 1,000
subordinated shares. Also, on April 3, 2007, our Board of Directors declared,
effective April 5, 2007, a stock split, in the form of a share dividend, in the
ratio of 1,999:1 on our subordinated shares, leaving Basset with ownership of
2,000,000 subordinated shares. These subordinated shares converted into common
shares on August 15, 2008, leaving Basset with 2,000,000 common shares
representing approximately 1.1% of our outstanding capital stock as of the date
of this Annual Report. Please read Item 7.B. "Major Shareholders and Related
Party Transactions-Basset Holdings Inc."





In April
2007 we completed our initial public offering in the United States under the
United States Securities Act of 1993, as amended, the net proceeds of which
amounted to $216.8 million. The Company's common shares are listed on the Nasdaq
Global Market under the symbol "OCNF".





During
2007 we acquired and took delivery of eight Panamax drybulk carriers: the M/V
Austin, M/V Pierre, M/V Trenton, M/V Helena, M/V Lansing, M/V Topeka, M/V Richmondand M/V Augusta, a Capesize drybulk
carrier, the M/V Juneau, and an Aframax
tanker, the M/T Pink
Sands, for a total consideration of $467.1 million. The acquisition of
the vessels was partially financed from the net proceeds of our initial public
offering. The memoranda of agreement associated with the acquisition of four of
the above vessels, M/V Austin, M/V Pierre, M/V Trentonand M/V Topekastipulated that the
vessels would be delivered to the Company with their current charter parties,
expiring in 2010.





The
assumed charters were below market charter rates at the time of the delivery
and, accordingly, a portion of the consideration paid for the vessels was
allocated to the assumed charters to the extent the vessel capitalized cost
would not exceed its fair value without a time charter contract. We recorded
imputed deferred revenue totaling $31.4 million, with a corresponding increase
in the vessels' purchase price, which is being amortized to revenue on a
straight-line basis during the remaining duration of the corresponding
charter.





On
December 7, 2007, we announced that our previous Chairman, President and Chief
Executive Officer, Robert Cowen, as well as our previous Chief Financial
Officer, James Christodoulou, had left the Company. The Board of Directors
appointed our director Professor John D. Liveris as Chairman of our Board of
Directors, and appointed Antonis Kandylidis, shareholder and founder of the
Company, as Chief Executive Officer/Interim Chief Financial Officer. In January
2008, we appointed Michael Gregos as our Chief Operating Officer. In February
2009, we appointed Demetris Nenes as our Vice President — Business Development
following the resignation of Mr. Gregos as Chief Operating Officer.





In
January 2008, we acquired and took delivery of a Suezmax tanker vessel, the M/T
Olinda, for a total
consideration of $65.7 million.





On June
4, 2008, we filed a shelf registration statement on Form F-3 (File No.
333-150579), which was declared effective on June 6, 2008, relating to the offer
and sale of up to $200.0 million of an indeterminate number of securities. On
June 19, 2008 we entered into a Controlled Equity Offering Sales Agreement with
Cantor Fitzgerald & Co. as sales agent. On June 19, 2008 we filed a
prospectus supplement to the registration statement relating to the offer and
sale of up to 4,000,000 common shares, par value $0.01 per share, from time to
time through Cantor Fitzgerald & Co., as agent for the offer and sale of the
common shares. The sale of the shares commenced at the beginning of the third
quarter of 2008 and was completed on November 10, 2008. The net proceeds from
the issuance of the 4,000,000 shares amounted to $50.9 million.





In
October 2008 we took delivery of two Aframax tanker vessels, the M/T Tamara and the M/T Tigani. The related memoranda
of agreements were concluded in August and September 2008, respectively, with
interests associated with Mr. George Economou for an aggregate purchase price of
$79.0 million. The purchase price for the two vessels was financed by a sellers'
unsecured credit of $25.0 million and our own funds.





On
December 12, 2008, our Board of Directors determined, after careful
consideration of various factors, including the recent sharp decline in charter
rates and vessel values in the drybulk sector, to suspend the payment of cash
dividends until such time as the Board of Directors shall determine in its
discretion, in order to preserve capital. In addition, under the January 9, 2009
amendatory agreement to our Nordea credit facility, which matures in October
2015, we are prohibited from paying dividends during the term of such credit
facility. In the event that we are permitted to pay cash dividends under our
Nordea credit facility, our DVB
loan agreement (discussed below) contains additional restrictions. Under our DVB
loan, we will be permitted, without our lender's consent, to pay dividends of up
to 50% of quarterly net profits if our Company has been profitable for the
preceding four quarters and if we comply with all covenants. Dividend payments
that would require use of the remaining 50% of our quarterly net profits would
be subject to our lender's consent.


23





On
December 23, 2008, the Company entered into a loan agreement with DVB for a new
secured term loan facility for an amount of $29.56 million, which was fully
drawn in January 2009. We used the proceeds of the loan to make the prepayment
in the amount of $25.0 million under the amendatory agreement to our credit
facility with Nordea, discussed below.





The
recession in the drybulk and tanker markets led to a significant decline in the
fair market values of our vessels since September 30, 2008, particularly our
drybulk carriers. As a result, on December 9, 2008 we were in breach of the
collateral maintenance coverage ratio covenant under our $325 million senior
secured credit facility with Nordea, as lead arranger, which required us to
maintain a fair market value of our vessels of at least 140% of our aggregate
outstanding balance under the credit facility. In this respect, on January 9,
2009, we entered into an amendatory agreement to our Nordea credit facility that
took effect on January 23, 2009, which waived the breach of the collateral
maintenance coverage ratio covenant contained in such credit facility resulting
from the decrease in the market value of our vessels and reduces the level of
the collateral maintenance coverage ratio for the remaining term of the
agreement. The waiver took effect from the date the breach occurred, which is
December 9, 2008. In addition the amendatory agreement (i) requires us to make a
prepayment of $25.0 million of principal (paid on January 23, 2009); (ii)
requires us to pay interest at a 2.5% margin over LIBOR; (iii) requires us to
pay an arrangement fee of $451,583 which equals 0.15% to each bank syndicate
member that consented to the amendatory agreement by January 9, 2009; (iv)
prohibits us from paying dividends; (v) limits our ability to make capital
expenditures; (vi) imposes restrictions on making payment, in cash, of the
sellers' credit in the aggregate amount of $25.0 million in respect of the M/T
Tamaraand the M/T
Tigani, except that we
are permitted to pay the seller's credit with the proceeds of new equity
offerings made on or after January 1, 2009, or in the form of common shares,
which the sellers may request at any time, provided that we may not prepay the
sellers' credit in cash if an event of default has occurred and is continuing;
and (vii) requires us to provide additional collateral. The amendment does not
modify the other financial covenants contained in the Nordea credit facility,
such as the leverage ratio, interest coverage ratio or liquidity covenants
described in "Item 5. Operating and Financial Review and Prospects — B.
Liquidity and Capital Resources — Long-Term Debt Obligations and Credit
Arrangements".





From
January 2009 through July 2009, Cardiff assumed the technical and commercial
management of the eight Panamax drybulk carriers previously under the commercial
management of Wallem.





On
January 30, 2009, the Company entered into a Standby Equity Purchase Agreement,
or the SEPA, with YA Global Master SPV Ltd., or YA Global, for the offer and
sale of up to $147,885,850 of our common shares, par value $0.01 per share.
Until May 21, 2009, when the SEPA was terminated, we had sold 71,850,000 common
shares with net proceeds amounting to $109.9 million, of which $25 million was
used to fully repay the sellers' credit of the M/T Tamara and M/T Tigani. YA Global received a
discount equal to 1.5% of the gross proceeds or $1.7 million.




In May
2009, we signed a Memorandum of Agreement with a third party to sell the M/V
Lansingat a price of
$21.95 million resulting in a loss of approximately $14.77 million. The vessel
was delivered to its new owners on July 1, 2009.





In May
2009, we engaged in Forward Freight Agreement, or FFA, trading activities. As of
December 31, 2009 the Company had no open positions.





On June
26, 2009, we agreed to acquire the M/V Partagas for a purchase price
of $56 million. The vessel was delivered to the Company on July 30, 2009. The
vessel is employed under a three-year time charter that commenced upon the
vessel's delivery at a gross daily rate of $27,500.




On July
8, 2009, we agreed to acquire the M/V Robusto for a purchase price
of $61.25 million. We took delivery of the vessel on October 19, 2009. Upon
delivery to the Company, the vessel commenced a time charter employment for a
minimum period of five years at a gross rate of $26,000 per
day.


24


On July
10, 2009, the Company entered into a memorandum of agreement with a third party
for the sale of the M/V Juneaufor a sale price of $19.9 million. The vessel was delivered to its new
owners on October 23, 2009. The sale resulted in a loss of approximately $16.3
million.





On July
13, 2009, during the Company's annual general meeting of shareholders, the
Company's shareholders approved an amendment to the Company's articles of
incorporation to increase the Company's authorized common shares from
ninety-five million (95,000,000) common shares to one billion (1,000,000,000)
common shares.





On July
18, 2009, we agreed to acquire the M/V Cohiba for a purchase price
of $61.25 million. The vessel was delivered on December 9, 2009 and commenced a
minimum five year time charter at a gross daily rate of $26,250.





On July
24, 2009, we entered into a Standby Equity Distribution Agreement, or the SEDA,
with YA Global, pursuant to which the Company may offer and sell up to $450
million of the Company's common shares to YA Global. The SEDA commenced on
September 28, 2009 and has a duration of three years. As of December 31, 2009,
68,055,508 shares had been sold with net proceeds amounting to approximately $79
million. YA Global received a discount equal to 1.5% of the gross proceeds or
$1.2 million. During the period from January 1, 2010 to the date of this report,
20,150,000 shares had been issued with net proceeds of approximately $19.3
million.





On August
7, 2009, we entered in a memorandum of agreement with a third party for the sale
of M/V Richmondfor a
sale price of $20.6 million. The vessel was delivered to its new owners on
September 30, 2009. The sale of the vessel resulted in a loss of approximately
$20.84 million.





On
September 30, 2009, we agreed to acquire the M/V Montecristo for a purchase
price of $49.5 million and it is scheduled to be delivered to us in the second
quarter of 2010. Upon delivery to the Company, the vessel is scheduled to
commence time charter employment for a minimum period of four years at a gross
rate of $23,500 per day.





On
November 24, 2009, DVB consented to a reduction of the collateral maintenance
coverage ratio in our DVB loan to 125% for the period from November 24, 2009 to
December 17, 2010 and the deposit of $2.5 million in the retention account that
will be restricted during the above period.


On
November 26, 2009, the Company initiated the process for the sale of the vessels
M/T Olindaand M/T Tigani.


In
November 2009, the Company's Compensation Committee approved the promotions of
Demetris Nenes to President and Chief Operating Officer, Solon Dracoulis to
Chief Financial Officer and Treasurer and Konstandia Papaefthymiou to Chief
Accounting Officer.  Such promotions took effect on January 1,
2010.





On
December 4, 2009, the M/T Tiganientered the Sigma
Tankers Inc. pool, which is a spot pool managed by Heidmar Inc. Up to September
2009, Heidmar Inc. was 49% owned by a company associated with Mr. George
Economou.  The vessel's earnings are derived from the pool's total net
earnings.  Mr. George Economou is the chairman of the Board of Directors of
Heidmar Inc. and Mr. Antonis Kandylidis, our Chief Executive Officer, is a
member of the Board of Directors of Heidmar Inc.  (see Note 3 to our
consolidated financial statements).




On
December 11, 2009, we agreed to sell the M/V Pierre to a third party for a
gross sale price of $22.6 million resulting in a loss of approximately $17.4
million.  The vessel is scheduled to be delivered to its new owners
between March 1, 2010 and April 15, 2010.





On
January 12, 2010, we filed a shelf registration statement on Form F-3, which was
declared effective on January 21, 2010, pursuant to which we may sell up to
$400,000,000 of an undeterminable number of securities. No shares have been
issued under this registration statement as of the date of this Annual
Report.





On
January 14, 2010, the Company's Board of Directors adopted and approved the 2010
Equity Incentive Plan, under which 30,000,000 common shares were reserved for
issuance. On January 18, 2010, the Company's Board of Directors adopted and
approved the award of an aggregate of 3,200,000 common shares to the Company's
Directors and Management.





On
January 16, 2010 the charterers of the M/V Pierre terminated the time
charter agreement that provided for a gross daily hire rate of $23,000 as a
result of the charterer's insolvency. On January 19, 2010, the vessel entered
into a new time charter agreement for the balance of the original time charter
ending in June 2010 at a gross daily hire rate of $23,000. The vessel was
delivered to the new charterers on January 27, 2010.  As of the date of
this Annual Report, we are in arbitration with the initial charterers of the
vessel for an amount of $550,000, which represents loss of hire and other
expenses.




M/T
Olinda M/T Tigani, which was initiated in late November 2009, to
unrelated third parties .


25


B.
              Business
      Overview


OceanFreight's Strategy and Business
Model





Our
strategy is to be a reliable and responsible provider of seaborne transportation
services and to manage and expand our company in a manner that we believe will
enable us to enhance shareholder value by increasing long-term cash flow. We
intend to realize these objectives by adhering to the following:





Strategic Fleet
Expansion.We intend to grow our
fleet using our management's knowledge of the seaborne transportation industry
to make accretive, timely and selective acquisitions of vessels in different
sectors based on a number of financial and operational criteria. We will
consider and analyze our expectation of fundamental developments in the
particular industry sector, the level of liquidity in the resale and charter
market, the cash flow earned by the vessel in relation to its value, its
condition and technical specifications, expected remaining useful life, the
credit quality of the charterer and duration and terms of charter contracts for
vessels acquired with charters attached, as well as the overall diversification
of our fleet and customers. We believe that secondhand vessels approximately in
the middle of their useful economic life when operated in a cost efficient
manner often provide better value to our shareholders and return on capital as
compared with more expensive newer vessels.





Tailored Fleet
Composition.Our
fleet consists of nine drybulk carriers and four tankers, including one drybulk
carrier we have agreed to sell and one drybulk carrier we have agreed to acquire
and expect to take delivery of in the second quarter of 2010. We primarily focus
on the drybulk and tanker segments because the acquisition and employment
contracts of these vessels satisfy our financial and operating criteria. As we
grow our fleet over time, we intend to explore acquisitions in other seaborne
transportation sectors, as opportunities arise, that also meet our financial and
operating criteria. We believe that monitoring developments in multiple sectors
will position us to opportunistically select vessels in different sectors for
acquisition and vessel employment opportunities as conditions in those sectors
dictate. We also believe that this outlook enables us to lower our dependence on
any one shipping sector as we seek to generate revenues and find attractive
acquisition opportunities.





Fixed Rate
Charters.With the exception of
the M/T Olindaand
M/TTigani, each of
which is employed in a different tanker pool, we have entered into fixed rate
period charters for all of our drybulk carriers and tanker vessels with an
average remaining duration of approximately 21.6 months as of the date of this
Annual Report. We believe these charters will provide us with stable cash flow
and high vessel utilization rates and also limit our exposure to charter rate
volatility. In the future we will continue to seek fixed rate period charter
contracts for our vessels, which include time and bareboat charters, pursuant to
which the charterer pays a fixed daily charter rate over a specified period of
time. Period charter contracts may include profit sharing arrangements whereby
we receive additional charter hire when spot charter rates exceed the fixed
daily rate under the period charter. We may also enter into period charters that
afford some exposure to the spot market through floating rate period charters
where the daily charter rate fluctuates in line with spot rates but cannot
fluctuate below a minimum rate, or floor, or above a maximum rate, or ceiling.
We may enter into short-term spot charters or place additional vessels in pools
which enable participating vessels to combine revenues.





Staggered Charter
Renewals.We seek employment for
our vessels based on our analysis and assessment of fundamental developments in
each particular sector of the industry and the difference in rates for short-,
medium- and long-term charters. Renewing our period charters at different times
enables us to reduce our exposure to market conditions prevailing at any one
time.





Diversified
Charter Counterparties.Our vessels are chartered to seven different
charterers operating in the drybulk carrier and tanker sectors and two of our
tankers are employed in spot market pools. We believe that chartering our
vessels to a number of well established and reputable charterers reduces
counterparty risk. As we grow our fleet over time, we may invest in other
seaborne transportation sectors and seek to further diversify the end-users of
our vessels, thereby enhancing the overall credit quality of our charter
portfolio.





Quality Fleet
Manager.Our Fleet Manager has
established a reputation in the international shipping industry for high
standards of performance, reliability and safety. We believe that contracting
with a fleet manager that has achieved this reputation will create greater
opportunities for us to seek employment contracts with well established
charterers, many of whom consider the reputation of the fleet manager when
entering into charters. We believe we will derive important benefits from our
Fleet Manager's experience, which enables it to achieve significant economies of
scale and scalability in areas such as crewing, supply procurement, and
insurance which in addition to other benefits, are passed to us as the vessel
owner. We intend to maintain the quality of our fleet through our Fleet
Manager's rigorous maintenance programs. We believe that owning a fleet of
well-maintained vessels will enable us to operate our vessels with lower
operating costs, maintain their resale value and secure employment for our
vessels with high quality charterers.




26





Shipping
Operations


OceanFreight's Fleet.We
operate a diversified fleet in order to reduce our dependency on any one
shipping sector and to capitalize on opportunities for upside potential in
both  the drybulk and tanker markets. As of the date of this Annual
Report, our fleet has a weighted average  age of 10.9 years and is
comprised of the vessels listed in the table below.





With the
exception of the M/T Olinda and M/T Tigani, each of which are
employed in separate spot pools, all of our vessels are chartered under long
term contracts expiring at various dates, the latest through 2015.




Vessel Name
            Vessel Type
            Year
      Built
            Deadweight(in metric tons)Drybulk
      CarriersM/V
      Robusto
            Capesize
            2006
            173,949M/V
      Cohiba
            Capesize
            2006
            174,200M/V
      Partagas
            Capesize
            2004
            173,880M/V
      Topeka
            Panamax
            2000
            74,710M/V
      Helena
            Panamax
            1999
            73,744M/V
      Augusta
            Panamax
            1996
            69,053M/V
      Austin
            Panamax
            1995
            75,229M/V
      Trenton
            Panamax
            1995
            75,229Tanker
      VesselsM/T
      Pink
      Sands
            Aframax
            1993
            93,723M/T
      Tamara
            Aframax
            1990
            95,793Drybulk
      Carrier Held for SaleM/V
      Pierre(1)
            Panamax
            1996
            70,316Tankers Held for
      SaleM/T
      Olinda(2)
            Suezmax
            1996
            149,085M/T
      Tigani(2)
            Aframax
            1991
            95,951Drybulk
      Carrier to be AcquiredM/V
      Montecristo
      (3)
            Capesize
            2005
            180,263





(1)
            On
      December 11, 2009, we agreed to sell the M/V Pierre
      to a third party for a gross sale price of $22.58 million and expect the
      vessel to be delivered to the new owners between March 1, 2010 and April
      15, 2010.(2)
            On
      February 22, 2010, the Company's Board of Directors authorized the
      Company's management to finalize the sale of M/T
      Olinda and M/T
      Tigani to unrelated third parties, which
      was initiated in November 2009.(3)
            In
      September 2009, we agreed to acquire the M/V Montecristo
      for an aggregate price of $49.5 million. The vessel is scheduled to be
      delivered in the second quarter of 2010. Upon delivery to the Company, the
      vessel is scheduled to commence a time charter at a gross daily rate of
      $23,500 for the first four years with the charterer's option to extend the
      charter up to an additional four years at an average gross daily rate of
      $24,125.





Each of
our vessels is owned through a separate wholly-owned subsidiary. Our vessels
operate worldwide within the trading limits imposed by our insurance terms and
do not operate in areas where sanctions of the United States, the European Union
or the United Nations have been imposed.





Vessel
Management





We have
contracted the day-to-day vessel management of our fleet, which includes
performing the day-to-day operations and maintenance of the vessels to a
management company, which we refer to as our Fleet Manager, who is engaged under
separate vessel management agreements directly by our respective wholly-owned
subsidiaries. In 2008, our eight Panamax drybulk carriers were managed by Wallem
Ship Management Ltd., or Wallem, an unrelated third party technical and
commercial management company and our five remaining vessels were managed by
Cardiff Marine Inc., or Cardiff, a related party. During the period from January
2009 to July 2009, the management of our drybulk vessels (previously under
Wallem) was progressively assumed by Cardiff. We believe that our Fleet Manager
maintains high standards of operation, vessel technical condition, safety and
environmental protection and control operating expenses through comprehensive
planned maintenance systems, preventive maintenance programs and by retaining
and training qualified crew members. As a result, we believe our Fleet Manager
has established a reputation as an efficient and dependable vessel operator. We
further believe the scale and scope of our Fleet Manager enables it to achieve
significant economies of scale when procuring supplies and insurance. These
economies of scale, as well as our Fleet Manager's ability to spread its
operating costs over a larger number of vessels in conjunction with its cost
containment programs, are expected to result in cost savings to us. We intend to
rely on our Fleet Manager's established operations to help
us manage our growth without having to integrate additional resources since we
will rely on its resources to manage additional vessels we may acquire in the
future.


27





Our Fleet
Manager provides comprehensive vessel management services including technical
supervision, such as repairs, maintenance and inspections, safety and quality,
crewing and training, supply provisioning as well as vessel
accounting.





Our Fleet
Manager has implemented the International Maritime Organization, or IMO's,
International Management Code for the Safe Operation of Ships and Pollution
Prevention, or ISM Code. It  also has obtained documents of compliance
for their offices and safety management certificates for their vessels as
required by the ISM Code, as well as certificates for vessels under the
International Ship and Port Security Code, or ISPS Code, as required by the
International Convention for the Safety of Life at Sea, or SOLAS, and the
Maritime Transportation Security Act Code, or MTSA Code.





Our Fleet
Manager has the following departments:


•
                  Operations,
 •
                          Technical,
 •
                                  Accounting,
 •
                                          Crewing,
 •
                                                  Insurance,
 •
                                                          Purchasing,
 •
                                                                  Safety
      and Quality,
 •
                                                                          Sale
      and Purchase, and
 •
                                                                                  Chartering.


Our Fleet
Manager provides, under the separate vessel management agreements, specific
day-to-day vessel management functions including:




•
                monitoring
      the quality and safety of vessel
  operations;
 •
                performing
      general vessel maintenance and
  inspections;
 •
                arranging
      and supervising special surveys, drydockings, vessel reconditioning and
      repair work;
 •
                appointing
      supervisors, surveyors and technical
    consultants;
 •
                ensuring
      compliance with all country of registry, classification society and port
      state rules and
regulations;
 •
                implementing
      of the Safety Management System (SMS) in accordance with the ISM
      code;
 •
                providing
      employment, training and performance reviews of qualified officers and
      crew;
 •
                arranging
      for transportation, repatriation, payroll, pensions and insurance of
      seafarers;
 •
                purchasing
      of stores, supplies, spares, lubricating oil and new equipment for
      vessels;
 •
                maintaining
      vessel condition acceptable to charterers and arranging for physical
      inspections by
charterers;
 •
                providing
      vessel operating expense budgets and monthly vessel working capital
      requirements; and
 •
                providing
      vessel accounting and
reporting.


28


Vessel Management Agreements.We do not employ personnel to run our day-to-day vessel management
activities. Our Fleet Manager is responsible for all day-to-day vessel
management functions pursuant to separate vessel management agreements. Our
senior management team, under the supervision of our Board of Directors, manages
our business as a holding company, including our administrative functions, and
we monitor our Fleet Manager's performance under our vessel management
agreements. The vessel management agreements have a one-year term and are
automatically extended for successive one year terms, unless in each case,
advance notice of termination is given by either party under the terms of the
respective vessel management agreements.





Upon
termination of the agreements, except in limited circumstances, we will be
required to pay the applicable management fee at the rate then in effect for
ninety days from the date of termination in order to cover operational and
accounting costs relating to final vessel disbursements. In addition, we will
also be required to pay crew costs for ninety days from the date of termination.
Pursuant to the management agreements, we are obligated to pay our Fleet Manager
a management fee ranging from approximately $1,082 to $1,232 per vessel per day
on a monthly basis in advance, pro rata for the calendar days the vessels are
owned by us. We will not pay any management fees for vessels we may employ under
bareboat charters in the future. We oversee our Fleet Manager who is responsible
for arranging for superintendent visits when necessary to evaluate the vessel's
physical condition, supervise onboard activities, repairs and drydockings. Our
Fleet Manager is also required to prepare annual budgets and an estimate of
working capital requirements for the vessel and update such estimate
monthly.





Vessel Employment.We are
responsible for all commercial management decisions for our fleet. We use the
global network of chartering brokers and industry contacts to provide us with
information on charter markets and possible employment opportunities for our
vessels. With the exception of the M/T Olindaand M/T Tigani, each of which is
currently employed in a different spot market pool, our remaining vessels are
presently operating under long-term time charter agreements as
follows:




Vessel Name
            Estimated Expiration
      of Charter
            Gross DailyRateDrybulk
      CarriersM/V
      Robusto
            August
      2014 to December 2014
            $26,000M/V
      Cohiba
            October
      2014 to February 2015
            26,250M/V
      Partagas
            July
      2012 to December 2012
            27,500M/V
      Topeka
      (1)
            January
      2011 to March 2011
            18,000M/V
      Helena
            May
      2012 to January 2013
            32,000M/V
      Augusta(2)
            November
      2011 to March 2012
            16,000M/V
      Austin
            March
      2010 to August 2010
            26,000M/V
      Trenton
            April
      2010 to August 2010
            26,000Tanker
      VesselsM/T
      Pink
      Sands
            October
      2010 to January 2011
            27,450M/T
      Tamara (3)
            December
      2010 to March 2011
            27,000Drybulk
      Carrier Held for SaleM/V
      Pierre
      (4)
            June
      2010
            23,000Tankers Held for
      SaleM/T
      Olinda(5)
            Spot
      Pool
            —M/T
      Tigani(6)
            Spot
      Pool
            —Drybulk
      Carrier to be AcquiredM/V
      Montecristo
            April
      2014 to September 2014
            23,500


____________





(1)
            In
      July 2009, the charterers of the M/V Topeka declared their
      inability to continue the chartering of the vessel. Following this, we
      agreed with the subcharterers to continue the chartering of the vessel for
      18 months at a gross daily charter rate of
  $18,000.




(2)
            On
      November 18, 2008, the M/V Augustawas delivered
      from its previous charterer, D'Amato di Navigazione S.p.A., to its new
      charterer, South China Lines. As a result of the significant decline in
      the drybulk market, we agreed to renegotiate the contracted time charter
      rate with South China Lines from $42,100 per day to $16,000 per day, and
      to amend the period of the time charter from a minimum of 34 months and a
      maximum of 37 months to a minimum of 35.5 months and a maximum of 40
      months.





(3)
            The
      M/T Tamara is
      chartered to Tri-Ocean Heidmar Tankers LLC, which is controlled by Heidmar
      Inc. Up to September, 2009, Heidmar Inc. was 49% owned by a company
      associated with Mr. George Economou.  Mr. George Economou is the
      chairman of the Board of Directors of Heidmar Inc., and Mr. Antonis
      Kandylidis, our Chief Executive Officer, is a member of the Board of
      Directors of Heidmar Inc.


29


(4)
            In January 2010, the charterers of the M/V Pierre declared their
      inability to continue the chartering of the vessel. Following this, we
      employed the vessel under a new charter for the balance of the original
      time charter ending June 2010 at a gross daily charter rate of $23,000. On
      December 11, 2009, we agreed to sell the M/V Pierre to a third party
      for a gross sale price of $22.6 million resulting in a book loss of
      approximately $17.4 million.  The vessel is scheduled to be
      delivered to its new owners between March 1, 2010 and April 15,
      2010.


(5)
              On
      October 17, 2008, the M/T Olinda
      entered the Blue Fin Tankers Inc. pool, which is a spot pool managed by
      Heidmar Inc. The vessel's earnings are derived from the pool's total net
      earnings.  Up to September, 2009, Heidmar Inc. was 49% owned by a
      company associated with Mr. George Economou.  Mr. George Economou is
      the chairman of the Board of Directors of Heidmar Inc., and Mr. Antonis
      Kandylidis, our Chief Executive Officer, is a member of the Board of
      Directors of Heidmar Inc. On February 22, 2010, the Company's Board of
      Directors authorized the Company's management to finalize the sale of the
      M/T Olinda, which was initiated in
      late November 2009, to unrelated third
  parties.
 (6)
                On December 4, 2009,
      the M/T Tiganientered the Sigma Tankers Inc. pool, which is a spot pool managed
      by Heidmar Inc., and began employment in the pool on December 22, 2009.
      Prior to that date, the vessel had been employed on a time charter, which
      was scheduled to expire in December 2009, at a gross daily charter
      rate of $29,800.  The vessel's earnings are derived from the pool's
      total net earnings.  Up to September, 2009, Heidmar Inc. was 49%
      owned by a company associated with Mr. George Economou.  Mr. George
      Economou is also the chairman of the Board of Directors of Heidmar Inc.,
      and Mr. Antonis Kandylidis, our Chief Executive Officer, is a member of
      the Board of Directors of Heidmar Inc. On February 22, 2010, the Company's
      Board of Directors authorized the Company's management to finalize the
      sale of the M/T Tigani, which was
      initiated in late November 2009, to unrelated third
      parties.


We
believe these charters will provide us with stable cash flow and high vessel
utilization rates and also limit our exposure to freight rate volatility. In
addition, renewing our period charters at different times enables us to reduce
our exposure to market conditions prevailing at any one time.





Spot Charters.Spot charters
generally refer to voyage charters and trip time charters, which generally last
from ten days to three months. A voyage charter is generally a contract to carry
a specific cargo from a load port to a discharge port for an agreed upon total
amount. Under voyage charters, we pay voyage expenses such as port, canal and
fuel costs. A trip time charter is generally a contract for a trip to carry a
specific cargo from a load port to a discharge port at a set daily rate. Under
time charters, including trip time charters, the charterer pays voyage expenses
such as port, canal and fuel costs. Under both types of spot charters, we would
pay for vessel operating expenses, which include crew costs, provisions, deck
and engine stores, lubricating oil, insurance, maintenance and repairs, and for
commissions on gross revenues. We would also be responsible for each vessel's
intermediate and special survey costs.





Customers.We believe that
chartering our vessels to a number of well established and reputable charterers
reduces the risk of default under our charter contracts. As we grow our fleet
over time, we may invest in other seaborne transportation sectors and seek to
further diversify the end-users of our vessels thereby enhancing the overall
credit quality of our charter portfolio. Our assessment of a charterer's
financial condition and reliability is an important factor in negotiating
employment for our vessels. We generally charter our vessels to major
corporations, publicly-traded shipping companies, reputable vessel owners and
operators, trading houses (including commodities traders), major producers and
government-owned entities.





For the
year ended December 31, 2009, 42% of the Company's voyage revenues were earned
from three charterers, who individually accounted for 16%, 15% and 11% of such
revenues.





Competition.We operate in
markets that are highly competitive and based primarily on supply and demand. We
compete for charters on the basis of price, vessel location, size, age and
condition of the vessel, as well as on our reputation. We arrange our charters
(whether period charters or spot charters) through the use of brokers, who
negotiate the terms of the charters based on market conditions.





Currently,
we compete with other owners of vessels in the drybulk carrier and tanker
sectors. Ownership of vessels is highly fragmented in all sectors of the
seaborne transportation industry.





The International Drybulk Shipping
Industry





We
currently employ each of our nine drybulk carriers under time charter agreements
with an average remaining duration of approximately 24.2 months as of the date
of this Annual Report.





The
Baltic Dry Index (BDI), a daily average of charter rates in 26 shipping routes
measured on a time charter and voyage basis covering Supramax, Panamax and
Capesize drybulk carriers, recovered significantly in 2009 compared to the low
of the fourth quarter of 2008. The 2009 average of the BDI was 3,005, which is
about 300% higher than the December 2008 average of 743. However, this is still
below the BDI's high of 11,844 reached in May 2008.


30


The
decline in the drybulk market since its peak in 2008 has resulted in lower
charter rates for vessels exposed to the spot market and time charters linked to
the BDI. Our drybulk carriers are presently employed under time charters and are
not directly linked to the BDI. Drybulk vessel values have also rebounded in
part since 2008's steep decline. Charter rates and vessel values were affected
in 2008 in part by the lack of availability of credit to finance both vessel
purchases and purchases of commodities carried by sea, resulting in a decline in
cargo shipments, and the excess supply of iron ore in China which resulted in
falling iron ore prices and increased stockpiles in Chinese ports. The increase
in drybulk vessel values in 2009 resulted primarily from cheaper prices for raw
materials from producing countries like Brazil and Australia compared to raw
materials produced domestically in Asia; consequently China has increased its
imports of raw materials. In 2008 China's iron ore imports comprised about 65%
of the total volume of iron transported by sea. In 2009 this number has
increased to about 80%. There can be no assurance as to how long charter rates
and vessel values will remain at their current levels or whether they will
experience significant volatility. Capesize rates improved significantly in 2009
and the average of Capesize rates for the year ended December 31, 2009 was
approximately $42,600 per day.




The
global drybulk carrier fleet may be divided into four categories based on a
vessel's carrying capacity. These categories consist of:





•
            Capesize
      vessels, which have carrying capacities of more than 85,000 dwt. These
      vessels generally operate along long haul iron ore and coal trade routes.
      There are relatively few ports around the world with the infrastructure to
      accommodate vessels of this size.





•
            Panamax
      vessels have a carrying capacity of between 60,000 and 85,000 dwt. These
      vessels carry coal, grains, and, to a lesser extent, minor bulks,
      including steel products, forest products and fertilizers. Panamax vessels
      are able to pass through the Panama Canal making them more versatile than
      larger vessels.





•
            Handymax
      vessels have a carrying capacity of between 35,000 and 60,000 dwt. These
      vessels operate along a large number of geographically dispersed global
      trade routes mainly carrying grains and minor bulks. Vessels below 60,000
      dwt are sometimes built with on-board cranes enabling them to load and
      discharge cargo in countries and ports with limited
      infrastructure.





•
            Handysize
      vessels have a carrying capacity of up to 35,000 dwt. These vessels carry
      exclusively minor bulk cargo. Increasingly, these vessels have operated
      along regional trading routes. Handysize vessels are well suited for small
      ports with length and draft restrictions that may lack the infrastructure
      for cargo loading and unloading.




As of
January 1, 2010, total newbuilding orders had been placed for an aggregate of
about 59.3 % of the existing global drybulk fleet, with deliveries expected
during the next 36 months. According to market sources about 50% of the drybulk
fleet is contracted at established yards, while the other 50% is contracted at
yards that are less established and whose viability may be uncertain. Due to
lack of financing many analysts expect that newbuilding orders may experience
significant cancellations and/or slippage, defined as the difference between
newbuilding deliveries ordered versus actually delivered. Market sources
indicate that slippage in the Handysize sector is about 50% and about 20% in the
Capesize sector. The supply of drybulk carriers is dependent on the delivery of
new vessels and the removal of vessels from the global fleet, either through
scrapping or accidental losses. The level of scrapping activity is generally a
function of scrapping prices in relation to current and prospective charter
market conditions, as well as operating repair and survey costs. Scrapping in
2009 has been significant compared to the previous two years. In 2009 about 10
million dwt was removed from the global drybulk fleet representing 24% of the
carrying capacity of the total fleet delivered during the same year. Total
drybulk scrapping during 2008 was 5.5 million dwt. As of the end of December
2009, about 24% of the total drybulk fleet is 20 years old or older. Many
analysts expect scrapping to continue to be a significant factor in offsetting
the total supply of the drybulk fleet.




The International Tanker
Industry





Our fleet
includes four double-hull crude oil tanker vessels (three Aframaxes and one
Suezmax). Two of our Aframaxes are employed on time charter agreements and one
Aframax and the Suezmax are employed in separate spot market pooling
arrangements. The tanker industry has an inherent volatility caused by seasonal
demand fluctuations. During the fall, refineries typically build stockpiles to
cover demand for heating distillates during the winter. Early in the spring the
refineries move into a maintenance period in order to switch production to
gasoline instead of heavy distillates. This results in the reduction of required
seaborne transportation of oil. As a general pattern, demand for petroleum
products during the summer is less than demand during the winter. This
seasonality is reflected in the time charter equivalent rate for Suezmax tanker
route loading in West Africa and discharging
in the U.S. Atlantic Coast. This rate averaged $11,759 per day during July 2009
compared to $24,673 per day during the fourth quarter of
2009.


31





In
response to a significant decline in oil prices during 2008, OPEC significantly
reduced oil supply, causing WTI oil prices to recover from a low of $34 per
barrel in December 2008 to an average WTI oil price of approximately $62 per
barrel in 2009 and approximately $75 per barrel as of February 2,
2010.  During the last OPEC meeting, the ministers agreed to leave
existing output targets unchanged in order to help economic recovery by avoiding
further increases of oil prices during the economic recession. The decline in
oil supply had an adverse effect on the demand for tankers and tanker charter
rates. However, we believe that the potential phase out by 2010 of single hull
tankers, which constitute approximately 12% in terms of dwt of the global tanker
fleet, may reduce tanker supply and may therefore mitigate the adverse effect on
demand for tankers resulting from any potential future oil supply
reduction.





For 2009,
excluding December, newbuilding deliveries for Suezmax vessels amounted to about
7.1 million dwt tons or 30.3% of the total Suezmax orderbook of 23.4 million dwt
tons. During the same period the newbuilding deliveries for Aframax vessels
amounted to 10.6 million dwt tons or 60.2% of the total Aframax orderbook of
17.6 million dwt tons.  As of January 1, 2010, the total tanker
newbuilding orderbook stood at about 132.3 million dwt. It is expected that
about 64.5 million dwt of tankers in excess of 10,000 dwt will be delivered in
2010.





Tanker
vessels generally fall into one of seven major types of vessel classifications
based upon carrying capacity:





ULCCs (Ultra
Large Crude Carriers), with a cargo carrying capacity of 320,000 dwt or
more;





VLCCs (Very Large
Crude Carriers), with a cargo carrying capacity of approximately
200,000 to 320,000 dwt;





Suezmax tankers,
with a cargo carrying capacity of approximately 120,000 to 200,000
dwt;





Aframax tankers,
with a cargo carrying capacity of approximately 80,000 to 120,000
dwt;





Panamax tankers,
with a cargo carrying capacity of approximately 60,000 to 80,000
dwt;





Handymax tankers,
with a cargo carrying capacity of approximately 30,000 to 60,000 dwt;
and





Handysize
tankers, with a cargo carrying capacity of approximately 10,000 to 30,000
dwt.





Additionally,
tankers are differentiated by the type of cargo that they carry. The industry
identifies tankers as either product tankers or crude oil tankers on the basis
of various factors including technical specifications and trading histories.
Crude oil tankers carry crude oil and so-called "dirty" products such as fuel
oils. Product tankers carry refined petroleum products such as gasoline, jet
fuel, kerosene, naphtha and gas oil, which are often referred to as "clean"
products.





Product
tankers are tankers that typically have cargo handling systems that are designed
to transport several different refined products simultaneously, such as
gasoline, jet fuel, kerosene, naphtha and heating oil, from refineries to the
ultimate consumer. Product tankers generally have coated cargo tanks that assist
in tank cleaning between voyages involving different cargoes. This coating also
protects the steel in the tanks from corrosive cargoes.





Product
tankers generally range in size from 10,000 dwt to 80,000 dwt, although there
are some larger product carriers designed for niche long-range trades like the
Middle East to Southeast Asia.





Although
product tankers can carry dirty products, they generally do not switch between
clean and dirty cargoes because a vessel carrying dirty cargo must undergo a
cleaning process prior to loading clean cargo. In addition, specified design,
outfitting and technical factors tend to make some vessels better suited to
handling the physical properties of distinct cargoes.





ULCCs and
VLCCs carry the largest percentage of crude oil transported by sea. These large
tankers are typically on long-haul voyages, but port constraints limit their
trading routes. For example, only a few U.S. ports, such as the Louisiana
Offshore Oil Port, are capable of handling a fully laden VLCC.





Suezmax
tankers engage in a range of crude oil trades, most usually from West Africa to
the United States, the Gulf of Mexico, the Caribbean or Europe, within the
Mediterranean, or within Asia. Most Aframax tankers carry dirty products in
short regional trades, mainly within Northwest Europe, within the Caribbean,
within the Mediterranean or within Asia. Panamax tankers, which are the largest
tankers that can pass fully-loaded through the Panama Canal, take advantage of
size restrictions on larger vessels in South and North American terminals.
Three-quarters of the world's Panamax fleet transports dirty products and the
remainder transports clean products.


32





Handymax
and Handysize tankers carry the vast majority of clean products, comprising 90%
of all product tankers. Handymax tankers comprise the largest concentration of
product tankers because smaller tankers have the greatest flexibility in trade
routes and port access. They can service many ports and utilize berthing
facilities which cannot accommodate larger tankers due to size limitations or
because those tankers require deeper water in which to operate. Also, port
facilities may lack sufficient storage capacity to unload the large loads
carried by larger tankers. At the same time, Handymax tankers can load a variety
of different cargoes and thereby operate in a number of international oil and
oil product trading routes.





Charter Hire Rates.Charter
hire rates paid for drybulk carriers are primarily a function of the underlying
balance between vessel supply and demand, although at times other factors may
play a role. Furthermore, the pattern seen in charter rates is broadly mirrored
across the different charter types and between the different drybulk carrier
categories. However, because demand for larger drybulk carriers is affected by
the volume and pattern of trade in a relatively small number of commodities,
charter hire rates (and vessel values) of larger ships tend to be more volatile
than those for smaller vessels.





In the
time charter market, rates vary depending on the length of the charter period
and vessel specific factors such as age, speed and fuel consumption. In the
voyage charter market, rates are influenced by cargo size, commodity, port dues
and canal transit fees, as well as delivery and redelivery regions. In general,
a larger cargo size is quoted at a lower rate per ton than a smaller cargo size.
Routes with costly ports or canals generally command higher rates than routes
with low port dues and no canals to transit.





Voyages
with a load port within a region that includes ports where vessels usually
discharge cargo or a discharge port within a region with ports where vessels
load cargo also are generally quoted at lower rates, because such voyages
generally increase vessel utilization by reducing the unloaded portion (or
ballast leg) that is included in the calculation of the return charter to a
loading area.





Within
the drybulk shipping industry, the charter hire rate references most likely to
be monitored are the freight rate indices issued by the Baltic Exchange. These
references are based on actual charter hire rates under charter entered into by
market participants as well as daily assessments provided to the Baltic Exchange
by a panel of major shipbrokers. The Baltic Panamax Index is the index with the
longest history.





Vessel Prices.Drybulk vessel
prices, both for newbuildings and secondhand vessels, have also rebounded in
part in 2009 following 2008's steep decline. The decrease from the peak prices
seen in 2008 is a result of the reduction in drybulk freight rates, which
occurred during the fourth quarter of 2008.





Vessel
values have also declined as a result of a slowdown in the availability of
global credit. The lack of credit has resulted in the restriction to fund both
vessel purchases and purchases of commodities carried by sea.





As a
result of the decline in oil demand and commensurate decline in tanker charter
rates, tanker vessel values have also declined significantly, especially for the
older vessels since competition is more evidenced in depressed markets where the
charterers will choose younger vessels over older or single hull
vessels.





There can
be no assurance as to how long charterhire rates and vessel values will remain
depressed or whether they will drop any further. Should charterhire rates remain
at these depressed levels for some time our revenue and profitability will be
adversely affected.





Crewing
and Shore-based Employees





We
currently employ 430 seafarers onboard our vessels and six persons, our Chief
Executive Officer, our Chief Financial Officer and Treasurer, our President and
Chief Operating Officer, our Chief Accounting Officer and two other employees in
our office.  Pursuant to our services agreement with Cardiff, we utilize
Cardiff, with approximately 150 shore-based employees, for commercial management
services and supervisory services in connection with the technical and
commercial management of our vessels.





As is
common practice in the shipping industry, our Fleet Managers are responsible for
identifying, screening and recruiting directly or through a crewing agent, the
officers and all other crew members for our vessels who are employed by our
vessel owning subsidiaries.





Permits
and Authorizations





We are
required by various governmental and quasi-governmental agencies to obtain
certain permits, licenses and certificates with respect to our vessels. The
kinds of permits, licenses and certificates required depend upon several
factors, including the commodity transported, the waters in which the vessel
operates, the nationality of the vessel's crew and the age of a vessel. We have
been able to obtain all permits, licenses and certificates currently required to
permit our vessels to operate. Additional laws and
regulations, environmental or otherwise, may be adopted which could limit our
ability to do business or increase cost of our doing
business.


33





ENVIRONMENTAL
AND OTHER REGULATIONS





Government
regulations and laws significantly affect the ownership and operation of our
vessels, which consist of both drybulk carriers and tankers. We are subject to
various international conventions, laws and regulations in force in the
countries in which our vessels may operate or are registered. Compliance with
such laws, regulations and other requirements entails significant expense,
including vessel modification and implementation of certain operating
procedures.





A variety
of government, quasi-governmental and private organizations subject our vessels
to both scheduled and unscheduled inspections. These organizations include the
local port authorities, national authorities, harbor masters or equivalent,
classification societies, relevant flag state and charterers, particularly
terminal operators and oil companies. Some of these entities require us to
obtain permits, licenses, certificates and approvals for the operation of our
vessels. Our failure to maintain necessary permits, licenses, certificates or
approvals could require us to incur substantial costs or temporarily suspend
operation of one or more of the vessels in our fleet, or lead to the
invalidation or reduction of our insurance coverage.





We
believe that the heightened levels of environmental and quality concerns among
insurance underwriters, regulators and charterers have led to greater inspection
and safety requirements on all vessels and may accelerate the scrapping of older
vessels throughout the industry. Increasing environmental concerns have created
a demand for tankers that conform to stricter environmental standards. We are
required to maintain operating standards for all of our vessels that emphasize
operational safety, quality maintenance, continuous training of our officers and
crews and compliance with applicable local, national and international
environmental laws and regulations.





We
believe that the operation of our vessels is in substantial compliance with
applicable environmental laws and regulations and that our vessels have all
material permits, licenses, certificates or other authorizations necessary for
the conduct of our operations; however, because such laws and regulations are
frequently changed and may impose increasingly stricter requirements, we cannot
predict the ultimate cost of complying with these requirements, or the impact of
these requirements on the resale value or useful lives of our vessels. In
addition, a future serious marine incident that results in significant oil
pollution or otherwise causes significant adverse environmental impact could
result in additional legislation or regulation that could negatively affect our
profitability.





Our
vessels are subject to both scheduled and unscheduled inspections by a variety
of governmental and private entities, each of which may have unique
requirements. These entities include the local port authorities (U.S. Coast
Guard, harbor master or equivalent), classification societies, flag state
administration (country of registry) and charterers, particularly terminal
operators and oil companies. Failure to maintain necessary permits or approvals
could require us to incur substantial costs or temporarily suspend operation of
one or more of our vessels.





International
Maritime Organization





The
International Maritime Organization, or IMO (the United Nations agency for
maritime safety and the prevention of pollution by ships), has adopted the
International Convention for the Prevention of Marine Pollution from Ships,
1973, as modified by the Protocol of 1978 relating thereto, which has been
updated through various amendments, or the MARPOL Convention. The MARPOL
Convention implements environmental standards including oil leakage or spilling,
garbage management, as well as the handling and disposal of noxious liquids,
harmful substances in packaged forms, sewage and air emissions.





Air
Emissions





In
September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from
ships.  Effective May 2005, Annex VI sets limits on sulfur oxide and
nitrogen oxide emissions from all commercial vessel exhausts and prohibits
deliberate emissions of ozone depleting substances (such as halons and
chlorofluorocarbons), emissions of volatile organic compounds from cargo tanks,
and the shipboard incineration of specific substances.  Annex VI also
includes a global cap on the sulfur content of fuel oil and allows for special
areas to be established with more stringent controls on sulfur emissions.
Additional or new conventions, laws and regulations may be adopted that could
require the installation of expensive emission control systems and that could
adversely affect our business, cash flows, results of operations and financial
condition.  In October 2008, the IMO adopted amendments to Annex VI
regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and
ozone-depleting substances, which amendments enter into force on July 1,
2010.  The amended Annex VI will reduce air pollution from vessels by,
among other things, (i) implementing a progressive reduction of sulfur oxide,
emissions from ships by reducing the global sulfur fuel cap reduced initially to
3.50% (from the current cap of 4.50%), effective from January 1, 2012, then
progressively to 0.50%, effective from January 1, 2020, subject to a feasibility
review to be completed no later than 2018; and (ii) establishing new tiers of
stringent nitrogen oxide emissions standards for new marine engines, depending
on their date of installation.  The United States ratified the Annex VI
amendments in October 2008, and the U.S. Environmental Protection Agency, or
EPA, promulgated equivalent emissions standards in late
2009.




34




The
United States and Canada have requested IMO to designate the area extending 200
nautical miles from the Atlantic/Gulf and Pacific coasts of the U.S. and Canada
and the Hawaiian Islands as Emission Control Areas under the MARPOL Annex VI
amendments, which would subject ocean-going vessels in these areas to stringent
emissions controls and cause us to incur additional costs.  In July
2009, the IMO accepted the proposal in principle, and all member states party to
MARPOL Annex VI will vote on the proposal in March 2010.  Even if the
proposal is not adopted, we cannot assure you that the United States or Canada
will not adopt more stringent emissions standards independent of the
IMO.





Safety
Requirements





The IMO
has also adopted the International Convention for the Safety of Life at Sea, or
SOLAS Convention, and the International Convention on Load Lines, 1966, or LL
Convention, which impose a variety of standards to regulate design and
operational features of ships. SOLAS Convention and LL Convention standards are
revised periodically. We believe that all our vessels are in substantial
compliance with SOLAS Convention and LL Convention standards.





Under
Chapter IX of SOLAS, the requirements contained in the International Safety
Management Code for the Safe Operation of Ships and for Pollution Prevention, or
ISM Code, promulgated by the IMO, also affect our operations. The ISM Code
requires the party with operational control of a vessel to develop an extensive
safety management system that includes, among other things, the adoption of a
safety and environmental protection policy setting forth instructions and
procedures for operating its vessels safely and describing procedures for
responding to emergencies.





The ISM
Code requires that vessel operators obtain a safety management certificate for
each vessel they operate. This certificate evidences compliance by a vessel's
management with code requirements for a safety management system. No vessel can
obtain a certificate unless its manager has been awarded a document of
compliance, issued by each flag state, under the ISM Code. We have obtained
documents of compliance for our offices and safety management certificates for
all of our vessels for which the certificates are required by the IMO. We renew
these documents of compliance and safety management certificates
annually.





Noncompliance
with the ISM Code and other IMO regulations may subject the shipowner or
bareboat charterer to increased liability, may lead to decreases in, or
invalidation of, available insurance coverage for affected vessels and may
result in the denial of access to, or detention in, some ports. The U.S. Coast
Guard and European Union authorities have indicated that vessels not in
compliance with the ISM Code by the applicable deadlines will be prohibited from
trading in U.S. and European Union ports, as the case may be.





The IMO
has negotiated international conventions that impose liability for pollution in
international waters and a signatory's territorial waters. Additional or new
conventions, laws and regulations may be adopted which could limit our ability
to do business and which could have a material adverse effect on our business
and results of operations.





Ballast
Water Requirements





The IMO
adopted an International Convention for the Control and Management of Ships'
Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM
Convention's implementing regulations call for a phased introduction of
mandatory ballast water exchange requirements (beginning in 2009), to be
replaced in time with mandatory concentration limits. The BWM Convention will
not enter into force until 12 months after it has been adopted by 30 states, the
combined merchant fleets of which represent not less than 35% of the gross
tonnage of the world's merchant shipping.





Oil
Pollution Liability





IMO has
negotiated international conventions that impose liability for pollution in
international waters and the territorial waters of the signatory nations to such
conventions.  For example, many countries have ratified and follow the
liability plan adopted by the IMO and set out in the International Convention on
Civil Liability for Oil Pollution Damage, or the CLC., although the United
States is not a party.  Under this convention and depending on whether
the country in which the damage results is a party to the 1992 Protocol to the
CLC, a vessel's registered owner is strictly liable, subject to certain
affirmative defenses, for pollution damage caused in the territorial waters of a
contracting state by discharge of persistent oil.  The limits on
liability outlined in the 1992 Protocol use the International Monetary Fund
currency unit of Special Drawing Rights, or SDR. The right to limit liability is
forfeited under the CLC where the spill is caused by the shipowner's actual
fault and under the 1992 Protocol where the spill is caused by the shipowner's
intentional or reckless conduct.  Vessels trading with states that are
parties to these conventions must provide evidence of insurance covering the
liability of the owner.  In jurisdictions where the CLC has not been
adopted, various legislative schemes or common law govern, and liability is
imposed either on the basis of fault or in a manner similar
to that of the CLC.  We believe that our protection and indemnity
insurance will cover the liability under the plan adopted by the
IMO.




35




The IMO
adopted the International Convention on Civil Liability for Bunker Oil Pollution
Damage, or the Bunker Convention, to impose strict liability on ship owners for
pollution damage in jurisdictional waters of ratifying states caused by
discharges of bunker fuel.  The Bunker Convention, which became
effective on November 21, 2008, requires registered owners of ships over 1,000
gross tons to maintain insurance or other financial security for pollution
damage in an amount equal to the limits of liability under the applicable
national or international limitation regime (but not exceeding the amount
calculated in accordance with the Convention on Limitation of Liability for
Maritime Claims of 1976, as amended). With respect to non-ratifying states,
liability for spills or releases of oil carried as fuel in ship's bunkers
typically is determined by the national or other domestic laws in the
jurisdiction where the events or damages occur.





The IMO
continues to review and introduce new regulations. It is impossible to predict
what additional regulations, if any, may be passed by the IMO and what effect,
if any, such regulations might have on our operations.




United
States Requirements





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





Under
OPA, vessel owners, operators and bareboat charterers are responsible parties
who are jointly, severally and strictly liable (unless the spill results solely
from the act or omission of a third party, an act of God or an act of war) for
all containment and clean-up costs and other damages arising from oil spills
from their vessels. These other damages are defined broadly to
include:





•
            natural
      resource damages and related assessment
costs;





•
            real
      and personal property damages;





•
            net
      loss of taxes, royalties, rents, profits or earnings
    capacity;





•
            net
      cost of public services necessitated by a spill response, such as
      protection from fire, safety or health hazards; and loss of subsistence
      use of natural resources.





Effective
July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability to the
greater of $2,000 per gross ton or $17.088 million for any double-hull tanker
that is over 3,000 gross tons and to the greater of $1,000 per gross ton or
$854,400 for non-tank vessels (subject to possible adjustment for inflation).
and our fleet is entirely composed of vessels of such classes. CERCLA, which
applies to owners and operators of vessels, contains a similar liability regime
and provides for cleanup, removal and natural resource
damages.  Liability under CERCLA is limited to the greater of $300 per
gross ton or $5 million for vessels carrying a hazardous substance as cargo and
the greater of $300 per gross ton or $0.5 million for any other vessel. These
OPA and CERCLA limits of liability do not apply if an incident was directly
caused by violation of applicable U.S. federal safety, construction or operating
regulations, or by the responsible party's gross negligence or willful
misconduct, or if the responsible party fails or refuses to report the incident
or to cooperate and assist in connection with oil removal
activities.




OPA and
the U.S. Coast Guard also require owners and operators of vessels to establish
and maintain with the U.S. Coast Guard evidence of financial responsibility
sufficient to meet the limit of their potential liability under OPA and
CERCLA.  Vessel owners and operators may satisfy their financial
responsibility obligations by providing a proof of insurance, a surety bond,
self-insurance or a guaranty.  We plan to comply with the U.S. Coast
Guard's financial responsibility regulations by providing a certificate of
responsibility evidencing sufficient self-insurance.




We insure
each of our vessels with pollution liability insurance in the maximum
commercially available amount of $1.0 billion. A catastrophic spill could exceed
the insurance coverage available, which could have a material adverse effect on
our business.




36


Owners or
operators of tankers operating in the waters of the United States must file
vessel response plans with the U.S. Coast Guard, and their tankers are required
to operate in compliance with their U.S. Coast Guard approved plans. These
response plans must, among other things:





•
            address
      a worst case scenario and identify and ensure, through contract or other
      approved means, the availability of necessary private response resources
      to respond to a worst case
discharge;





•
            describe
      crew training and drills; and





•
            identify
      a qualified individual with full authority to implement removal
      actions.





We have
obtained vessel response plans approved by the U.S. Coast Guard for our vessels
operating in the waters of the United States. In addition, the U.S. Coast Guard
has announced it intends to propose similar regulations requiring certain
vessels to prepare response plans for the release of hazardous
substances.





The U.S.
Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances
in U.S. navigable waters unless authorized by a duly-issued permit or exemption,
and imposes strict liability in the form of penalties for any unauthorized
discharges.  The CWA also imposes substantial liability for the costs
of removal, and remediation and damages and complements the remedies available
under OPA and CERCLA.




The EPA
regulates the discharge of ballast water and other substances in U.S. waters
under the CWA.  Effective February 6, 2009, EPA regulations require
vessels 79 feet in length or longer (other than commercial fishing recreational
vessels) to comply with a Vessel General Permit authorizing ballast water
discharges and other discharges incidental to the operation of
vessels.  The Vessel General Permit imposes technology and
water-quality based effluent limits for certain types of discharges and
establishes specific inspection, monitoring, recordkeeping and reporting
requirements to ensure the effluent limits are met. U.S. Coast Guard regulations
adopted under the U.S. National Invasive Species Act, or NISA, also impose
mandatory ballast water management practices for all vessels equipped with
ballast water tanks entering or operating in U.S. waters, and in 2009 the Coast
Guard proposed new ballast water management standards and practices, including
limits regarding ballast water releases.  Compliance with the EPA and
the U.S. Coast Guard regulations could require the installation of equipment on
our vessels to treat ballast water before it is discharged or the implementation
of other port facility disposal arrangements or procedures at potentially
substantial cost, and/or otherwise restrict our vessels from entering U.S.
waters.





Other
Regulations





In
addition, most U.S. states that border a navigable waterway have enacted
environmental pollution laws that impose strict liability on a person for
removal costs and damages resulting from a discharge of oil or a release of a
hazardous substance. These laws may be more stringent than U.S. federal
law.





The U.S.
Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and
1990, or the CAA, requires the EPA to promulgate standards applicable to
emissions of volatile organic compounds and other air contaminants. Our vessels
are subject to vapor control and recovery requirements for certain cargoes when
loading, unloading, ballasting, cleaning and conducting other operations in
regulated port areas. Our vessels that operate in such port areas with
restricted cargoes are equipped with vapor recovery systems that satisfy these
requirements. The CAA also requires states to draft State Implementation Plans,
or SIPs, designed to attain national health-based air quality standards in
primarily major metropolitan and/or industrial areas. Several SIPs regulate
emissions resulting from vessel loading and unloading operations by requiring
the installation of vapor control equipment. As indicated above, our vessels
operating in covered port areas are already equipped with vapor recovery systems
that satisfy these requirements. Although a risk exists that new regulations
could require significant capital expenditures and otherwise increase our costs,
based on the regulations that have been proposed to date, we believe that no
material capital expenditures beyond those currently contemplated and no
material increase in costs are likely to be required.




European
Union Regulations




In
October 2009, the European Union amended a directive to impose criminal
sanctions for illicit ship-source discharges of polluting substances, including
minor discharges, if committed with intent, recklessly or with serious
negligence and the discharges individually or in the aggregate result in
deterioration of the quality of water. Criminal liability for pollution may
result in substantial penalties or fines and increased civil liability
claims.




37


Greenhouse
Gas Regulation




In
February 2005, the Kyoto Protocol to the United Nations Framework Convention on
Climate Change, or UNFCCC, which we refer to as the Kyoto Protocol, entered into
force. Pursuant to the Kyoto Protocol, adopting countries are required to
implement national programs to reduce emissions of certain gases, generally
referred to as greenhouse gases, which are suspected of contributing to global
warming. Currently, the emissions of greenhouse gases from international
shipping are not subject to the Kyoto Protocol. However, international
negotiations are continuing with respect to a successor to the Kyoto Protocol,
which sets emission reduction targets through 2012, and restrictions on shipping
emissions may be included in any new treaty. In December 2009, more than 27
nations, including the United States and China, signed the Copenhagen Accord,
which includes a non-binding commitment to reduce greenhouse gas emissions. The
European Union has indicated that it intends to propose an expansion of the
existing European Union emissions trading scheme to include emissions of
greenhouse gases from vessels, if such emissions are not regulated through the
IMO or the UNFCCC by December 31, 2010. In the United States, the EPA has issued
a final finding that greenhouse gases threaten public health and safety, and has
promulgated regulations, expected to be finalized in March 2010, regulating the
emission of greenhouse gases from motor vehicles and stationary
sources.  The EPA may decide in the future to regulate greenhouse gas
emissions from ships and has already been petitioned by the California Attorney
General to regulate greenhouse gas emissions from ocean-going
vessels.  Other federal and state regulations relating to the control
of greenhouse gas emissions may follow, including the climate change initiatives
that are being considered in the U.S. Congress.  In addition, the IMO
is evaluating various mandatory measures to reduce greenhouse gas emissions from
international shipping, including market-based instruments.  Any
passage of climate control legislation or other regulatory initiatives by the
EU, U.S., IMO or other countries where we operate that restrict emissions of
greenhouse gases could require us to make significant financial expenditures
that we cannot predict with certainty at this time.





Vessel
Security Regulations





Since the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the U.S.
Maritime Transportation Security Act of 2002, or MTSA, came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard
issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to SOLAS created a new chapter
of the convention dealing specifically with maritime security. The new chapter
became effective in July 2004 and imposes various detailed security obligations
on vessels and port authorities, most of which are contained in the
International Ship and Port Facilities Security Code, or the ISPS Code. The ISPS
Code is designed to protect ports and international shipping against terrorism.
After July 1, 2004, to trade internationally, a vessel must attain an
International Ship Security Certificate (ISSC) from a recognized security
organization approved by the vessel's flag state. Among the various requirements
are:





•
            on-board
      installation of automatic identification systems to provide a means for
      the automatic transmission of safety-related information from among
      similarly equipped ships and shore stations, including information on a
      ship's identity, position, course, speed and navigational
      status;





•
            on-board
      installation of ship security alert systems, which do not sound on the
      vessel but only alert the authorities on
shore;





•
            the
      development of vessel security
plans;





•
            ship
      identification number to be permanently marked on a vessel's
      hull;





•
            a
      continuous synopsis record kept onboard showing a vessel's history
      including, name of the ship and of the state whose flag the ship is
      entitled to fly, the date on which the ship was registered with that
      state, the ship's identification number, the port at which the ship is
      registered and the name of the registered owner(s) and their registered
      address; and





•
            compliance
      with flag state security certification
  requirements.





The U.S.
Coast Guard regulations, intended to align with international maritime security
standards, exempt from MTSA vessel security measures non-U.S. vessels that have
on board, as of July 1, 2004, a valid ISSC attesting to the vessel's compliance
with SOLAS security requirements and the ISPS Code. We have implemented the
various security measures addressed by MTSA, SOLAS and the ISPS Code, and our
fleet is in compliance with applicable security requirements.





Inspection
by Classification Societies





The
classification society certifies that the vessel is "in-class," signifying that
the vessel has been built and maintained in accordance with the rules of the
classification society and complies with applicable rules and regulations of the
vessel's country of registry
and the international conventions of which that country is a member. In
addition, where surveys are required by international conventions and
corresponding laws and ordinances of a flag state, the classification society
will undertake them on application or by official order, acting on behalf of the
authorities concerned.




38


The
classification society also undertakes on request other surveys and checks that
are required by regulations and requirements of the flag state. These surveys
are subject to agreements made in each individual case and/or to the regulations
of the country concerned.





For
maintenance of the class, regular and extraordinary surveys of hull, machinery,
including the electrical plant, and any special equipment classed are required
to be performed as follows:





•
            Annual Surveys.For
      seagoing ships, annual surveys are conducted for the hull and the
      machinery, including the electrical plant and where applicable for special
      equipment classed, at intervals of 12 months from the date of commencement
      of the class period indicated in the
  certificate.





•
            Intermediate Surveys.Extended annual surveys are referred to as intermediate surveys and
      typically are conducted two and a-half years after commissioning and each
      class renewal. Intermediate surveys may be carried out on the occasion of
      the second or third annual survey.





•
            Class Renewal Surveys.Class renewal surveys, also known as special surveys, are carried
      out for the ship's hull, machinery, including the electrical plant and for
      any special equipment classed, at the intervals indicated by the character
      of classification for the hull. At the special survey the vessel is
      thoroughly examined, including audio-gauging to determine the thickness of
      the steel structures.





Should
the thickness be found to be less than class requirements, the classification
society would prescribe steel renewals. The classification society may grant a
one year grace period for completion of the special survey. Substantial amounts
of money may have to be spent for steel renewals to pass a special survey if the
vessel experiences excessive wear and tear. In lieu of the special survey every
four or five years, depending on whether a grace period was granted, a ship
owner has the option of arranging with the classification society for the
vessel's hull or machinery to be on a continuous survey cycle, in which every
part of the vessel would be surveyed within a five year cycle. At an owner's
application, the surveys required for class renewal may be split according to an
agreed schedule to extend over the entire period of class. This process is
referred to as continuous class renewal.





All areas
subject to survey as defined by the classification society are required to be
surveyed at least once per class period, unless shorter intervals between
surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years.





Most
vessels are also drydocked every 30 to 36 months for inspection of the
underwater parts and for repairs related to inspections. If any defects are
found, the classification surveyor will issue a recommendation which must be
rectified by the ship owner within prescribed time limits.





Most
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as "in-class" by a classification society which is a member of the
International Association of Classification Societies. All our vessels are
certified as being "in-class" by Det Norske Veritas. All new and secondhand
vessels that we purchase must be certified prior to their delivery under our
standard purchase contracts and memoranda of agreement. If the vessel is not
certified on the scheduled date of closing, we have no obligation to take
delivery of the vessel.





In
addition to the classification inspections, many of our customers regularly
inspect our vessels as a precondition to chartering them for voyages. We believe
that our well-maintained, high-quality vessels provide us with a competitive
advantage in the current environment of increasing regulation and customer
emphasis on quality.





Risk
of Loss and Liability Insurance





General.The operation of any
cargo vessel includes risks such as mechanical failure, physical damage,
collision, property loss, and cargo loss or damage and business interruption due
to political circumstances in foreign countries, hostilities, and labor strikes.
In addition, there is always an inherent possibility of marine disaster,
including oil spills and other environmental mishaps, and the liabilities
arising from owning and operating vessels in international trade. OPA, which
imposes virtually unlimited liability upon owners, operators and demise
charterers of any vessel trading in the United States exclusive economic zone
for certain oil pollution accidents in the United States, has made liability
insurance more expensive for ship owners and operators trading in the United
States market. While management believes that OceanFreight's present insurance
coverage is adequate, not all risks
can be insured, and there can be no guarantee that any specific claim will be
paid, or that OceanFreight will always be able to obtain adequate insurance
coverage at reasonable rates.


39




Hull and Machinery and War Risk
Insurances.OceanFreight has marine hull and machinery and war risk
insurance, which includes the risk of actual or constructive total loss, for all
of the 13 owned vessels. Each of the owned vessels is covered up to at least
fair market value, with a deductible for the hull and machinery insurance
ranging from $100,000 to $125,000. OceanFreight has also arranged increased
value insurance for all of the owned vessels.





Under the
increased value insurance, in case of total loss of the vessel, OceanFreight
will be able to recover the sum insured under the increased value policy in
addition to the sum insured under the hull and machinery policy. Increased value
insurance also covers excess liabilities that are not recoverable in full by the
hull and machinery policies by reason of under insurance.





Protection and Indemnity Insurance.Protection and indemnity insurance is provided by mutual protection and
indemnity associations, or P&I Associations, which covers OceanFreight's
third party liabilities in connection with its shipping activities. This
includes third-party liability and other related expenses of injury or death of
crew, passengers and other third parties, loss or damage to cargo, claims
arising from collisions with other vessels, damage to other third-party
property, pollution arising from oil or other substances, and salvage, towing
and other related costs, including wreck removal. Protection and indemnity
insurance is a form of mutual indemnity insurance, extended by protection and
indemnity mutual associations, or "clubs." Subject to the "capping" discussed
below, OceanFreight's coverage, except for pollution, is unlimited.
OceanFreight's current protection and indemnity insurance coverage for pollution
is $1.0 billion per vessel per incident. The 13 P&I Associations that
comprise the International Group insure approximately 90% of the world's
commercial tonnage and have entered into a pooling agreement to reinsure each
association's liabilities. As a member of a P&I Association, which is a
member of the International Group, OceanFreight is subject to calls payable to
the associations based on its claim records as well as the claim records of all
other members of the individual associations, and members of the pool of P&I
Associations comprising the International Group.





Risk
Management





Risk
management in the shipping industry involves balancing a number of factors in a
cyclical and potentially volatile environment. Fundamentally, the challenge is
to appropriately allocate capital to competing opportunities of owning or
chartering vessels. In part, this requires a view of the overall health of the
market, as well as an understanding of capital costs and return. Thus, stated
simply, one may charter part of a fleet as opposed to owning the entire fleet to
maximize risk management and economic results. This is coupled with the
challenge posed by the complex logistics of ensuring that the vessels controlled
by OceanFreight are fully employed.





C.
            Organizational
      Structure





As of
December 31, 2009, the Company is the sole owner of all of the outstanding
shares of the subsidiaries listed in Note 1 of our consolidated financial
statements under item 18.





D.
            Property,
      Plants and Equipment





We do not
own real estate property. We lease two office spaces in Athens, Greece, as
disclosed in Notes 3 and 12 of our consolidated financial statements under item
18. Our interests in the vessels in our fleet are our only material properties.
See "OceanFreight's Fleet" in this section.





Item 4A. Unresolved Staff
Comments





None.





Item
5. Operating and Financial Review and Prospects





The
following management's discussion and analysis is intended to discuss our
financial condition, changes in financial condition and results of operations,
and should be read in conjunction with our historical consolidated financial
statements and their notes included in this report.





This
discussion contains forward-looking statements that reflect our current views
with respect to future events and financial performance. Our actual results may
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, such as those set forth in the section entitled
"Risk Factors" and elsewhere in this report.




40




A.
            Operating
      Results





Factors
Affecting our Results of Operations





Charters





We
generate revenues by charging customers for the transportation of drybulk and
crude oil cargoes using our vessels. With the exception of the tankers M/T Olindaand M/TTiganiwhich are
employed in the Blue Fin Tankers Inc. and Sigma Tankers Inc. spot market pool,
respectively, we employ our drybulk carriers and tankers to reputable charterers
primarily pursuant to long-term time charters. As of December 31, 2009, our
charters have remaining terms ranging between three months and 57 months. We may
employ vessels under spot-market charters in the future. A time charter is a
contract for the use of a vessel for a specific period of time during which the
charterer pays substantially all of the voyage expenses, including port and
canal charges and the cost of bunkers (fuel oil), but the vessel owner pays the
vessel operating expenses, including the cost of crewing, insuring, repairing
and maintaining the vessel, the costs of spares and consumable stores and
tonnage taxes. Under a spot-market charter, the vessel owner pays both the
voyage expenses (less specified amounts covered by the voyage charterer) and the
vessel operating expenses. Under both types of charters we pay commissions to
ship brokers and to in-house brokers associated with the charterer, depending on
the number of brokers involved with arranging the charter. Vessels operating in
the spot-charter market generate revenues that are less predictable than time
charter revenues but may enable us to capture increased profit margins during
periods of improvements in charter rates. However, we are exposed to the risk of
declining charter rates when operating in the spot market, which may have a
materially adverse impact on our financial performance.





We
believe that the important measures for analyzing future trends in our results
of operations consist of the following:





• Calendar days.Calendar days
are the total days the vessels were in our possession for the relevant period
including off hire and drydock days.





• Voyage days.Total voyage
days are the total days the vessels were in our possession for the relevant
period net of off hire.





• Fleet utilization.Fleet
utilization is the percentage of time that our vessels were available for
revenue generating voyage days, and is determined by dividing voyage days by
fleet calendar days for the relevant period.





• TCE rates.Time charter
equivalent, or TCE, is a measure of the average daily revenue performance of a
vessel on a per voyage basis. TCE is a non-GAAP measure. Our method of
calculating TCE is consistent with industry standards and is determined by
dividing gross revenues (net of voyage expenses) by voyage days for the relevant
time period. Voyage expenses primarily consist of port, canal and fuel costs
that are unique to a particular voyage, which would otherwise be paid by the
charterer under a time charter contract, as well as commissions. TCE is a
standard shipping industry performance measure used primarily to compare
period-to-period changes in a shipping company's performance despite changes in
the mix of charter types (i.e., spot charters, time charters and bareboat
charters) under which the vessels may be employed between the
periods.





• Daily vessel operating
expenses, which include crew costs, provisions, deck and engine stores,
lubricating oil, insurance, maintenance and repairs, are calculated by dividing
vessel operating expenses by fleet calendar days for the relevant time
period.


41


The
following table reflects our calendar days, fleet utilization and daily TCE rate
for the years ended December 31, 2009, 2008 and 2007.


Year
      2009
              
              Drybulk
      Carriers
              
              
              Tanker
                Vessels
              
              
              FleetCalendar
      Days
              
              
              3,190
              
              
              
              1,460
              
              
              
              4,650Fleet
      Utilization
              
              
              96.9
              %
              
              
              94.2
              %
              
              
              96.1
              %Time
      Charter Equivalent
              
              
              29,881
              
              
              
              25,471
              
              
              
              28,523
  Year
      2008
              
              Drybulk
      Carriers
              
              
              Tanker
                Vessels
              
              
              FleetCalendar
      Days
              
              
              3,294
              
              
              
              870
              
              
              
              4,164Fleet
      Utilization
              
              
              98.9
              %
              
              
              99.8
              %
              
              
              99.1
              %Time
      Charter Equivalent
              
              
              33,564
              
              
              
              38,984
              
              
              
              34,705
  Year
      2007
              
              Drybulk
      Carriers
              
              
              Tanker
                Vessels
              
              
              FleetCalendar
      Days
              
              
              1,339
              
              
              
              25
              
              
              
              1,364Fleet
      Utilization
              
              
              94.0
              %
              
              
              92.0
              %
              
              
              94.0
              %Time
      Charter Equivalent
              
              
              30,659
              
              
              
              24,527
              
              
              
              30,558
 
 The
following table reflects the calculation of our TCE daily rates for the years
ended December 31, 2009, 2008 and 2007:
 
 (Dollars in thousands except for
Daily TCE rate)
 Year
      2009
              
              Drybulk
                Carriers
              
              
              Tanker
                Vessels
              
              
              FleetVoyage
      revenues and imputed deferred revenue
              
              
              96,672
              
              
              
              36,263
              
              
              
              132,935Voyage
      expenses
              
              
              (4,309
              )
              
              
              (1,240
              )
              
              
              (5,549
              )Time
      Charter equivalent revenues
              
              
              92,363
              
              
              
              35,023
              
              
              
              127,386Total
      voyage days for fleet
              
              
              3,091
              
              
              
              1,375
              
              
              
              4,466Daily
      TCE rate
              
              
              29,881
              
              
              
              25,471
              
              
              
              28,523
 
 Year
      2008
              
              Drybulk
                Carriers
              
              
              Tanker
                Vessels
              
              
              FleetVoyage
      revenues and imputed deferred revenue
              
              
              114,758
              
              
              
              42,676
              
              
              
              157,434Voyage
      expenses
              
              
              (5,449
              )
              
              
              (8,826
              )
              
              
              (14,275
              )Time
      Charter equivalent revenues
              
              
              109,309
              
              
              
              33,850
              
              
              
              143,159Total
      voyage days for fleet
              
              
              3,257
              
              
              
              868
              
              
              
              4,125Daily
      TCE rate
              
              
              33,561
              
              
              
              38,997
              
              
              
              34,705
  Year
      2007
              
              Drybulk
                Carriers
              
              
              Tanker
                Vessels
              
              
              FleetVoyage
      revenues and imputed deferred revenue
              
              
              40,538
              
              
              
              594
              
              
              
              41,133Voyage
      expenses
              
              
              (1,906
              )
              
              
              (51
              )
              
              
              (1,958
              )Time
      Charter equivalent revenues
              
              
              38,632
              
              
              
              543
              
              
              
              39,175Total
      voyage days for fleet
              
              
              1,260
              
              
              
              22
              
              
              
              1,282Daily
      TCE rate
              
              
              30,660
              
              
              
              24,682
              
              
              
              30,558
 
 • Spot Charter Rates.Spot
charter hire rates are volatile and fluctuate on a seasonal and year to year
basis. The fluctuations are caused by imbalances in the availability of cargoes
for shipment and the number of vessels available at any given time to transport
these cargoes.





• Voyage and Time Charter Revenue.Our revenues are driven primarily by the number of vessels in our fleet,
the number of days during which our vessels operate and the amount of daily
charter hire rates that our vessels earn under charters, which, in turn, will be
affected by a number of factors, including:





•
            the
      duration of our charters;





•
            our
      decisions relating to vessel acquisitions and
  disposals;





•
            the
      amount of time that we spend positioning our
  vessels;





•
            the
      amount of time that our vessels spend in drydock undergoing
      repairs;





•
            the
      amount of time that our vessels spend in connection with maintenance and
      upgrade work;





•
            the
      age, condition and specifications of our
  vessels;





•
            levels
      of supply and demand in the drybulk and crude oil shipping industries;
      and





•
            other
      factors affecting spot market charter hire rates for drybulk carriers and
      tanker vessels.


42





With the
exception of M/T Olinda andM/TTigani, all
of our vessels were employed under time charter contracts, which, as of December
31, 2009, had a remaining duration of a minimum of three months and a maximum of
57 months. We believe that these long-term charters provide better stability of
earnings and consequently increase our cash flow visibility to our shareholders
compared to short-term charters.





The M/T
Olindaand M/TTiganiare employed in
separate spot market pools. Under the respective pooling agreements, the vessels
will earn charterhire in accordance with the pool point formula as defined in
the pool agreements. The pooling agreements provide that charterhire will be
paid 30 days in arrears and bunkers on board at the time of delivery will be
paid with the first hire payment. Preliminary charterhire will be based on the
pool's then current earnings, and is not a guaranteed minimum rate obligation of
the pool company. Hire is inclusive of overtime, communication, and victualling.
The preliminary charterhire may be adjusted either up or down as necessary by
the pool committee depending on the prevailing market condition of the pool.
Each vessel's earnings will be adjusted quarterly according to their actual
operating days in the pool with surplus funds, if any, distributed based on each
vessel's rating as defined in the pool point formula.





Lack
of Historical Operating Data for Vessels Before Their Acquisition





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





Consistent
with shipping industry practice, we treat the acquisition of a vessel (whether
acquired with or without charter) as the acquisition of an asset rather than a
business. Although vessels are generally acquired free of charter, we have
acquired four vessels with existing time charters and we may do so in the
future. We view acquiring a vessel that has been entered in a spot market
related pool, whether through a pooling agreement or pool time charter
arrangement, as equivalent to acquiring a vessel that has been on a voyage
charter. Where a vessel has been under a voyage charter, the vessel is delivered
to the buyer free of charter, and it is rare in the shipping industry for the
last charterer of the vessel in the hands of the seller to continue as the first
charterer of the vessel in the hands of the buyer. In most cases, when a vessel
is under time charter and the buyer wishes to assume that charter, the vessel
cannot be acquired without the charterer's consent and the buyer's entering into
a separate direct agreement with the charterer to assume the charter. The
purchase of a vessel itself does not transfer the charter, because it is a
separate service agreement between the vessel owner and the
charterer.





When we
purchase a vessel and assume or renegotiate a related time charter, we must take
the following steps before the vessel will be ready to commence
operations:





•
            obtain
      the charterer's consent to us as the new
owner;





•
            obtain
      the charterer's consent to a new technical
  manager;





•
            obtain
      the charterer's consent to a new flag for the
  vessel;





•
            arrange
      for a new crew for the vessel;





•
            replace
      all hired equipment on board, such as gas cylinders and communication
      equipment;





•
            negotiate
      and enter into new insurance contracts for the vessel through our own
      insurance brokers;





•
            register
      the vessel under a flag state and perform the related inspections in order
      to obtain new trading certificates from the flag
  state;





•
            implement
      a new planned maintenance program for the vessel;
  and




•
              ensure
       that the new technical manager obtains new certificates for
      compliance with the safety and vessel security regulations of the flag
      state.


43


The
following discussion is intended to help you understand how acquisitions of
vessels affect our business and results of operations.





Our
business is comprised of the following main elements:





•
            employment
      and operation of our vessels; and





•
            management
      of the financial, general and administrative elements involved in the
      conduct of our business and ownership of our
  vessels.





The
employment and operation of our vessels require the following main
components:





•
            vessel
      maintenance and repair;





•
            crew
      selection and training;





•
            vessel
      spares and stores supply;





•
            contingency
      response planning;





•
            on
      board safety procedures auditing;





•
            accounting;





•
            vessel
      insurance arrangement;





•
            vessel
      chartering;





•
            vessel
      hire management;





•
            vessel
      surveying; and





•
            vessel
      performance monitoring.





The
management of financial, general and administrative elements involved in the
conduct of our business and ownership of our vessels requires the following main
components:





•
            management
      of our financial resources, including banking relationships, i.e.,
      administration of bank loans and bank
accounts;





•
            management
      of our accounting system and records and financial
    reporting;





•
            administration
      of the legal and regulatory requirements affecting our business and
      assets; and





•
            management
      of the relationships with our service providers and
    customers.





The
principal factors that affect our profitability, cash flows and shareholders'
return on investment include:





•
            rates
      and periods of charterhire;





•
            levels
      of vessel operating expenses;





•
            depreciation
      expenses;





•
            financing
      costs; and





•
            fluctuations
      in foreign exchange rates.


44





Critical
Accounting Policies





The
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States,
or U.S. GAAP. The preparation of those financial statements requires us to make
estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or
conditions.





Critical
accounting policies are those that reflect significant judgments or
uncertainties, and potentially result in materially different results under
different assumptions and conditions. We have described below what we believe
are our most critical accounting policies that involve a high degree of judgment
and the methods of their application. For a description of all of the company's
significant accounting policies, see Note 2 to the Company's consolidated
financial statements.





Vessel Lives and
Impairment:The carrying value of each of the Company's vessels
represents its original cost at the time it was delivered or purchased less
depreciation calculated using an estimated useful life of 25 years from the date
such vessel was originally delivered from the shipyard. The actual life of a
vessel may be different. We depreciate our vessels based on a straight-line
basis over the expected useful life of each vessel, based on the cost of the
vessel less its estimated residual value, which is estimated at $200 per
lightweight ton at the date of the vessel's acquisition, which we believe is
common in the drybulk and tanker shipping industries.





Secondhand
vessels are depreciated from the date of their acquisition through their
remaining estimated useful life. However, when regulations place limitations
over the ability of a vessel to trade on a worldwide basis, its useful life is
adjusted to end at the date such regulations become effective.





The
carrying values of the Company's vessels may not represent their fair market
value at any point in time since the market prices of second hand vessels tend
to fluctuate with changes in charter rates and the cost of newbuildings.
Historically, both charter rates and vessel values tend to be cyclical. The
Company records impairment losses only when events occur that cause the Company
to believe that future cash flows for any individual vessel will be less than
its carrying value. The carrying amounts of vessels held and used by the Company
are reviewed for potential impairment whenever events or changes in
circumstances indicate that the carrying amount of a particular vessel may not
be fully recoverable. In such instances, an impairment charge would be
recognized if the estimate of the undiscounted future cash flows expected to
result from the use of the vessel and its eventual disposition is less than the
vessel's carrying amount. This assessment is made at the individual vessel level
as separately identifiable cash flow information for each vessel is available.
Measurement of the impairment loss is based on the fair value of the asset. The
Company determines the fair value of its assets based on management estimates
and assumptions and by making use of available market data and taking into
consideration third party valuations.





In
developing estimates of future cash flows, the Company must make assumptions
about future charter rates, ship operating expenses, vessels' residual value and
the estimated remaining useful lives of the vessels. These assumptions are based
on historical trends as well as future expectations. Although management
believes that the assumptions used to evaluate potential impairment are
reasonable and appropriate, such assumptions are highly subjective.





In 2009,
in assessing our exposure to impairment risks for our tanker fleet, we
considered the current conditions of the international tanker industry, the
decline of the market values of our tanker vessels, the deterioration of the
charter hires and the expected slow recovery of the market, the age of our
tanker vessels and the increased costs for their maintenance and upgrading. As a
result we determined that the utilization of our tanker vessels over their
remaining useful lives has been negatively impacted by the market conditions
with low possibilities for recovery. The current assumptions used and the
estimates made are highly subjective, and could be negatively impacted by
further significant deterioration in charter rates or vessel utilization over
the remaining life of the vessels which could require the Company to record a
material impairment charge in future periods.





Our
impairment analysis as of December 31, 2009 indicated that the undiscounted
projected net operating cash flows of each of our tanker vessels the M/T Pink Sandsand M/T Tamarawere below their
carrying value and an impairment loss was recognized (see Note 2(k) to our
consolidated financial statements).





Vessels held for
sale:It is the Company's policy to dispose of vessels or other fixed
assets when suitable opportunities arise and not necessarily to keep them until
the end of their usefullife.
The Company classifies assets and disposal groups of assets as being held for
sale in accordance with ASC 360, Property,Plant
and Equipment, when the following criteria are met: (i) management possessing
the necessary authority has committed to a plan to sell the asset (disposalgroup);
(ii) the asset (disposal group) is immediately available for sale on an "as is"
basis; (iii) an active program to find the buyer and other actions required
toexecute
the
plan to sell the asset (disposal group) have been initiated; (iv) the sale of
the asset (disposal group) is probable, and transfer of the asset (disposal
group)is
expected to qualify for recognition as a completed sale within one year; (v) the
asset (disposal group) is being actively marketed for sale at a price that
isreasonable
in relation to its current fair value and (vi) actions required to complete the
plan indicate that it is unlikely that significant changes to the plan will be
madeor
that the plan will be withdrawn. Long-lived assets or disposal groups classified
as held for sale are measured at the lower of their carrying amount or fair
value lesscost
to sell. These assets are not depreciated once they meet the criteria to be held
for sale and are classified in current assets on the Consolidated Balance Sheet
(see Note 4 to our consolidated financial statements).


45





Imputed
Prepaid/Deferred Revenue:The Company records identified assets or
liabilities associated with the acquisition of a vessel at fair value,
determined by reference to market data. The Company values any asset or
liability arising from the market value of assumed time charters as a condition
of the original purchase of a vessel at the date when such vessel is initially
deployed on its charter. The value of the asset or liability is based on the
difference between the current fair value of a charter with similar
characteristics as the time charter assumed and the net present value of
contractual cash flows of the time charter assumed, to the extent the vessel
capitalized cost does not exceed its fair value without a time charter contract.
When the present value of contractual cash flows of the time charter assumed is
greater than its current fair value, the difference is recorded as imputed
prepaid revenue. When the opposite situation occurs, the difference is recorded
as imputed deferred revenue. Such assets and liabilities are amortized as a
reduction of, or an increase in, revenue respectively, during the period of the
time charter assumed. In developing estimates of the net present value of
contractual cash flows of the time charters assumed the Company must make
assumptions about the discount rate that reflect the risks associated with the
assumed time charter and the fair value of the assumed time charter at the time
the vessel is acquired. Although management believes that the assumptions used
to evaluate present and fair values discussed above are reasonable and
appropriate, such assumptions are highly subjective.





Voyage
Revenues:The Company
generates its revenues from charterers for the charter hire of its vessels.
Vessels are chartered using either voyage charters, where a contract is made in
the spot market for the use of a vessel for a specific voyage for a specified
charter rate, or timecharters, where a contract is entered into for the use of a
vessel for a specific period of time and a specified daily charter hire rate. If
a charter agreement exists and collection of the related revenue is reasonably
assured, revenue is recognized as it is earned ratably during the duration of
the period of each voyage or timecharter. A voyage is deemed to commence upon
the completion of discharge of the vessel's previous cargo and is deemed to end
upon the completion of discharge of the current cargo. Demurrage income
represents payments by a charterer to a vessel owner when loading or discharging
time exceeds the stipulated time in the voyage charter and is recognized ratably
as earned during the related voyage charter's duration period. Unearned revenue
includes cash received prior to the balance sheet date and is related to revenue
earned after such date. For vessels operating in pooling arrangements, the
Company earns a portion of total revenues generated by the pool, net of expenses
incurred by the pool. The amount allocated to each pool participant vessel,
including the Company's vessels, is determined in accordance with an agreed-upon
formula, which is determined by points awarded to each vessel in the pool based
on the vessel's age, design and other performance characteristics. Revenue under
pooling arrangements is accounted for on the accrual basis and is recognized
when an agreement with the pool exists, price is fixed, service is provided and
collectability has been reasonably assured. The allocation of such net revenue
may be subject to future adjustments by the pool; however historically such
changes have not been material.





Revenue
is based on contracted charter parties and although our business is with
customers who are believed to be of the highest standard, there is always the
possibility of dispute over the terms. In such circumstances, we will assess the
recoverability of amounts outstanding and a provision is estimated if there is a
possibility of non-recoverability. Although we may believe that our provisions
are based on fair judgment at the time of their creation, it is possible that an
amount under dispute will not be recovered and the estimated provision of
doubtful accounts would be inadequate. If any of our revenues become
uncollectible these amounts would be written-off at that time.





Accounting for Voyage Expenses and
Vessel Operating Expenses:Voyage related and vessel operating
costs are expensed as incurred. Under a time charter, specified voyage costs,
such as fuel and port charges are paid by the charterer and other non-specified
voyage expenses, such as commissions, are paid by the Company. Vessel operating
costs including crews, maintenance and insurance are paid by the Company. Under
a bareboat charter, the charterer assumes responsibility for all voyage and
vessel operating expenses and risk of operation.





For
vessels employed on spot market voyage charters, we incur voyage expenses that
include port and canal charges and bunker expenses, unlike under time charter
employment, where such expenses are assumed by the charterers.





As is
common in the drybulk and crude oil shipping industries, we pay commissions
ranging from 1.63% to 6.25% of the total daily charter hire rate of each charter
to ship brokers associated with the charterers.





46


Depreciation:We depreciate our vessels based on a straight line basis over the
expected useful life of each vessel, which is 25 years from the date of their
initial delivery from theshipyard.
Depreciation is based on the cost of the vessel less its estimated residual
value at the date of the vessel's acquisition, which is estimated at $200
perlightweight
ton, which we believe is common in the drybulk and tanker shipping industries.
Secondhand vessels are depreciated from the date of their acquisitionthrough
their  remaining estimated useful lives. When regulations place
limitations over the ability of a vessel to trade on a worldwide basis, its
useful life is adjusted to end at the date such regulations become
effective.





Accounting for Financial Instruments:ASC 815, Derivatives and Hedging, requires all derivative contracts to be
recorded at fair value, as determined in accordance with ASC 820, Fair Value
Measurements and Disclosures, which is more fully discussed in Note 9 to our
consolidated financial statements. The changes in fair value of the derivative
contract are recognized in earnings unless specific hedging criteria are met.
The Company has elected not to apply hedge accounting, but to account for the
change in fair value as an increase or decrease in other income and
expense.





On
January 29, 2008, we entered into two interest swap agreements with Nordea Bank
Finland Plc to partially hedge our exposure to fluctuations in interest rates on
$316.5 million of our long term debt discussed in Note 6 to the consolidated
financial statements, by converting our variable rate debt to fixed rate debt.
Under the terms of the interest swap agreement we and the bank agreed to
exchange, at specified intervals, the difference between paying a fixed rate at
3.55% and a floating rate interest amount calculated by reference to the agreed
principal amounts and maturities. The gain derived from the derivative valuation
movement is separately reflected in the consolidated statement of
income.





Our
forward freight agreements or FFAs did not qualify for hedge accounting and
therefore changes in their value were reflected in earnings. As of December 31,
2009, we did not have any open positions.





Segment Disclosures:ASC 280,
Segment Reposting, requires descriptive information about its reportable
operating segments. Operating segments, as defined, are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company reports financial
information and evaluates its operations and operating results by type of vessel
and not by the length or type of ship employment for its customers. The Company
does not use discrete financial information to evaluate the operating results
for each such type of charter. Although revenue can be identified for different
types of charters or for charters with different duration, management cannot and
does not identify expenses, profitability or other financial information for
these charters.





Furthermore,
when the Company charters a vessel to a charterer, the charterer is free to
trade the vessel worldwide and, as a result, the disclosure of geographic
information is impracticable. Accordingly, the reportable segments of the
company are the tankers segment and the drybulk carriers segment. See Segment
Information in Note 14 to our consolidated financial statements included herein
for further analysis of our two reportable segments.





New Accounting Pronouncements:Please see Note 2(v) to our consolidated financial statements included
herein for a discussion of new accounting pronouncements, none of which had a
material impact on our consolidated financial statements in 2009 or
2008.





RESULTS
OF OPERATIONS




The
Company commenced operations in June 2007 when it acquired its first four
vessels and, therefore, until that date it was a development stage enterprise in
accordance with ASC 915, Development Stage Entities.





As
discussed in Notes 2(r) and 14 to our consolidated financial statements included
herein, we have two reportable segments, the drybulk carriers segment and the
tankers segment.





The table
below presents information about the Company's reportable segments as of
December 31, 2007, 2008 and 2009 and for the years then ended. The accounting
policies followed in the preparation of the reportable segments are the same as
those followed in the preparation of the Company's consolidated financial
statements.


December
31, 2009
 Drybulk
                  carriers
                
                
                Tankers
                
                
                Other
                
                
                TotalRevenues
      from external customers
                
                
                82,199
                
                
                
                36,263
                
                
                
                
                
                
                118,462Imputed
      revenue
                
                
                14,472
                
                
                
                -
                
                
                
                -
                
                
                
                14,472Gain
      on forward freight agreements
                
                
                -
                
                
                
                -
                
                
                
                570
                
                
                
                570Voyage
      expenses
                
                
                (4,309
                )
                
                
                (1,240
                )
                
                
                -
                
                
                
                (5,549
                )Vessels’
      operating expenses
                
                
                (27,067
                )
                
                
                (16,848
                )
                
                
                -
                
                
                
                (43,915
                )Survey
      and dry docking costs
                
                
                (2,845
                )
                
                
                (2,725
                )
                
                
                -
                
                
                
                (5,570
                )Interest
      expense and finance costs
                
                
                (12,875
                )
                
                
                (6,914
                )
                
                
                (45
                )
                
                
                (19,834
                )Interest
      Income
                
                
                -
                
                
                
                -
                
                
                
                271
                
                
                
                271Gain
      on derivative instruments
                
                
                3,686
                
                
                
                1,412
                
                
                
                -
                
                
                
                5,098Depreciation
                
                
                (30,100
                )
                
                
                (18,080
                )
                
                
                (92
                )
                
                
                (48,272
                )Impairment
      on vessels
                
                
                -
                
                
                
                (52,700
                )
                
                
                -
                
                
                
                (52,700
                )Loss
      from sale of vessels
                
                
                (69,250
                )
                
                
                (63,926
                )
                
                
                -
                
                
                
                (133,176
                )Segment
      (loss)
                
                
                (46,248
                )
                
                
                (124,865
                )
                
                
                (7,569
                )
                
                
                (178,682
                )Total
      assets
                
                
                444,180
                
                
                
                56,253
                
                
                
                48,839
                
                
                
                549,272
  47
 
 December
31, 2008
 Drybulk
                  carriers
                
                
                Tankers
                
                
                Other
                
                
                TotalRevenues
      from external customers
                
                
                104,440
                
                
                
                42,676
                
                
                
                -
                
                
                
                147,116Imputed
      revenue
                
                
                10,318
                
                
                
                -
                
                
                
                -
                
                
                
                10,318Voyage
      expenses
                
                
                (5,449
                )
                
                
                (8,826
                )
                
                
                -
                
                
                
                (14,275
                )Vessels'
      operating expenses
                
                
                (20,662
                )
                
                
                (8,318
                )
                
                
                -
                
                
                
                (28,980
                )Survey
      and dry docking costs
                
                
                (736
                )
                
                
                -
                
                
                
                -
                
                
                
                (736
                )Interest
      expense and finance costs
                
                
                (11,902
                )
                
                
                (5,624
                )
                
                
                (39
                )
                
                
                (17,565
                )Interest
      Income
                
                
                -
                
                
                
                -
                
                
                
                776
                
                
                
                776Loss
      on derivative instruments
                
                
                (11,347
                )
                
                
                (4,800
                )
                
                
                -
                
                
                
                (16,147
                )Depreciation
                
                
                (32,865
                )
                
                
                (10,762
                )
                
                
                (31
                )
                
                
                (43,658
                )Segment
      profit/(loss)
                
                
                31,766
                
                
                
                4,260
                
                
                
                (8,304
                )
                
                
                27,722Total
      assets
                
                
                408,680
                
                
                
                184,753
                
                
                
                32,137
                
                
                
                625,570
   December
31, 2007
 Drybulk
                  carriers
                
                
                Tankers
                
                
                Other
                
                
                TotalRevenues
      from external customers
                
                
                35,544
                
                
                
                591
                
                
                
                -
                
                
                
                36,135Imputed
      revenue
                
                
                4,998
                
                
                
                -
                
                
                
                -
                
                
                
                4,998Voyage
      expenses
                
                
                (1,907
                )
                
                
                (51
                )
                
                
                -
                
                
                
                (1,958
                )Vessels’
      operating expenses
                
                
                (9,033
                )
                
                
                (175
                )
                
                
                -
                
                
                
                (9,208
                )Survey
      and dry docking costs
                
                
                (1,685
                )
                
                
                -
                
                
                
                -
                
                
                
                (1,685
                )Interest
      expense and finance costs
                
                
                (5,379
                )
                
                
                (257
                )
                
                
                (35
                )
                
                
                (5,671
                )Interest
      Income
                
                
                135
                
                
                
                -
                
                
                
                2,079
                
                
                
                2,214Depreciation
                
                
                (12,925
                )
                
                
                (285
                )
                
                
                -
                
                
                
                (13,210
                )Segment
      profit
                
                
                6,507
                
                
                
                177
                
                
                
                1,471
                
                
                
                8,155Total
      assets
                
                
                441,051
                
                
                
                47,241
                
                
                
                19,633
                
                
                
                507,925
 Year
ended December 31, 2009 compared to the year ended December 31,
2008





Voyage
Revenues





Voyage
revenue decreased by $28.6 million, or 19.4%, to $118.5 million for 2009 as
compared to $147.1 million for 2008. The decrease is mainly attributable to (a)
the sale of three vessels which were replaced by new vessels chartered at lower
hire rates resulting in $11,050 lower daily hire rate (b) the employment of the
M/T Olinda in a spot
pool in October 2008 resulting in reduction of its daily TCE rate from $57,176
to $21,600, (c) the early termination of the charter party of M/V Augusta in November 2008 and
its re-employment at lower daily hire rate resulting in the reduction of daily
hire from $42,100 per day to $16,000 per day, (d) the early termination of the
charter party of  M/V Topeka in July 2009 and its
re-employment at lower daily hire rate resulting in the reduction of daily hire
from $23,100 per day to $18,000 per day and (e) the scheduled drydockings which
resulted in 145 off hire days in 2009 as compared to 22 days in 2008. The
effect of the decrease in hire rates was  mitigated by the increase of
voyage days from 4,125 in 2008 to 4,466 in 2009 mainly due to the operation the
of M/T Olinda, M/T
Tiganiand M/T Tamara for the full year in
2009. The average TCE rate for 2009 was $28,523 per day as compared to $34,705
in 2008, and the fleet utilization was 96.1% in 2009 as compared to 99.1% in
2008. See above under "Factors Affecting our Results of Operations – TCE Rates"
for information concerning our calculation of TCE rates.


48




Imputed
Deferred Revenue


M/V Trenton,M/V Austin,M/V Pierreand M/V Topekawere each acquired in
2007 with an existing time charter at a below market rate. The Company adds the
fair value of the time charters in the purchase price of the vessels and
allocates it to a deferred liability which is amortized over the remaining
period of the time charters as an increase of hire revenue. For cash flow
purposes (excluding the amortization of the fair value of the time charters) the
Company received a TCE rate of $25,283 and $32,204 per day, in 2009 and 2008,
respectively. The amortization for 2009 and 2008 amounted to $14.5 million and
$10.3 million, respectively. The amount  in 2009 includes $6.7 million
of accelerated amortization due to the early termination of the time charter of
M/V Topeka in July
2009.




Gain
on Forward Freight Agreements





During
the year ended December 31, 2009, the gain on FFAs amounted to $0.6 million.
Such agreements did not qualify for hedge accounting and therefore changes in
their fair value were reflected in earnings. As of December 31, 2009, there were
no open FFA positions.




Voyage
Expenses





Voyage
expenses decreased by $8.8 million, or 61.5%, to $5.5 million in 2009 as
compared to $14.3 million in 2008, including commissions which totaled $4.6
million and $6.5 million, in 2009 and 2008, respectively. The decrease is
attributable to the employment of the M/T Olindain the spot market
from her acquisition in January 2008 until late October 2008 with voyage
expenses amounting to $8.3 million. We had no vessels employed in the spot
market in 2009.





When we
employ vessels on spot market voyage charters, we incur voyage expenses that
include port and canal charges and bunker expenses, unlike under time charter
employment, where such expenses are assumed by the charterers.





As is
common in the drybulk and crude oil shipping industries, we pay commissions
ranging from 1.63% to 6.25% of the total daily charterhire rate of each charter
to ship brokers associated with the charterers.





Vessel
Operating Expenses





Vessel
operating expenses include crew wages and related costs, the cost of insurance,
expenses relating to repairs and maintenance, the cost of spares and consumable
stores, management fees, tonnage taxes and other miscellaneous expenses. Vessel
operating expenses for 2009 increased by $15.0 million, or 51.9%, to $43.9
million in 2009 as compared to $28.9 million in 2008. The increase is mainly
attributable to (a) the increase in calendar days as a result of the fact that
the vessels were acquired at various dates in the fourth quarter of 2008 while
the same vessels were operated for the full year in 2009, (b) the additional
running costs incurred as a result of the scheduled drydockings of four vessels
of $2.7 million and (c) the increase in repairs and maintenance expenses. The
daily operating expenses in 2009 were $9,444 as compared to $6,960 in
2008.




General
and Administrative Expenses





Our
general and administrative expenses include the salaries and other related costs
of the executive officers and other employees, our office rents, legal and
auditing costs, regulatory compliance costs, other miscellaneous office
expenses, long-term compensation costs, and corporate overhead. General and
administrative expenses for 2009 decreased by $0.6 million, or 6.6% to $8.5
million as compared to $9.1 million in 2008. The decrease is the net effect of
the decrease in office payroll and related cost of $5.6 million in 2009 from
$6.6 million in 2008, which was mitigated by the increase in legal and audit
fees, and other expenses of $3.1 million in 2009 as compared to $2.7 million in
2008. The 2009 payroll and related costs of $5.6 million includes $1.96 million
payroll cost, $3.6 million bonuses and $0.04 million compensation costs, while
the 2008 amount of $6.6 million includes $1.7 million payroll cost, $2.2 million
bonuses and $2.7 million compensation costs.




Depreciation





Depreciation
in 2009 increased by $4.6 million, or 10.5% to $48.3 million as compared to
$43.7 million in 2008. The increase is mainly attributable to the increase of
calendar days to 4,650 days in 2009 as compared to 4,164 days in 2008 due to the
ownership of M/T Olinda, M/T Tiganiand M/T Tamara for the full year in
2009 which was partially mitigated by the calendar days lost as a result of the
purchase and sale transactions.





Impairment
on Vessels




We wrote
down our tankers M/T Pink Sands and M/T
Tamara to their market values by
recording an impairment charge of $52.7 million in the year ended December
31, 2009. There was no impairment charge in 2008.
 49
 Loss
on sale of vessels and vessels held for sale
 
 The
loss of $133.2 million consists of $51.9 million representing the loss
incurred from the sale of M/V Lansing,
M/V Richmond
and M/V Jueneau
and from $81.3 million representing the estimated loss to be incurred from
vessels M/V Pierre,
M/T Olinda
and M/T Tigani
classified as vessels held for sale.
 Drydocking





We
expense the total costs associated with a drydocking and special surveys in the
period that they are incurred. Regulations or incidents may change the estimated
dates of the next drydocking for our vessels. For 2009 and 2008, the expense
related to drydocking totaled $5.6 and $0.7 million, respectively. Four vessels
were drydocked in 2009 as compared to one vessel in 2008.




Interest
Expense





Interest
and finance costs increased by $2.2 million, or 12.5%, to $19.8 million in 2009
as compared to $17.6 million in 2008. Interest expenses in 2009 amounted to
$18.2 million as compared to $15.9 million in 2008. The increase is attributable
to the interest paid on our secured term loan we obtained in early 2009.
Financing costs include amortization of costs incurred in connection with the
issuance of long-term debt of $0.7 million in 2009 as compared to $0.5 million
in 2008.




Gain
on Derivative Instruments





We have
entered into two interest rate swap agreements on January 28, 2008 to partially
hedge the interest rate exposure on our variable rate debt. At December 31, 2009
and 2008, the fair values of the derivative contracts amounted to $11.0 million
and $16.1 million in liability, respectively.  The decrease in fair
values of $5.1 million is reflected in Gain on derivative instruments in the
consolidated statement of operations. The current portion of the total fair
value of $7.4 million is included in current liabilities as Derivative
liability, while the non-current portion of $3.6 million is included in other
non-current liabilities as Derivative liability in the December 31, 2009
consolidated balance sheet.





Financing
Costs





Fees
incurred for obtaining new loans or refinancing existing ones, including related
legal and other professional fees, are deferred and amortized to interest
expense over the life of the related debt. Unamortized fees relating to loans
repaid or refinanced are expensed in the period the repayment or refinancing
occurs. The total amortization cost for 2009 and 2008 amounted to $0.7 million
and $0.5 million, respectively.




Year
ended December 31, 2008 compared to the year ended December 31,
2007





Voyage
Revenues





Voyage
revenue increased by $111 million, or 308.3%, to $147.1 million for 2008,
compared to $36.1 million for 2007. The increase is attributable to the increase
in the size of the fleet from ten vessels in 2007 to 13 vessels in 2008 and the
increase in voyage days from 1,282 in 2007 to 4,142 in 2008. The increase in
voyage days is attributable to the fact that the vessels in 2007 were acquired
at various dates subsequent to June 2007 while the same vessels were operated
for the full year in 2008. The TCE rate for 2008 was $34,705 per day as compared
to $30,558 in 2007, which in conjunction with improved fleet utilization of
99.1% in 2008 as compared to 94% in 2007 positively contributed to the increase
in revenue. See above under "Factors Affecting our Results of Operations – TCE
Rates" for information concerning our calculation of TCE rates.





Imputed
Deferred Revenue





M/V Trenton,M/V Austin,M/V Pierreand M/V Topekawere each acquired in
2007 with an existing time charter at a below market rate. The Company adds the
fair value of the time charters in the purchase price of the vessels and
allocates it to a deferred liability which is amortized over the remaining
period of the time charters as an increase of hire revenue. This resulted in a
daily TCE rate of approximately $34,705 and $30,558, in 2008 and 2007,
respectively. For cash flow purposes (excluding the amortization of the fair
value of the time charters) the Company received a TCE rate of $32,204 and
$26,659 per day, in 2008 and 2007, respectively. The amortization for 2008 and
2007 amounted to $10.3 million and $5.0 million, respectively.





50


Voyage
Expenses





Voyage
expenses increased by $12.3 million, or 615%, to $14.3 million in 2008 as
compared to $2.0 million in 2007, including commissions which totaled $6.5
million and $1.6 million, in 2008 and 2007, respectively. The amount for 2008
includes voyage expenses of $8.3 million relating to the employment of the M/T
Olindain the spot
market from her acquisition in January 2008 until late October
2008.





By
employing our vessels on spot market voyage charters, we incur voyage expenses
that include port and canal charges and bunker expenses, unlike under time
charter employment, where such expenses are assumed by the
charterers.





As is
common in the drybulk and crude oil shipping industries, we pay commissions
ranging from 1.63% to 6.25% of the total daily charterhire rate of each charter
to ship brokers associated with the charterers.





Vessel
Operating Expenses





Vessel
operating expenses include crew wages and related costs, the cost of insurance,
expenses relating to repairs and maintenance, the cost of spares and consumable
stores, management fees, tonnage taxes and other miscellaneous expenses. Vessel
operating expenses for 2008 increased by $19.7 million, or 214.1%, to $28.9
million in 2008 as compared to $9.2 million in 2007. The increase is mainly
attributable to the increase in calendar days as a result of the increase in the
number of vessels, and to the fact that the vessels in 2007 were acquired at
various dates subsequent to June 2007 while the same vessels were operated for
the full year in 2008. The daily operating expenses in 2008 were $6,960 as
compared to $6,751 in 2007.





General
and Administrative Expenses





Our
general and administrative expenses include the salaries and other related costs
of the executive officers and other employees, our office rents, legal and
auditing costs, regulatory compliance costs, other miscellaneous office
expenses, long-term compensation costs, and corporate overhead. General and
administrative expenses for 2008 increased by $5.6 million, or 160.0% to $9.1
million as compared to $3.5 million in 2007. The increase is mainly attributable
to office payroll and related cost of $6.6 million in 2008 as compared to $2.2
million in 2007 and to legal and audit fees of $1.9 million in 2008 as compared
to $0.7 million in 2007. The 2008 payroll and related costs of $6.6 million
includes $1.7 million payroll cost, $2.2 million bonuses and $2.7 million
compensation costs, while the 2007 amount of $2.2 million includes $1.0 million
payroll, $0.2 million bonuses, 0.9 million compensation cost and $0.1 million
assumed compensation (executive management services provided by Basset until
April 23, 2007 at no charge). The difference in payroll cost reflects the four
months additional payroll in 2008. Legal and audit fees were increased in 2008
for services in connection with our controlled equity offering, the DVB loan,
the Nordea Amendatory Agreement and Sarbanes-Oxley compliance related
costs.





Depreciation





Depreciation
in 2008 increased by $30.5 million, or 230.3% to $43.7 million as compared to
$13.2 million in 2007. The increase is mainly attributable to the increase in
the number of vessels to 13 in 2008 as compared to ten in 2007 and the increase
of calendar days to 4,164 days in 2008 as compared to 1,364 days in
2007.





Drydocking





We
expense the total costs associated with a drydocking and special surveys in the
period that they are incurred. Regulations or incidents may change the estimated
dates of the next drydocking for our vessels. For 2008 and 2007, the expense
related to drydocking totaled $0.7 and $1.7 million, respectively. Although one
vessel was drydocked in 2008 and 2007, the drydocking cost in 2008 is less than
in 2007 as the vessel drydocked in 2008 was smaller in size and required less
repairs.





Interest
Expense





In 2008
and 2007, we paid interest under a term-loan facility, and a senior secured
credit facility. The term-loan facility with Fortis Bank was refinanced on
October 1, 2007 by our revolving senior secured credit facility. The revolving
credit facility bears interest at LIBOR plus a margin. In January 2008, the
Company entered into two interest rate swap agreements as discussed in Note 9 to
our consolidated financial statements which fixed the variable rate debt for a
portion of our outstanding borrowings to 6.05% inclusive of margin. Interest and
finance costs increased by $11.9 million, or 208.8%, to $17.6 million in 2008 as
compared to $5.7 million in 2007. Interest expenses in 2008 amounted to $15.9
million as compared to $4.2 million in 2007. The increase is attributable to the
amount and days the long-term debt was outstanding during the periods. Financing
costs include amortization of costs incurred in connection with the issuance of
long-term debt of $0.5 million in 2008 as compared to $1.2 million in
2007.


51


The
amount in 2007 includes approximately $1.1 million of finance and related legal
fees, which were taken as a charge as a result of the refinancing of the
term-loan facility with Fortis Bank.





Loss
on Derivative Instruments





The
Company entered into two interest rate swap agreements on January 28, 2008 to
partially hedge its interest rate exposure on its variable rate debt. At
December 31, 2008, the fair value of the derivative contracts amounted to $16.1
million in liability and is reflected in Loss on derivative instruments in the
consolidated statement of income. The current portion of the total fair value of
$6.8 million is included in current liabilities as Derivative liability, while
the non-current portion of $9.3 million is included in other non-current
liabilities as Derivative liability in the December 31, 2008 consolidated
balance sheet.





Financing
Costs





Fees
incurred for obtaining new loans or refinancing existing ones, including related
legal and other professional fees, are deferred and amortized to interest
expense over the life of the related debt. Unamortized fees relating to loans
repaid or refinanced are expensed in the period the repayment or refinancing
occurs. In 2007, we wrote off approximately $1.1 million of unamortized finance
and related legal fees, which resulted from the refinancing of the term-loan
facility with Fortis Bank. The total amortization cost for 2008 and 2007
amounted to $0.5 million and $1.2 million, respectively.





Net
Income and EPS





Net
income increased by $19.6 million from $8.1 million in 2007 to $27.7 million in
2008. The increase is attributable to the increase in the size of the fleet and
the increased TCE rates that resulted in increased operating income, which was
partly offset by the increase in our interest and finance costs and the marked
to market valuation of our interest rate swap agreements. While net income
increased 248% in 2008 versus 2007, our earnings per share increased only 149%
given the additional shares issued in 2008 in connection with the controlled
equity offering discussed in Note 6(e) of our consolidated financial
statements.





Inflation





Inflation
does not have significant impact on vessel operating or other expenses.  We
may bear the risk of rising fuel prices if we enter into spot-market charters or
other contracts under which we bear voyage expenses. We do not consider
inflation to be a significant risk to costs in the current and foreseeable
future economic environment. However, should the world economy be affected by
inflationary pressures this could result in increased operating and financing
costs.





Foreign
Currency Risk





We
generate all of our revenues in U.S. dollars, but incur approximately 23.7% of
our expenses in currencies other than U.S. dollars. For accounting purposes,
expenses incurred in Euros are converted into U.S. dollars at the exchange rate
prevailing on the date of each transaction. At December 31, 2009, the
outstanding accounts payable balance denominated in currencies other than the
U.S. dollar was not material.





B.
            Liquidity
      and Capital Resources





Our
principal sources of funds are equity provided by our shareholders, operating
cash flows and long-term borrowings. Our principal use of funds has been capital
expenditures to establish and grow our fleet, maintain the quality of our fleet,
comply with international shipping standards and environmental laws and
regulations, fund working capital requirements, make principal repayments on
outstanding loan facilities, and historically, to pay dividends.





We expect
to rely upon operating cash flows, long-term borrowings, as well as equity
financings to implement our growth plan. We have financed our capital
requirements with the issuance of equity in connection with our initial public
offering, our controlled equity offering pursuant to the Sales Agreement, the
Standby Equity Purchase Agreement, or SEPA and the Standby Equity Distribution
Agreement, or SEDA discussed in Note 7 to our December 31, 2009 consolidated
financial statements, cash from operations and borrowings under our long-term
arrangements. On July 1, 2008, we commenced the offer and sale of common stock
under the controlled equity offering. In the year ended December 31, 2008, we
completed the sale of 4,000,000 common shares pursuant to the controlled equity
offering with net proceeds of $50.9 million. On February 3, 2009, we commenced
the offer and sale of common stock under the SEPA. In the year ended December
31, 2009, we completed our offering under the SEPA pursuant to which we sold
71,850,000 shares with net proceeds of $109.9 million. Under the SEDA we may
offer and sell such number of our common shares, par value $0.01 per share equal
to $450 million. As of the date of this Annual Report, 88,205,508 shares had
been sold with net proceeds amounting to $98.2 million. YA Global received a
discount equal to 1.5% of the gross proceeds or $1.5 million.


52





As of
December 31, 2009, we had an outstanding indebtedness of $265.7 million and our
aggregate payments of principal due within one year amounted to $49.95 million.
Our loans contain a minimum cash requirement of $500,000 per vessel, which, on
our fleet of 13 vessels, amounted to $6.5 million.





Our
practice has been to acquire drybulk and tanker carriers using a combination of
funds received from equity investors and bank debt secured by mortgages on our
vessels. Our business is capital intensive and its future success will depend on
our ability to maintain a high-quality fleet through the acquisition of newer
vessels and the selective sale of older vessels. These acquisitions will be
principally subject to management's expectation of future market conditions as
well as our ability to acquire drybulk carriers or tankers on favorable
terms.





Long Term Debt Obligations and Credit
Arrangements





On
September 18, 2007, the Company entered into a loan agreement, with Nordea Bank
Norge ASA, for a $325 million senior secured credit facility, or the Nordea
credit facility, for the purpose of refinancing the existing term loan facility
with Fortis Bank of $118 million and financing the acquisition of additional
vessels. The Company and Nordea completed the syndication of the Nordea credit
facility on February 12, 2008 which resulted in certain amendments to repayment
terms and financial covenants, increased interest margins and commitment fees on
the undrawn portion of the Nordea credit facility.





The
amended syndicated Nordea credit facility is comprised of the following two
Tranches and bears interest at LIBOR plus a margin:





Tranche A
is a reducing revolving credit facility in a maximum amount of $200 million. As
of December 31, 2008, the Company had utilized $199 million to repay the
outstanding balance of the credit facility with Fortis of $118 million, to
partially finance the acquisition of M/V Richmondand M/T Pink Sandsby $47 million and $30
million, respectively and $4 million for working capital purposes.





The
balance of $161 million of Tranche A as of December 31, 2009, will be reduced or
repaid in 11 consecutive semi-annual installments of $11 million each and the
final installment in an amount of $40 million.





Tranche B
is a term loan facility in a maximum amount of $125 million. As of December 31,
2008, the Company had fully utilized the loan to partially finance the
acquisition of the M/V Augustaand the M/T Olinda,
respectively.





The
balance of $86.1 million of Tranche B as of December 31, 2009, is repayable in
12 equal consecutive semiannual installments of $6.94 million each plus a 13th
installment of 2.78 million of which $25 million became payable in January 2009
pursuant to our amendatory agreement with Nordea, discussed below.





The
Nordea credit facility is secured with first priority mortgages over the
vessels, first priority assignment of vessels' insurances and earnings, specific
assignment of the time charters, first priority pledges over the operating and
retention accounts, corporate guarantee and pledge of shares. The Company is
required to pay a commitment fee of 0.45% per annum payable quarterly in arrears
on the un-drawn portion of the Nordea credit facility.





The loan
agreement includes among other covenants, financial covenants requiring (i) the
ratio of funded debt to the sum of funded debt plus shareholders' equity not to
be greater than 0.70 to 1.00; (ii) effective July 1, 2008, the liquidity must
not be less than $0.5 million multiplied by the number of vessels owned (iii)
effective December 31, 2007, the ratio of EBITDA to net interest expense at each
quarter end must not be less than 2.50 to 1; (iv) the aggregate fair market
value of the vessels must not be less than 100% of the aggregate outstanding
balance under the loan plus any unutilized commitment under Tranche
A.





On
December 23, 2008, we entered into a loan agreement with DVB Bank SE for a new
secured term loan facility for an amount of $29.56 million, which was fully
drawn on January 14, 2009 (see Note 6 to our consolidated financial statements).
We used $25 million of the proceeds of the loan to make the prepayment in the
amount of $25.0 million under its amendatory agreement to the Nordea credit
facility described below. The loan balance of $18.6 million is repayable in 12
quarterly variable installments with the next four installments of $2.3 million
each, followed by eight installments of $1.1 million each, plus a balloon
installment of $0.6 million payable together with the last installment. The loan
bears interest at 3.0% over LIBOR. The loan is secured with first preferred
mortgages on the two vessels M/T Tamaraand M/T Tigani, a corporate guarantee
by the Company, assignment of earnings and insurances and pledge of shares of
the borrowers. The loan agreement includes, among other covenants, financial
covenants requiring that (i) liquidity must be at least $0.5 million multiplied
by the number of vessels owned, (ii) total interest bearing liabilities over the
sum of total interest bearing liabilities plus shareholders' equity adjusted to
account for the market value of the vessels must not exceed 90% up to June 30,
2010, 80% up to December 31, 2010 and 70% thereafter; (iii) the ratio of EBITDA
to net interest expense of any accounting period must not be less than 2.50 to
1; and (iv) the aggregate charter free fair market
value of the two vessels must not be less than 140% (increasing by five
percentage points each year, reaching 155% in the last year) of the aggregate
outstanding balance. We are permitted to pay dividends under the loan of up to
50% of quarterly net profits. The loan agreement contains certain events of
default, including a change of control, a cross-default with respect to other
financial indebtedness and a material adverse change in the financial position
or prospects of the borrowers or the Company. Upon signing the loan agreement,
we paid an upfront fee of 1.5% or $0.44 million on the loan amount, which is
included in "Deferred Financing fees" in our consolidated balance
sheets.


53


As a
result of the recession in the drybulk and tanker markets discussed above, the
market value of our drybulk carriers and tanker vessels has declined. These
conditions have led to a significant decline in the fair market values of our
vessels since September 30, 2008, and as a result, we were in breach of the
collateral maintenance coverage ratio covenant under the Nordea credit facility,
which required us to maintain a fair market value of our vessels of at least
140% of our aggregate outstanding balance under the Nordea credit facility and
the DVB secured term loan which required us to maintain a fair market value of
vessels M/T Tigani and
M/T Tamara of at least
140% (increasing by five percentage points each year, reaching 155% in the last
year).





In this
respect, on January 9, 2009, we entered into an amendatory agreement to our
Nordea credit facility, which went effective on January 23, 2009 and waives the
breach of the collateral maintenance coverage ratio covenant contained in such
credit facility resulting from the decrease in the market value of the Company's
vessels and reduces the level of the collateral maintenance coverage ratio for
the remaining term of the agreement. The waiver is effective from the date the
breach occurred, which is December 9, 2008. In addition the amendatory
agreement: (i) requires the Company to make a prepayment of $25.0 million of
principal upon the funding of the loan with DVB Bank SE described above, but in
any case, no later than January 31, 2009, and such funding and prepayment have
occurred; (ii) requires, under the reduced collateral maintenance coverage
ratio, that the aggregate fair market value of the vessels in the Company's
fleet other than the M/T Tamaraand M/T Tigani, plus proceeds from a
vessel's sale or insurance proceeds from a vessel's loss, and the excess of the
fair market value of each of the M/T Tamaraand M/T Tiganiover the recorded
amount of the first priority ship mortgage over each such vessel under the
Company's DVB credit facility, be not less than (a) 90% of the aggregate
outstanding balance under the credit facility plus any unutilized commitment in
respect of Tranche A until June 30, 2009, (b) 100% of the aggregate outstanding
balance under the credit facility plus any unutilized commitment in respect of
Tranche A from July 1, 2009 to December 31, 2009, (c) 110% of the aggregate
outstanding balance under the credit facility plus any unutilized commitment in
respect of Tranche A from January 1, 2010 to March 31, 2010, (d) 115% of the
aggregate outstanding balance under the credit facility plus any unutilized
commitment in respect of Tranche A from April 1, 2010 to June 30, 2010, and (e)
125% of the aggregate outstanding balance under the credit facility plus any
unutilized commitment in respect of Tranche A at all times thereafter; (iii)
requires the Company to pay interest at an increased margin over LIBOR; (iv)
requires the Company to pay an arrangement fee of $451,583 which is equal to
0.15% to each bank syndicate member that consented to the proposed amendment by
January 9, 2009; (v) prohibits the Company from paying dividends; (vi) limits
the Company's ability to make capital expenditures; (vii) imposes restrictions
on making payment, in cash, of the sellers' credit in the aggregate amount of
$25.0 million in respect of the M/T Tamaraand the M/T Tigani, except that the
Company is permitted to pay the seller's credit with the proceeds of new equity
offerings or, common shares, which the seller may request at any time; and
(viii) requires the Company to provide additional collateral.





As
provided in the Nordea credit facility, in the case of a sale of a vessel the
Company has the option of either using the sale proceeds for the prepayment of
the loan or depositing such proceeds in an escrow account pledged in favor of
Nordea and using the funds to finance the purchase of a new vessel of the same
type or better within 90 days. The Company made use of this option and used the
sale proceeds of the M/V Lansing M/V Richmond and M/V Juneau to partially finance
the acquisition of M/V


Partagas, M/V Robusto and M/V Cohibarespectively.


As at
December 31, 2009, the Company estimated that the collateral maintenance
coverage ratio was 94%. After considering the aforementioned deposit of $2.5
million in the retention account and the payment of the next scheduled loan
installment of $2.3 million, due on March 15, 2010, the Company concluded that
there is no need to classify as current liabilities any additional amounts
 to maintain a collateral maintenance coverage ratio of 125%.  The
next date by which the Company must report its covenant compliance is March 31,
2010. (see note 6 to the consolidated financial statements).





Cash
Flows





The
following table presents cash flow information for the year ended December 31,
2007, 2008 and 2009. The information was derived from the audited consolidated
statements of cash flows of OceanFreight and is expressed in thousands of U.S.
Dollars.




(Dollars
      in thousands)
              
              
              2007
              
              
              
              2008
              
              
              
              2009Net
      cash provided by operating activities
              
              $
              24,434
              
              
              $
              82,309
              
              
              $
              26,552Net
      cash (used in) investing activities
              
              
              (467,216
              )
              
              
              (120,665
              )
              
              
              (130,786
              )Net
      cash provided by financing activities
              
              
              461,327
              
              
              
              42,381
              
              
              
              118,437Increase
      in cash and cash equivalents
              
              
              18,545
              
              
              
              4,025
              
              
              
              14,203Cash
      and cash equivalents beginning of year
              
              
              499
              
              
              
              19,044
              
              
              
              23,069Cash
      and cash equivalents end of year
              
              $
              19,044
              
              
              $
              23,069
              
              
              $
              37,272


Net cash provided
by operating activities:





Net cash
provided by operating activities decreased by $55.7 million or 67.7% due to the
decrease in our vessels' revenue and the scheduled drydocking of four vessels as
compared to one in 2008.





54


Net cash used in
investing activities:





Net cash
used in investing activities in 2009 was $130.8 million, which represents $9.9
million of initial deposits made in connection with the acquisition of M/V Montecristo, $180.5 million
paid for the acquisition of M/V Robusto, Cohiba and Partagas,$0.8 million paid for
the acquisition of two automobiles and $60.4 million collected from the
sale of M/V Lansing, M/V
Juneau and M/V Richmond.Net cash used in
investing activities in 2008 was $120.6 million, which represents the amount we
paid to acquire the M/VOlinda, M/T Tamara and Tigani .





Net cash provided
by financing activities:





Net cash
provided by financing activities in 2009 was $118.4 million and consists of (a)
$188.3 million of net proceeds from our SEPA and SEDA equity offerings, (b)
$29.5 million of proceeds drawn under our secured long-term debt, (c) $71.9
million of repayment of long term debt, (d) $25 million of repayment of sellers'
credit and (e) $2.5 million representing restricted cash required under our loan
agreements.





Net cash
provided by financing activities in 2008 was $42.4 million and consists of (a)
$50.9 million of net proceeds from our controlled equity offering, (b) $63.4
million of proceeds drawn under our long-term debt, (c) $16.0 million of
repayment of long term debt, (d) $47.8 million of dividends paid, (e) $6.5
million representing restricted cash required under our loan agreements, (f)
$0.9 million cash advance to the Bluefin Tankers Inc. pool for working capital
purposes and (g) $0.7 million in financing fees paid in connection with our DVB
loan.





Net cash
provided by financing activities in 2007 was $461.3 million and consists of (a)
$216.8 million of net proceeds from our initial public offering, (b) $378.6
million proceeds drawn under our long-term debt arrangements (c) $118.0 million
for the repayment of Fortis loan, (d) $13.1 million of dividends paid and (e)
$3.0 million of financing costs. The amounts under (a) and (b) above were used
to finance the ten vessels we acquired during 2007.





Adjusted EBITDA





Adjusted
EBITDA represents net income before interest, taxes, depreciation and
amortization and excludes loss on sale of vessels and impairment charges on
vessels.  Adjusted EBITDA does not represent and should not be
considered as an alternative to net income or cash flow from operations, as
determined by U.S. GAAP and our calculation of Adjusted EBITDA may not be
comparable to that reported by other companies.  Adjusted EBITDA is
included in this Annual Report because it is a basis upon which we assess our
liquidity position, because it is used by our lenders as a measure of our
compliance with certain loan covenants and because we believe that adjusted
EBITDA presents useful information to investors regarding our ability to service
and/or incur indebtedness.





EBITDA
and adjusted EBITDA are non-GAAP measures and have limitations as an analytical
tools, and should not be considered in isolation or as a substitute for analysis
of OceanFreight's results as reported under U.S. GAAP. Some of these limitations
are: (i) EBITDA and adjusted EBITDA do not reflect changes in, or cash
requirements for, working capital needs, and (ii) although depreciation and
amortization are non-cash charges, the assets that are depreciated and amortized
may need to be replaced in the future, and EBITDA and adjusted EBITDA do not
reflect any cash requirement for such capital expenditures. Because of these
limitations, EBITDA and adjusted EBITDA should not be considered as a principal
indicator of OceanFreight's performance.




The
following table reconciles net cash provided by operating activities to Adjusted
EBITDA for the years ended December 31, 2007, 2008 and 2009:




(Dollars
      in thousands)
              
              
              2007
              
              
              
              2008
              
              
              
              2009Net
      cash provided by operating activities
              
              $
              24,434
              
              
              $
              82,309
              
              
              $
              26,552Net
      increase in current and non-current assets
              
              
              1,665
              
              
              
              3,941
              
              
              
              9,988Net
      increase in current liabilities, excluding current portion of long term
      debt
              
              
              (7,556
              )
              
              
              (5,865
              )
              
              
              143Net
      Interest expense
              
              
              3,457
              
              
              
              16,789
              
              
              
              19,563Amortization
      of deferred financing costs included in interest expense
              
              
              (1,159
              )
              
              
              (475
              )
              
              
              (744
              )Adjusted
      EBITDA
              
              $
              20,841
              
              
              $
              96,699
              
              
              $
              55,502


55


Working
Capital Position





On
December 31, 2009, our current assets totaled $100.3 million while current
liabilities totaled $73.3 million, resulting in a positive working capital
position of $27.0 million. Based on our fixed-rate charters, we believe we will
generate sufficient cash during 2010 to make the required principal and interest
payment on our indebtedness, provide for our normal working capital requirements
and remain in a positive cash position in 2010. If we do acquire additional
vessels, we will rely on new debt, proceeds from future offerings and revenues
from our operations to meet our liquidity needs going forward.





Interest Rate
Risk





We are
subject to market risks relating to changes in interest rates, because of our
floating rate debt outstanding. During 2007, we paid interest on our debt based
on LIBOR plus a margin. On January 29, 2008, we entered into two interest rate
swap agreements to partially hedge our exposure to variability in LIBOR rates.
Under the terms of our loan agreements we have fixed our interest rate at 6.05%
inclusive of margin.





The table
below provides information about our long-term debt and derivative financial
instruments and other financial instruments at December 31, 2009 that are
sensitive to changes in interest rates. See notes 6 and 9 to our consolidated
financial statements, which provide additional information with respect to our
existing debt agreements and derivative financial instruments. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For derivative financial
instruments, the table presents average notional amounts and weighted average
interest rates by expected maturity dates. Notional amounts are used to
calculate the contractual payments to be exchanged under the contracts. Weighted
average interest rates are based on implied forward rates in the yield curve at
the reporting date.


Expected
      maturity date2010
              
              
              2011
              
              
              2012
              
              
              2013(in
      thousands of U.S. Dollars except for percentages)Long-term
      debt (1)Repayment
      amount
              
              
              35,889
              
              
              
              35,889
              
              
              
              35,889
              
              
              
              139,444Variable
      interest rate
              
              
              0.63
              %
              
              
              2.08
              %
              
              
              3.27
              %
              
              
              3.82
              %Average
      interest rate
              
              
              3.55
              %
              
              
              3.55
              %
              
              
              3.55
              %
              
              
              3.55
              %Interest
      rate derivativesSwap
      notional amount (2)
              
              
              250,761
              
              
              
              214,932
              
              
              
              179,053
              
              
              
              161,154Average
      pay rate (2)
              
              
              3.55
              %
              
              
              3.55
              %
              
              
              3.55
              %
              
              
              3.55
              %Average
      receive rate (2)
              
              
              0.63
              %
              
              
              2.08
              %
              
              
              3.27
              %
              
              
              3.82
              %





(1)
            See
      note 6 to our consolidated financial statements for a description of our
      Nordea credit facility.





(2)
            On
      January 29, 2008, we entered into two interest rate swap agreements with
      Nordea Bank Norge ASA, our lending bank, to partially hedge our exposure
      to fluctuations in interest rates on an aggregate notional amount of
      $316.5 million, decreasing in accordance with the debt repayments, by
      converting the variable rate of our debt to fixed rate for a period for
      five years, effective April 1, 2008. Under the terms of the interest rate
      swap agreement, the Company and the bank agreed to exchange, at specified
      intervals, the difference between paying a fixed rate at 3.55% and a
      floating rate interest amount calculated by reference to the agreed
      notional amounts and maturities. These instruments have not been
      designated as cash flow hedges, under ASC 815, Derivatives and Hedging,
      and consequently, the changes in fair value of these instruments are
      recorded through earnings. The swap agreements expire in April
      2013.





C.
            Research
      and development, patents and
licenses





We incur
from time to time expenditures relating to inspections for acquiring vessels
that meet our standards. Such expenditures are insignificant and they are
expensed as they incur.





D.
            Trend
      Information





Please
see "The International Drybulk Industry" and "The International Tanker Industry"
sections in Item 4.B.





E.
            Off-Balance
      Sheet Arrangements:





We do not
have any off-balance sheet arrangements.


56


F.    Tabular
Disclosure of Contractual Obligations





The
following table sets forth our contractual obligations and their maturity dates
as of December 31, 2009:




Within
                One
      Year
              
              One
      to
                ThreeYears
              
              Three
      to
                Five
      Years
              
              More
      than
                Five
      Years
              
              Total(in
      thousands of U.S. dollars)Long
      term debt (1)
              
              
              49,947
              
              
              
              76,283
              
              
              
              71,778
              
              
              
              67,666
              
              
              
              265,674IT
      services (2)
              
              
              143
              
              
              
              286
              
              
              
              49
              
              
              
              —
              
              
              
              478Office
      Lease (3)
              
              
              85
              
              
              
              169
              
              
              
              60
              
              
              
              —
              
              
              
              314Total
              
              $
              50,175
              
              
              
              76,738
              
              
              
              71,887
              
              
              
              67,666
              
              
              
              266,466


____________





(1)
            As
      further discussed in our December 31, 2009 consolidated financial
      statements the outstanding balance of our long-term debt at December 31,
      2009, was $265.7 million. The loan bears interest at LIBOR plus a margin.
      Estimated interest payments are not included in the table above. See "Item
      5.B. Liquidity and Capital Resources — Long-Term Debt Obligations and
      Credit Arrangements" and Note 6 to our consolidated financial
      statements.




(2)
            As
      further discussed in our December 31, 2009 consolidated financial
      statements, we have entered into a services agreement with Cardiff Marine
      Inc., or Cardiff, for a period of five years. Pursuant to this agreement
      Cardiff provides, among other services, services in connection with
      Information Technology (IT)
support.




(3)
            As
      further explained in our December 31, 2009 consolidated financial
      statements, we have entered into two lease agreements for our office
      facilities in Athens. The first lease agreement concerns the current
      office space leased from Mr. George Economou, which terminates upon mutual
      agreement of the parties. The second lease, which expires in August 2013,
      relates to office facilities that are currently under
      renovation.





G.
            Safe
      Harbor





See
"Forward-Looking Statements" at the beginning of this annual
report.




Item
6. Directors, Senior Management and Employees





A.
            Directors
      and Senior Management





Set forth
below are the names, ages and positions of our directors, executive officers and
key employees. Our Board of Directors is elected annually on a staggered basis,
and each director elected holds office until his successor shall have been duly
elected and qualified, except in the event of his death, resignation, removal or
the earlier termination of his term of office. Officers are elected from time to
time by vote of our Board of Directors and hold office until a successor is
elected. Antonis Kandylidis is the son of Konstandinos
Kandylidis.





Name
            Age
            PositionAntonis
      Kandylidis
            33
            Chief
      Executive Officer and Class B DirectorDemetris
      Nenes
            34
            President
      – Chief Operating OfficerSolon
      Dracoulis
            56
            Chief
      Financial Officer and TreasurerKonstandia
      Papaefthymiou
            42
            Chief
      Accounting OfficerProfessor
      John Liveris
            57
            Chairman
      and Class A DirectorKonstandinos
      Kandylidis
            60
            Class
      C DirectorPanagiotis
      Korakas
            59
            Class
      B DirectorStephen
      Souras
            39
            Class
      C Director




Antonis
Kandylidishas served as our Chief Executive Officer since December 2007,
has served as a member of our Board of Directors since September 2007 and served
as our Interim Chief Financial Officer from April 2008 to January 2010. Mr. A.
Kandylidis started his career at OMI Corporation's commercial department. During
his tenure at OMI Corporation he gained significant experience in the tanker
vessel business and held various positions with responsibilities spanning Sale
and Purchase, Time Charters, FFA Trading, Corporate Finance and Strategic
Planning. In the spring of 2006, he returned to Greece where he provided
consultancy services to companies affiliated with ship-owner Mr. George
Economou. In September of 2006, Mr. Kandylidis founded OceanFreight Inc. and in
April of 2007 he took the Company public. Mr. Kandylidis graduated Magna Cum
Laude from Brown
University and continued his studies at the Massachusetts Institute of
Technology where he graduated with a Masters degree of Science in Ocean Systems
Management.


57





Demetris Neneswas appointed Vice President – Business Development on February 8, 2009
following the resignation of Mr. M. Gregos who had served as our Chief Operating
Officer since January 2008. Effective January 2010, Mr. D Nenes was appointed
President and Chief Operating Officer.  Mr. D. Nenes began his
professional career working at Sikorsky Aircraft Corporation as a Design
Engineer working in various positions, with the most significant being Head of
the Transmission Design Team for the Navy version of the S92. Mr. Nenes began
his shipping career in 2005, joining OMI Corporation's Vetting / Safety &
Quality department. During his career at OMI he moved in the commercial side of
the business being involved in Forward Freight Agreements (FFA) Trading and
Sales and Purchase. After the sale of OMI to Teekay Shipping and Torm, Mr. Nenes
joined Ospraie Management LLC. Ospraie is a commodity hedge fund based in New
York. At Ospraie Mr. Nenes was involved in both FFA trading and Market Research
and Intelligence. Mr. Nenes holds a diploma in Naval Architecture and Marine
Engineering from the National Technical University of Athens and a Master's
Degree in Business Administration from the University of
Connecticut.





Solon Dracoulishas served as our Treasurer since April 2007 and had served as our Chief
Accounting Officer from April 2007 until his promotion to Chief Financial
Officer effective January 2010. During 2006 and 2007, Mr. Dracoulis was a
consultant to Navios Maritime Holdings and assumed the responsibilities of
financial reporting and filings with the Securities and Exchange Commission.
Prior to that period he held the position of Chief Financial Officer of Stelmar
Shipping, Inc. following the acquisition of the company by Overseas Shipholding
Group in early 2005 and as a Financial Controller Budget and Reporting Officer
since 2001. During that time he was responsible for the preparation of Stelmar's
financial statements, filings with the Securities and Exchange Commission, the
implementation of accounting procedures and controls administration of the
financial and accounting management and information system, preparation of
annual operating budgets, quarterly projections and monthly cash flow
statements. During the period starting in 1980. Mr. Dracoulis worked for Arthur
Andersen & CO., KPMG and PricewaterhouseCoopers, where he commenced his
career as an auditor – analyst and later became a Principal in the shipping
audit division where he conducted financial audits in accordance with
International Standards on Auditing (I.S.A.) and U.S. Generally Accepted
Auditing Standards (G.A.A.S), evaluation of internal controls and internal audit
procedures. He has a degree in Accounting and Business Administration from the
Business Administration and Commercial Studies branch of the University of
Athens and is a member of the Association of Certified Accountants and Auditors
of Greece. He is also a graduate of the Merchant Marine Academy at Aspropyrgos
and has a five year service at sea as a Radio Officer.





Konstandia
Papaefthymiou has served as our Chief Accountant since June 2007 until
her promotion to Chief Accounting Officer effective January 2010. For the period
from 2005 to 2007, Ms. Papaefthymiou was the chief accountant of Navios Maritime
Holdings. Ms. Papaefthymiou has a long experience in the shipping industry and
has served as Chief Accountant  and Financial Controller in Private
and Public shipping companies since 1992. During the last five years, Ms.
Papaefthymiou has been involved in various projects including M&A
transactions, the designing and implementation of corporate internal controls
and setup of IT integrated infrastructure for Shipping Companies.
She  holds a Bachelor Degree from the Law School of the University of
Athens, Political and Economic Studies. She also holds an MBA in shipping from
ALBA Business School.





Konstandinos
Kandylidishas served as a member of our Board of Directors since April
2007. He is the main shareholder and Managing Director of Lapapharm Trade &
Distribution Company Inc. ("Lapapharm"), a private business operating since 1962
in the fields of pharmaceuticals, crop protection and veterinary products,
representing in Greece, mainly U.S. multinational corporations in the field
including Gilead Sciences, Pharmion and Fort Dodge among others and in the past
the American Cyanamid Company until 1994. Mr. Kandylidis joined Lapapharm in
1975 and served in several positions until 1990, when he became a member of the
Board of Directors and in 1996 when he became the Managing Director. He was also
member of the Board of Directors for the Hellenic Association of Crop Protection
Products and has served as a member in several committees for the Hellenic
Association of Pharmaceutical Companies. Mr. Kandylidis is a graduate of the
Athens University of Economics and Business and he has a certificate in
Marketing from the College for the Distributive Trades in England.





Panagiotis A.
Korakaswas appointed to our Board of Directors in December 2008
following the resignation of Mr. H. Kerames in November 2008.  He was
born in 1950 in Athens, Greece. Mr. Korakas has had an extensive career in the
construction and construction materials industry, both as an executive and an
entrepreneur. For almost ten years, Mr. Korakas was the General Manager of
Korakas & Partners, a commercial construction entity, while during the last
15 years he has run a business enterprise specializing in advanced composite
metal construction.





Professor John
Liverishas served as a member of our Board of Directors since April
2007, has served as our Chairman since December 2007 and is a
consultant in the technology and defense industries based in Athens,
Greece.  His most recent affiliations include ContourGlobal LLC, Scientific
Games Corporation, Hellenic Telecommunications Organization (OTE), Motorola,
EADS Eurofighter, the Monitor Company and Northrop Grumman Corporation. Prior to
his current activities, Professor Liveris was, until 1999, the Group Senior
Advisor at Intracom, the leading Greek telecommunications and electronics manufacturer
where he was responsible for developing thrusts into new markets, including the
establishment of a Defense division, and new technologies, for revamping
Intracom's image and for all relations with the multi-lateral funding
institutions. Mr. Liveris studied Mechanical Engineering at Tufts University in
Boston, Mass. He did his graduate and doctoral studies in Engineering Management
at the George Washington University in Washington, DC. There he taught from 1979
to 1996, attaining Professorial rank. Prof. Liveris has had a twenty-year
professional experience in Washington, DC in various Greek government and
private sector managerial and consulting positions. He has also had an extensive
career as a journalist.


58


Stephen Sourashas served as a member of our Board of Directors since April 2007. He is
also a director of Investment Yard Management Limited, a Cayman Islands
investment manager, overseeing a portfolio of alternative investments. Prior to
employment at Investment Yard Management Limited Mr. Souras worked at Goldman
Sachs International in the Investment Management Division advising and managing
the portfolios of high net worth clients. Prior to Goldman Sachs, Mr. Souras
started his career in business development for a consumer goods company in Asia.
Mr. Souras was also employed at UBS Warburg in equity sales and then research
where he advised institutional investors. Mr. Souras is a graduate of Imperial
College in London, where he obtained a Bachelor of Engineering degree in
Information Systems Engineering in 1992 and M.Sc. with Distinction, in
Applications of Electronics in Medicine in 1993. He also holds a MBA from INSEAD
in Fontainebleau, France.





B.
            Compensation





We paid
an aggregate amount of $3.9 million and $2.6 million as annual compensation and
cash bonus to our executive director for the fiscal years ended December 31,
2009 and 2008, respectively.  Non-executive directors and officers received
annual compensation and cash bonus in the aggregate amount of $1.46 million,
plus reimbursement of their out-of-pocket expenses. We do not have a retirement
plan for our officers or directors.





On
December 24, 2008, the Company's Board of Directors approved the amendment of
the consultancy agreement for the services to the Company of the Chief Executive
Officer and increased the annual base consulting fee from $0.70 million (Euro
0.5 million) to $0.97 million (Euro 0.7 million) with effect January 1, 2009.
All other terms of the consultancy agreement remained unchanged. The duration of
the agreement will be for five years beginning January 1, 2009, and ending,
unless terminated earlier on the basis of any other provision as may be defined
in the agreement, on the day before the fifth anniversary of such date. In
addition, 80,000 subordinated shares were issued to our Chief Executive Officer
and 5,150 common shares were issued to our former Chief Operating Officer. The
aggregate of 2,085,150 subordinated shares were converted into common shares on
August 15, 2008 following the satisfaction of conditions contained in our
Amended and Restated Articles of Incorporation.





In
January 2010, an aggregate of 3,200,000 common shares were awarded to the
Company's directors and officers pursuant to the Company's 2010 Equity Incentive
Plan described below. These shares vest ratably over a three year period
commencing on the date of issuance.





Equity
Incentive Plan





2010
Equity Incentive Plan





In
January 2010, we adopted an equity incentive plan which we refer to as the 2010
Equity Incentive Plan, or the Plan, under which officers, key employees,
directors and consultants of us and our subsidiaries will be eligible to receive
options to acquire common shares, stock appreciation rights, restricted stock,
dividend participation rights and other stock-based or stock-denominated awards.
We have reserved a total of 30,000,000 common shares for issuance under the
Plan, subject to adjustment for changes in capitalization as provided in the
Plan. The Plan will be administered by our Compensation Committee, or such other
committee of our Board of Directors as may be designated by the board to
administer the Plan.





Under the
terms of the Plan, stock options and stock appreciation rights granted under the
Plan will have an exercise price per common share equal to the fair market value
of a common share on the date of grant, unless otherwise determined by the Plan
administrator, but in no event will the exercise price be less than the fair
market value of a common share on the date of grant. Options and stock
appreciation rights will be exercisable at times and under conditions as
determined by the Plan administrator, but in no event will they be exercisable
later than ten years from the date of grant.





The Plan
administrator may grant shares of restricted stock and awards of restricted
stock units subject to vesting and forfeiture provisions and other terms and
conditions as determined by the Plan administrator. Upon the vesting of a
restricted stock unit, the award recipient will be paid an amount equal to the
number of restricted stock units that then vest multiplied by the fair market
value of a common share on the date of vesting, which payment may be paid in the
form of cash or common shares or a combination of both, as determined by the
Plan administrator. The Plan administrator may grant dividend equivalents with
respect to grants of restricted stock units.


59


Adjustments
may be made to outstanding awards in the event of a corporate transaction or
change in capitalization or other extraordinary event. In the event of a "change
in control" (as defined in the Plan), unless otherwise provided by the Plan
administrator in an award agreement, awards then outstanding will become fully
vested and exercisable in full.





Our Board
of Directors may amend or terminate the Plan and may amend outstanding awards,
provided that no such amendment or termination may be made that would materially
impair any rights, or materially increase any obligations, of a grantee under an
outstanding award. Shareholder approval of Plan amendments will be required
under certain circumstances. Unless terminated earlier by our Board of
Directors, the Plan will expire ten years from the date the Plan was
adopted.





On
January 18, 2010, the Company's Board of Directors adopted and approved in all
respect the resolutions of the meetings of the Compensation Committee held on
January 15, 2010, pursuant to which 3,000,000 common shares were awarded to
Steel Wheel Investments Limited, a company controlled by our Chief Executive
Officer, and an aggregate of 200,000 common shares were awarded to the Company's
Directors and officers.




2007
Equity Incentive Plan





We
previously adopted what we refer to as our 2007 Equity Incentive Plan, which
contained provisions that were similar to the 2010 Equity Incentive Plan
described above. Although the 2007 Equity Incentive Plan is no longer effective
for future awards, the following are the awards that have been issued pursuant
to the 2007 Equity Incentive Plan:





•
            On
      September 24, 2007, the Company reserved 5,150 restricted subordinated
      shares, vesting 25% semi-annually, to Seabert Shipping Co., a company
      providing consulting services to the Company in connection with the duties
      of the former Chief Operating Officer which is controlled by the former
      Chief Operating Officer. The shares were issued on March 13, 2008.
      Following the resignation of the Chief Operating Officer in March 2009,
      the shares vested immediately, pursuant to a resolution of the Board of
      Directors.





•
            On
      February 12, 2008 the Company granted 80,000 restricted subordinated
      shares, vesting 25% annually, to Steel Wheel Investments Limited, a
      company providing consulting services to the Company in connection with
      the duties of the Chief Executive Officer, which is controlled by the
      Chief Executive Officer, subject to contractual restrictions, including
      applicable vesting periods. The shares were issued on March 27, 2008.
      Following the conversion of the Company's subordinated shares into common
      shares on August 15, 2008, the aggregate of 80,000 restricted subordinated
      shares mentioned above vested immediately as provided in the related
      agreements.




C.
            Board
      Practices





Our Board
of Directors is elected annually on a staggered basis, and each director elected
holds office for a three year term or until his successor shall have been duly
elected and qualified, except in the event of his death, resignation, removal or
the earlier termination of his term of office. The current term of office of
each director is as follows: our Class A directors will serve for a term
expiring at the 2011 annual meeting of shareholders, our Class B directors will
serve for a term expiring at the 2012 annual meeting, and our Class C directors
will serve for a term expiring at the 2010 annual meeting.





Committees
of the Board of Directors





We have
established an audit committee comprised of three independent members of our
Board of Directors who are responsible for reviewing our accounting controls and
recommending to the Board of Directors the engagement of our outside auditors.
Our audit committee is responsible for reviewing all related party transactions
for potential conflicts of interest and all related party transactions are
subject to the approval of the audit committee. We have established a
compensation committee comprised of independent directors which is responsible
for recommending to the Board of Directors our senior executive officers'
compensation and benefits. We have also established a nominating and corporate
governance committee which is responsible for recommending to the Board of
Directors nominees for director and directors for appointment to board
committees and advising the board with regard to corporate governance practices.
Shareholders may also nominate directors in accordance with procedures set forth
in our bylaws. The members of the audit, compensation and nominating committees
are Mr. Souras, who also serves as the chairman of our audit and compensation
committees, Mr. Liveris who also acts as the chairman of our nominating and
corporate governance committee, and Mr. P. Korakas. Our Board of Directors has
determined that Mr. Souras qualifies as a "financial expert" under the
Commission's rules.


60





D.
            Employees


As of
December 31, 2009 the Company employed six persons, namely Antonis Kandylidis,
our Chief Executive Officer, Demetris Nenes, our President and Chief Operating
Officer, Solon Dracoulis, our Chief Financial Officer and Treasurer, Konstandia
Papaefthymiou, our Chief Accounting Officer and two other employees, all of whom
are located in Athens.





E.
            Share
      Ownership





The
shares beneficially owned by our directors and officers and/or companies
affiliated with these individuals are disclosed in "Item 7A — Major
Shareholders" below.





Item
7. Major Shareholders and Related Party Transactions





A.
            Major
      Shareholders





The
following table sets forth current information regarding (i) the owners of more
than five percent of our voting securities of which we are aware, of which there
were none as of the date of this Annual Report; and (ii) the total amount of
common shares owned by all of our officers and directors, individually and as a
group. All of our shareholders are entitled to one vote for each share
held.





Title
      of Class
            Identity
      of Person or Group
            Number
      of
              Shares
      Owned
            Percent
      of ClassCommon
      Stock, par value $0.01
            Antonis
      Kandylidis (1)
            5,080,000
      (1)
            2.8%All
      other Directors and officers as a group
            200,000
            *





(1) Mr.
Antonis Kandylidis may be deemed to beneficially own 2,000,000 of these common
shares through Basset Holdings Inc., a company of which he is the controlling
person. Mr. Kandylidis may be deemed to beneficially own 3,080,000 of these
common shares through Steel Wheel Investments Ltd., a company of which he is the
controlling person.





* Less
than 1% of our issued and outstanding common stock.





B.
            Related
      Party Transactions





Basset
Holdings Inc.





During
the period from September 11, 2006 to December 31, 2006 the Company paid on
behalf of Basset the amount of $2,000 for legal expenses and corporate services,
which is reflected as "Due from shareholder" in the Company's 2006 consolidated
balance sheet. The amount was refunded to the Company on April 3, 2007. The sole
shareholder of Basset, which is the holder of 2,000,000 common shares, which
converted from subordinated shares, on August 15, 2008, is Antonis Kandylidis,
the Company's Chief Executive Officer.





Registration
Rights Agreement





We
entered into a registration rights agreement with Basset pursuant to which
Basset, its affiliates and certain of its transferees, have the right, which
commenced in May 2008, under certain circumstances and subject to certain
restrictions, to require us to register under the Securities Act the 2,000,000
common shares owned by Basset, which converted from subordinated shares on
August 15, 2008. Under the registration rights agreement, Basset has the right
to request us to register the sale of shares held by it and may require us to
make available shelf registration statements permitting sales of shares into the
market from time to time over an extended period. In addition, Basset has the
ability to exercise certain piggyback registration rights in connection with
registered offerings requested by other shareholders. We are obligated to pay
all expenses incidental to the registration, excluding underwriting discounts
and commissions. On September 3, 2008, we filed a resale registration statement
on Form F-3 on behalf of Basset Holdings Inc., Steel Wheel Investments Ltd. and
Seabert Shipping Co., a company controlled by our former Chief Operating
Officer. This resale registration statement has not yet been declared
effective.


61


Cardiff Marine
Inc. ("Cardiff")
 We use
the services of Cardiff, a ship management company with offices in Greece, for
the technical and commercial management of the Company's fleet.  The issued
and outstanding capital stock of Cardiff is beneficially owned (a) 30% by a
company the beneficial owner of which is Mrs. Chryssoula Kandylidis, the mother
of the Company's CEO and (b) 70% by a foundation controlled by Mr. George
Economou. Mrs. C. Kandylidis is the sister of Mr. G. Economou and the wife
of one of the Company's directors, Mr. Konstandinos
Kandylidis.





Cardiff
is engaged under separate vessel management agreements directly by the Company's
respective wholly-owned vessel owning subsidiaries. Under the vessel management
agreements, we pay a daily management fee per vessel, a daily superintendent's
fee per vessel plus expenses for any services performed relating to evaluation
of the vessel's physical condition, supervision of shipboard activities or
attendance of repairs and drydockings. At the beginning of each calendar year,
these fees are adjusted upwards according to the Greek consumer price
index.





We have
also entered into a services agreement with Cardiff, dated May 15, 2008 and
amended on October 21, 2008, which replaced the then existing agreement, whereby
Cardiff provided supervisory services for the vessels whose technical manager
was Wallem in exchange for a daily fee of $150 (€105) per vessel. Effective July
2009, Cardiff ceased providing such services as it assumed the management of all
of our vessels previously managed by Wallem. Cardiff also provides other
services under this agreement for which we pay additional fees, including (1) a
financing fee of 0.2% of the amount of any loan, credit facility, interest rate
swap agreement, foreign currency contract and forward exchange contract arranged
by Cardiff, (2) a commission of 1% of the purchase price on sales or purchases
of vessels in our fleet that are arranged by Cardiff, (3) a commission of 1.25%
of charterhire agreements arranged by Cardiff, (4) an information technology fee
of $37,300 (€26,050) per quarter and (5) a fee of $747 (€521) per vessel per day
in exchange for any vessel inspection services performed in connection with a
possible purchase. At the beginning of each calendar year, these fees are
adjusted upwards according to the Greek consumer price index. We also reimburse
Cardiff for any out-of-pocket expenses at cost plus 10%.





Cardiff
collects a daily management fee per vessel of $1,082 (€755) and $1,233 (€860)
for the drybulk carriers and tankers, respectively. Furthermore, based on the
management agreements with Cardiff we have made a security payment of $7,089,
representing managed vessels' operating expenses and management fees for three
months which will be settled when the agreements terminate, however, in case of
a change of control the amount is not refundable.





In May
2009, we entered into a service agreement with Cardiff, whereby Cardiff is
entitled to a 0.15% brokerage commission on the Company's FFA trading
transactions.





The fees
charged by Cardiff for 2007, 2008 and 2009 are as follows:


Nature
      of charge
              
              2007
              
              
              2008
              
              
              2009
              
              Included
      in(in
      thousands of U.S. dollars)Management
      fees
              
              $
              351
              
              
              $
              1,605
              
              
              $
              4,594
              
              Vessel
      operating expenses - Statement of OperationsCommission
      on charterhire agreements
              
              
              11
              
              
              
              698
              
              
              
              685
              
              Voyage
      expenses - Statement of OperationsCommission
      on FFA trading
              
              
              —
              
              
              
              —
              
              
              
              76
              
              Gain
      on forward freight agreements – Statement of OperationsCommissions
      for purchase of vessels
              
              
              816
              
              
              
              1,440
              
              
              
              1,785
              
              Vessels,
      net - Balance SheetCommissions
      for sale of vessels
              
              
              —
              
              
              
              —
              
              
              
              1,135
              
              Loss
      on sale of vessels – Statement of OperationsFinancing
      fees
              
              
              —
              
              
              
              870
              
              
              
              —
              
              Interest
      and finance costs - Statement of OperationsIT
      related fees
              
              
              —
              
              
              
              29
              
              
              
              —
              
              Other
      fixed assets, net - Balance SheetIT
      related fees
              
              
              —
              
              
              
              27
              
              
              
              —
              
              General
      and administrative expenses - Statement of OperationsFinancing
      fees
              
              
              —
              
              
              
              59
              
              
              
              —
              
              Deferred
      financing fees, net - Balance SheetLegal
      Attendance
              
              
              —
              
              
              
              —
              
              
              
              80
              
              Vessel
      operating expenses - Statement of OperationsMark
      up on reimbursement  of out of pocket expenses
              
              
              —
              
              
              
              —
              
              
              
              13
              
              Vessel
      operating expenses - Statement of Operations
 At
December 31, 2008 and 2009, $0.11 million and $0.79 million, respectively, are
payable to Cardiff, and are reflected in the consolidated balance sheets as Due
to related parties. In addition, $0.02 million due to and $0.34 million due from
Cardiff as at December 31, 2008 and 2009, respectively, relating to the
operations of the vessels under Cardiff's management, are included in Accounts
Payable and Prepayments and other, respectively, in the consolidated balance
sheets.





Transbulk 1904 AB
("Transbulk")





The
vessel M/V Richmondwas
employed on a time charter with Transbulk for a period of 24 to 28 months at
gross charter rate of $29,100 per day. On August 1, 2009, the vessel was
redelivered to the Company due to early termination of the charter party. The
vessel M/V Lansingwas
employed under a time charter with Transbulk until June 29, 2009 (the vessel was
sold on July 1, 2009) at a gross charter hire of $24,000 per day. Transbulk is a
company based in Gothenburg, Sweden. Transbulk has been in the drybulk cargo
chartering business for a period of approximately 30 years. Mr. George Economou
serves on its Board of Directors.


62




Heidmar
Trading LLC





On
October 14, 2008, the M/T Tiganicommenced her time
charter employment with Heidmar Trading LLC, for a period of approximately one
year at a gross daily rate of $29,800, the vessel was redelivered to the Company
in December 2009.  Up to September 2009, Heidmar LLC was 49% owned by a
company associated with Mr. George Economou.  The Company's Chief Executive
Officer is a member of its Board of Directors.








Tri-Ocean
Heidmar Tankers LLC





On
October 17, 2008, the M/T Tamara, concurrently with her
delivery commenced her time charter employment with Tri-Ocean Heidmar Tankers
LLC for a period of approximately 25 to 29 months at a gross daily rate of
$27,000. Tri-Ocean Heidmar Tankers LLC is owned by Heidmar Inc.  Up to
September 2009, Heidmar Inc. was 49% owned by a company associated with Mr.
George Economou.  Mr. George Economou who is also the chairman of the Board
of Directors of Heidmar Inc. and the Company's Chief Executive Officer is a
member of the Board of Directors of Heidmar Inc.





Blue Fin Tankers
Inc. pool ("Blue Fin")


On
October 29, 2008 the M/T Olindawas employed in the
Blue Fin tankers spot pool for a minimum period of 12 months. Blue Fin is a spot
market pool managed by Heidmar Inc.  Up to September 2009, Heidmar
Inc. was 49% owned by a company associated with Mr. George
Economou.  Mr. George Economou is the chairman of the Board of
Directors of Heidmar Inc. and the Company’s Chief Executive Officer is a member
of the Board of Directors of Heidmar Inc. The vessel, as a pool participant, is
allocated part of the pool’s revenues and voyage expenses, on a time charter
basis, in accordance with an agreed-upon formula. In October 2008, the Company
made an initial advance to the pool for working capital purposes of $0.9
million. As of December 31, 2008 and 2009 the Company had a receivable from the
pool of $0.9 million (included in Other non-current assets) and $1.85 million
(of which $0.06 million is included in receivables and $1.79 million is included
in prepayments and other assets), respectively, in the accompanying consolidated
balance sheets.  The revenue of M/T Olinda deriving from the pool
amounted to $2.627 million and $8.021 million for 2008 and 2009, respectively
and is included in Voyage revenue in the accompanying consolidated statements of
operations.


Sigma Tankers
Inc. pool ("Sigma")


On
December 22, 2009, the M/T Tigani was employed in the
Sigma Tankers Inc. pool for a minimum period of 12 months. Sigma is a spot
market pool managed by Heidmar Inc.  Up to September 2009, Heidmar
Inc. was 49% owned by a company associated with Mr. George
Economou.  Mr. George Economou is the chairman of the Board of
Directors of Heidmar Inc. and the Company’s Chief Executive Officer is a member
of the Board of Directors of Heidmar Inc. The vessel, as a pool participant, is
allocated part of the pool’s revenues and voyage expenses, on a time charter
basis, in accordance with an agreed-upon formula. As of December 31, 2009 the
Company had a receivable from the pool of $1.0 million and is included in
prepayments and other assets in the consolidated balance sheet.  The
revenue of M/V Tigani deriving from the pool amounted to $0.2 million as of
December 31, 2009 and is included in voyage revenue in the consolidated
statements of operations.




Lease
Agreement


We have
leased office space in Athens, Greece, from Mr. George Economou. The lease
commenced on April 24, 2007, with a duration of six months and the option for
the Company to extend it for another six months. The monthly rental amounts to
Euro 680 ($975 at the December 31, 2009 exchange rate). This agreement has been
renewed with the same monthly rental and will be terminated upon mutual
agreement of the parties. The rent charged for the years ended December 31,
2007, 2008 and 2009 amounted to $7,800, $12,100 and $11,400, respectively and is
included in General and Administrative expenses in the consolidated statements
of income.




Acquisition
of Vessels





In
January and October 2008 the Company took delivery of the tanker vessels M/T
Olinda, M/T Tiganiand M/T Tamarafrom interests
associated with Mr. George Economou for an aggregate consideration of $144.0
million. The purchase price was financed by a sellers' unsecured credit of $25.0
million and the Company's own funds. The sellers' credit was payable 18 months
after the physical delivery of the vessel and bore interest at 9.0% per annum
for the amount relating to the M/T Tamaraand 9.5 % per annum
for the amount relating to the M/T Tigani(Note 6). The total
interest paid in this respect amounted to $0.6 million at December 31, 2009. The
Company also paid Cardiff $1.4 million representing a 1% commission on the
vessels' purchase price.


63





As
provided in the Memorandum of Agreements of M/T Tiganiand M/T Tamara,following the
resignation of one of the Company's directors on November 25, 2008, the sellers
of the vessels had the right to demand the immediate payment of the Sellers'
Credit of $25.0 million. The sellers of the above vessels on December 9, 2008,
waived their contractual right to demand prompt prepayment of the Sellers'
Credit until the Amendatory Agreement to the Nordea credit facility became
effective (Note 6). On February 6, 2009, following the effectiveness of the
Amendatory Agreement with Nordea, the sellers of the M/T Tiganiand M/T Tamaraexercised their
option, and requested the repayment of the sellers' credit to be made in cash
from the proceeds of the Standby Equity Purchase Agreement discussed in Note 7
as also provided in the Amendatory Agreement, and waived their option for the
settlement of the Sellers' Credit of $25.0 million in the form of the Company's
common stock at any date, effective December 9, 2008. As of December 31, 2009,
the Company had fully repaid the Sellers' Credit.





C.
            Interests
      of experts and counsel





Not
applicable.





Item
8. Financial Information





A.
            Consolidated
      Statements and Other Financial
  Information





See Item
18.





Legal
Proceedings





OceanFreight
is not currently involved in any legal proceedings which may have a significant
effect on its business, financial position, and results of operations or
liquidity. The Company's former Chairman, President and Chief Executive Officer
had previously asserted a claim for breach of his employment agreement and for
unidentified post-employment conduct by the Company. On April 7, 2008, the
Company and the former Chairman, President and Chief Executive Officer reached a
settlement agreement resolving all claims asserted by him.





In
connection with this agreement, the Company issued to the former Chairman,
President and Chief Executive Officer 21,053 common shares in exchange for
21,053 restricted subordinated shares, plus an additional 52,105 common shares
both of which took effect on April 22, 2008. The related expense was
approximately $1,100,000 and is included in General and Administrative expenses
in the consolidated statement of income for the year ended December 31, 2008.
The Company also granted to Mr. Cowen certain registration rights for the 52,105
common shares held by him.





From time
to time, OceanFreight may be subject to legal proceedings and claims in the
ordinary course of business, involving principally commercial charter party
disputes. It is expected that these claims would be covered by insurance if they
involve liabilities arising from incidents such as a collision, other marine
casualty, damage to cargoes, oil pollution, death or personal injuries to crew,
subject to customary deductibles. Those claims, even if lacking merit, could
result in the expenditure of significant financial and managerial
resources.





B.
            Significant
      Changes





Not
applicable.





Item
9. The Offer and Listing





Our
common stock trades on The Nasdaq Global Market under the symbol "OCNF". Since
our initial public offering in April 2007, the price history of our common stock
was as follows:




2007
                
                High
                
                
                Low2nd
      Quarter ended June 30, 2007
                
                $
                19.67
                
                
                $
                19.143rd
      Quarter ended September 30, 2007
                
                
                23.54
                
                
                
                22.674th
      Quarter ended December 31, 2007
                
                
                30.48
                
                
                
                14.102007
      Annual
                
                
                30.48
                
                
                
                14.10
  20081st
      Quarter ended March 31, 2008
                
                $
                24.74
                
                
                $
                14.712nd
      Quarter ended June 30, 2008
                
                
                26.96
                
                
                
                20.523rd
      Quarter ended September 30, 2008
                
                
                23.23
                
                
                
                11.874th
      Quarter ended December 31, 2008
                
                
                14.12
                
                
                
                1.802008
      Annual
                
                
                26.96
                
                
                
                1.80
  20091st
      Quarter ended March 31, 2009
                
                $
                5.23
                
                
                $
                0.822nd
      Quarter ended June 30, 2009
                
                
                1.88
                
                
                
                1.043rd
      Quarter ended September 30, 2009
                
                
                1.79
                
                
                
                1.244th
      Quarter ended December 31, 2009
                
                
                1.29
                
                
                
                0.892009Annual
                
                
                5.23
                
                
                
                0.82
  Most
      Recent Six MonthsSeptember
      2009
                
                $
                1.63
                
                
                $
                1.30October
      2009
                
                
                1.29
                
                
                
                0.89November
      2009
                
                
                1.23
                
                
                
                0.96December
      2009
                
                
                1.16
                
                
                
                0.93January
      2010
                
                
                1.05
                
                
                
                0.83February
      2010
                
                
                0.84
                
                
                
                0.71


64


Item
10. Additional Information





A.
            Share
      Capital





Not
applicable.





B.
            Memorandum
      and articles of association





Amended and Restated Articles of
Incorporation and By-laws.Our purpose as set forth in Section B of our
Amended and Restated Articles of Incorporation is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
Marshall Islands Business Corporations Act, or BCA. Our Amended and Restated
Articles of Incorporation and by-laws do not impose any limitations on the
ownership rights of our shareholders.





Under our
by-laws, annual shareholder meetings will be held at a time and place selected
by our Board of Directors. The meetings may be held in or outside of the
Marshall Islands. Special meetings may be called by the Board of Directors, or
by the Chairman, or by our President. Our Board of Directors may set a record
date between 15 and 60 days before the date of any meeting to determine the
shareholders that will be eligible to receive notice and vote at the
meeting.





Directors.Our directors are
elected by a plurality of the votes cast at a meeting of the shareholders by the
holders of shares entitled to vote in the election. There is no provision for
cumulative voting.





The Board
of Directors may change the number of directors only by a vote of at least 66
2/3% of the entire board. Each director shall be elected to serve until his
successor shall have been duly elected and qualified, except in the event of his
death, resignation, removal, or the earlier termination of his term of office.
The Board of Directors has the authority to fix the amounts which shall be
payable to the members of our Board of Directors for attendance at any meeting
or for services rendered to the Company.





Subordinated
Shares





Following
the dividend payment on August 14, 2008 in the amount of $0.77 per share in
respect of the second quarter of 2008, the Company satisfied the provisions
under its Amended and Restated Articles of Incorporation for the early
conversion of all of its issued and outstanding subordinated shares into common
shares on a one-for-one basis. Accordingly, on August 15, 2008 the then issued
and outstanding 2,085,150 subordinated shares, including 2,000,000 subordinated
shares owned by Basset, a company controlled by Mr. Antonis Kandylidis, our
Chief Executive Officer, were converted into common shares on a one-for-one
basis.





Dividends





On
December 12, 2008, our Board of Directors determined, after careful
consideration of various factors, including the recent sharp decline in charter
rates and vessel values in the drybulk sector, to suspend the payment of cash
dividends until such time as the Board of Directors shall determine in its
discretion, in order to preserve capital. In addition, under the January 9, 2009
amendatory agreement to our Nordea credit facility which matures in October
2015, we are prohibited from paying dividends during the term of such credit
facility. In the event that we are permitted to pay cash dividends under our
Nordea credit facility in the future, our DVB loan agreement contains additional
restrictions. Under our DVB loan, we will be permitted, without our lender's
consent, to pay dividends of up to 50% of quarterly net profits if our Company
has been profitable for the preceding four quarters and if we comply with all
covenants.





Dividend
payments that would require use of the remaining 50% of our quarterly net
profits would be subject to our lender's consent.





Prior to
this suspension of dividend payments, our policy was to declare and pay regular
cash dividends on a quarterly basis from our operating surplus, in amounts
substantially equal to our available cash from operations in the previous
quarter, less any cash reserves for drydockings and working capital, as our
Board of Directors might determine. Our target base dividend was $0.77 per
common share, although the Board of Directors may change this amount in its sole
discretion. In May 2008, we paid a dividend in the amount of $0.77 per share in
respect of the first quarter of 2008, in August 2008, we paid a dividend in the
amount of $0.77 per share in respect of the second quarter of 2008 and in
November 2008, we paid a dividend in the amount of $0.77 per share in respect of
the third quarter of 2008.





Declaration
and payment of any dividend is subject to the discretion of our Board of
Directors. The timing and amount of dividend payments, if reinstated in the
future, will be dependent upon our earnings, financial condition, cash
requirements and availability, restrictions in our credit agreements, the
provisions of Marshall Islands law affecting the payment of distributions to
shareholders and other factors. The payment of dividends, even if reinstated in
the future, is not guaranteed or assured, and may be discontinued at any time at
the discretion of our Board of Directors. Because we are a holding company with
no material assets other than the stock of our subsidiaries, our ability to pay
dividends will depend on the earnings and cash flow of our subsidiaries and
their ability to pay dividends to us. Marshall Islands law generally prohibits
the payment of dividends other than from our operating surplus or while a
company is insolvent or would be rendered insolvent upon the payment thereof;
but in case there is no such surplus, dividends may be declared or paid out of
net profits for the fiscal year in which the dividend is declared and for the
preceding fiscal year.


65


Although
the subordination period, as defined in our Amended and Restated Articles of
Incorporation, terminated and all of our outstanding subordinated shares
converted into common shares on a one-for-one basis following our dividend
payment in the amount of $0.77 per share in respect of the second quarter of
2008, if we reinstate dividend payments in the future, we intend to pay such
dividends out of operating surplus only. Our Board of Directors will treat all
dividends as coming from operating surplus until the sum of all dividends paid
since the closing of our initial public offering equals the amount of operating
surplus as of the most recent date of determination. Our undistributed operating
surplus at any point in time will be our operating surplus accumulated since the
closing of our initial public offering less all dividends from operating surplus
paid since the closing of our initial public offering. We will treat dividends
paid from any amount in excess of our operating surplus, if any, as liquidating
dividends. The classification of dividends as liquidating dividends for U.S.
federal income tax purposes is governed by the Internal Revenue Code of 1986, as
amended, and may be different than the classification of dividends under the
Company's Amended and Restated Articles of Incorporation.





Operating
Surplus





Operating
surplus means the greater of zero and the amount equal to:





•
            $5.0
      million (which may be increased to $10.0 million as described below);
      plus





•
            all
      of our cash receipts after the completion of our initial public offering,
      excluding cash receipts reorganizations or restructurings, (5) the
      termination of interest rate swap agreements, (6) sales or other
      dispositions of vessels (except to the extent the proceeds from such
      dispositions exceed the initial purchase price or contributed value of the
      vessel subject to the disposition, which excess amount shall be treated as
      operating surplus) and (7) sales or other dispositions of other assets
      other than in the normal course of business;
  plus





•
            interest
      paid on debt incurred and cash dividends paid on equity securities issued
      by us, in each case, to finance all or any portion of the construction,
      replacement or improvement of a capital asset such as vessels during the
      period from such financing until the earlier to occur of the date the
      capital asset is put into service or the date that it is abandoned or
      disposed of; plus





•
            interest
      paid on debt incurred and cash dividends paid on our equity securities
      issued by us, in each case, to pay the construction period interest on
      debt incurred, or to pay construction period dividends on our equity
      issued, to finance the construction projects described in the immediately
      preceding bullet; less





•
            all
      of our cash expenditures after the completion of our initial public
      offering, including, but not limited to operating expenses, interest
      payments and taxes, but not (1) the repayment of borrowings, (2) the
      repurchase of debt and equity securities, (3) interest rate swap
      termination costs, (4) expenses and taxes related to borrowings, sales of
      equity and debt securities, capital contributions, corporate
      reorganizations or restructurings, the termination of interest rate swap
      agreements, sales or other dispositions of vessels, and sales or
      dispositions of other assets other than in the normal course of business,
      (5) capital expenditures and (6) payment of dividends, such expenditures
      are hereinafter referred to as Operating Expenditures;
  less





•
            cash
      capital expenditures incurred after the completion of our initial public
      offering to maintain our vessels and other assets including drydocking,
      replacement of equipment on the vessels, repairs and similar expenditures,
      but excluding capital expenditures for or related to the acquisition of
      additional vessels, and including capital expenditures for replacement of
      a vessel as a result of damage or loss prior to normal retirement, net of
      any insurance proceeds, warranty payments or similar property not treated
      as cash receipts for this purpose, such capital expenditures are
      hereinafter referred to as Maintenance Capital Expenditures;
      less





•
            the
      amount of cash reserves established by our Board of Directors for future
      (1) Operating Expenditures and (2) Maintenance Capital
      Expenditures.





The $5.0
million amount in the first bullet point above may be increased by our Board of
Directors to $10.0 million only if our board determines such increase is
necessary to allow it to pay all or part of the base dividend on our common
shares.


66




As
described above, our operating surplus, for determining whether we are paying
ordinary dividends or liquidating dividends, does not reflect only cash on hand
that is generated from our operations. For example, it includes a provision that
will enable us to pay, under circumstances described above, a dividend from our
operating surplus of up to $10.0 million of cash we receive from non-operating
sources, such as asset sales, issuances of securities and borrowings. In
addition, the effect of including, as described above, certain dividends on
equity securities or interest payments on debt, related to the construction,
replacement or improvement of an asset in operating surplus would be to increase
our operating surplus by the amount of any such dividends or interest payments.
As a result, we may also pay dividends from our operating surplus up to the
amount of any such dividends or interest payments from cash we receive from
non-operating sources.





Our
Amended and Restated Articles of Incorporation provide that the construction or
application of the definition of operating surplus may be adjusted in the case
of any particular transaction or matter or type of transaction or matter if our
Board of Directors, with the concurrence of our audit committee, is of the
opinion that the adjustment is necessary or appropriate to further the overall
purpose and intent of the definition of operating surplus.





Liquidating
Dividends





We do not
expect to pay liquidating dividends.





Adjustment
of Base Dividend





The base
dividend is subject to downward adjustment in the case of liquidating dividends.
The base dividend amount will be reduced in the same proportion that the
liquidating dividend had to the fair market value of the common shares prior to
the payment of the liquidating dividend. So long as the common shares are
publicly traded on a national securities exchange or market, that price will be
the average closing sale price on each of the five trading days before the
dividend date. If the shares are not publicly traded, the price will be
determined by our Board of Directors.





In
addition to the adjustment for liquidating dividends, if we combine our shares
into fewer shares or subdivide our shares into a greater number of shares, we
will proportionately adjust the base dividend level.





Voting
Rights





The
holders of the common shares are entitled to one vote per share on each matter
requiring the approval of the holders of our common shares, whether pursuant to
our Articles, our Bylaws, the Marshall Islands Business Corporation Act or
otherwise. Our directors shall be elected by a plurality vote of the common
shares. A majority of the common shares in the aggregate shall constitute a
quorum. Any preferred shares shall have whatever voting rights are provided on
their issuance.





Upon our
dissolution or liquidation or the sale of all or substantially all of our
assets, after payment in full of all amounts required to be paid to creditors
and to any holders of preferred shares having liquidation preferences, the
holders of all classes of our common shares will be entitled to receive pro rata
our remaining assets available for distribution. Holders of our common shares do
not have conversion, redemption or pre-emptive rights to subscribe to any of our
securities. The powers, preferences and rights of holders of all classes of our
common shares are subject to the rights of the holders of any preferred shares
that we may issue in the future.





Anti-Takeover
Provisions of Our Charter Documents





Several
provisions of our Amended and Restated Articles of Incorporation and by-laws may
have anti-takeover effects. These provisions are intended to avoid costly
takeover battles, lessen our vulnerability to a hostile change of control and
enhance the ability of our Board of Directors to maximize shareholder value in
connection with any unsolicited offer to acquire us. However, these
anti-takeover provisions, which are summarized below, could also discourage,
delay or prevent (1) the merger or acquisition of our company by means of a
tender offer, a proxy contest or otherwise, that a shareholder may consider in
its best interest and (2) the removal of incumbent officers and
directors.





Blank
Check Preferred Stock





Under the
terms of our Amended and Restated Articles of Incorporation, our Board of
Directors has authority, without any further vote or action by our shareholders,
to issue up to 5,000,000 shares of blank check preferred stock. Our Board of
Directors may issue shares of preferred stock on terms calculated to discourage,
delay or prevent a change of control of our company or the removal of our
management.


67


Stockholders
Rights Agreement


We
entered into a Stockholders Rights Agreement with American Stock Transfer &
Trust Company, as Rights Agent, effective as of April 30, 2008. Under this
Agreement, we declared a dividend payable of one preferred share purchase right,
or Right, to purchase one one-thousandth of a share of the Company's Series A
Participating Preferred Stock for each outstanding share of OceanFreight Inc.
common stock, par value U.S.$0.01 per share. The Rights will separate from the
common stock and become exercisable after (1) the 10th day after public
announcement that a person or group acquires ownership of 20% or more of the
company's common stock or (2) the 10th business day (or such later date as
determined by the company's board of directors) after a person or group
announces a tender or exchange offer which would result in that person or group
holding 20% or more of the company's common stock. On the distribution date,
each holder of a Right will be entitled to purchase for $100 (the "Exercise
Price") a fraction (1/1000th) of one share of the company's preferred stock
which has similar economic terms as one share of common stock. If an acquiring
person (an "Acquiring Person") acquires more than 20% of the company's common
stock then each holder of a Right (except that Acquiring Person) will be
entitled to buy at the exercise price, a number of shares of the company's
common stock which has a market value of twice the exercise price. Any time
after the date an Acquiring Person obtains more than 20% of the company's common
stock and before that Acquiring Person acquires more than 50% of the company's
outstanding common stock, the company may exchange each Right owned by all other
rights holders, in whole or in part, for one share of  the company's
common stock. The Rights expire on the earliest of (1) May 12, 2018 or (2) the
exchange or redemption of the Rights as described above. The company can redeem
the Rights at any time on or prior to the earlier of a public announcement that
a person has acquired ownership of 20% or more of the company's common stock, or
the expiration date. The terms of the Rights and the Stockholders Rights
Agreement may be amended without the consent of the Rights holders at any time
on or prior to the Distribution Date. After the Distribution Date, the terms of
the Rights and the Stockholders Rights Agreement may be amended to make changes
that do not adversely affect the rights of the rights holders (other than the
Acquiring Person). The Rights do not have any voting rights. The rights have the
benefit of certain customary anti-dilution protections.





Classified
Board of Directors





Our
Amended and Restated Articles of Incorporation provide for a Board of Directors
serving staggered, three-year terms. Approximately one-third of our Board of
Directors will be elected each year. This classified board provision could
discourage a third party from making a tender offer for our shares or attempting
to obtain control of our company. It could also delay shareholders who do not
agree with the policies of the Board of Directors from removing a majority of
the Board of Directors for two years.





Election
and Removal of Directors





Our
Amended and Restated Articles of Incorporation and by-laws prohibit cumulative
voting in the election of directors. Our by-laws require parties other than the
Board of Directors to give advance written notice of nominations for the
election of directors. Our Amended and Restated Articles of Incorporation and
by-laws also provide that our directors may be removed only for cause and only
upon the affirmative vote of the holders of at least 66 2/3% of the outstanding
common shares and subordinated shares entitled to vote for those directors
considered for this purpose as one class. These provisions may discourage, delay
or prevent the removal of incumbent officers and directors.





Limited
Actions by Shareholders





Our
by-laws provide that any action required or permitted to be taken by our
shareholders must be effected at an annual or special meeting of shareholders or
by the unanimous written consent of our shareholders. Our Amended and Restated
Articles of Incorporation and our by-laws provide that only our Board of
Directors, or our Chairman, or our President may call special meetings of our
shareholders and the business transacted at the special meeting is limited to
the purposes stated in the notice.





Business
Combinations





Although
the BCA does not contain specific provisions regarding "business combinations"
between corporations organized under the laws of the Republic of Marshall
Islands and "interested shareholders," we have included these provisions in our
Amended and Restated Articles of Incorporation. Our Amended and Restated
Articles of Incorporation contain provisions which prohibit us from engaging in
a business combination with an interested shareholder for a period of three
years after the date of the transaction in which the person became an interested
shareholder, unless:





•
            prior
      to the date of the transaction that resulted in the shareholder becoming
      an interested shareholder, our Board of Directors approved either the
      business combination or the transaction that resulted in the shareholder
      becoming an interested shareholder;





•
            upon
      consummation of the transaction that resulted in the shareholder becoming
      an interested shareholder, the interested shareholder owned at least 85%
      of the voting stock of the corporation outstanding at the time the
      transaction commenced;


68





•
            at
      or subsequent to the date of the transaction that resulted in the
      shareholder becoming an interested shareholder, the business combination
      is approved by the Board of Directors and authorized at an annual or
      special meeting of shareholders by the affirmative vote of at least 66
      2/3% of the outstanding voting stock that is not owned by the interested
      shareholder; and





•
            the
      shareholder became an interested shareholder prior to the consummation of
      our initial public offering.





For
purposes of these provisions, a "business combination" includes mergers,
consolidations, exchanges, asset sales, leases and other transactions resulting
in a financial benefit to the interested shareholder and an "interested
shareholder" is any person or entity that beneficially owns 20% or more of our
outstanding voting stock and any person or entity affiliated with or controlling
or controlled by that person or entity.


69





Other
Matters





Dissenters' Rights of Appraisal and
Payment.Under the BCA, our shareholders have the right to dissent from
various corporate actions, including any merger or sale of all or substantially
all of our assets not made in the usual course of our business, and receive
payment of the fair value of their shares. In the event of any further amendment
of the articles, a shareholder also has the right to dissent and receive payment
for his or her shares if the amendment alters certain rights in respect of those
shares. The dissenting shareholder must follow the procedures set forth in the
BCA to receive payment. In the event that we and any dissenting shareholder fail
to agree on a price for the shares, the BCA procedures involve, among other
things, the institution of proceedings in the circuit court in the judicial
circuit in the Marshall Islands in which our Marshall Islands office is
situated. The value of the shares of the dissenting shareholder is fixed by the
court after reference, if the court so elects, to the recommendations of a
court-appointed appraiser.





Shareholders' Derivative Actions.Under the BCA, any of our shareholders may bring an action in our name to
procure a judgment in our favor, also known as a derivative action, provided
that the shareholder bringing the action is a holder of common shares both at
the time the derivative action is commenced and at the time of the transaction
to which the action relates.





C.
            Material
      Contracts





For a
description of our credit facilities, see "Item 5. Operating and Financial
Review and Prospects — Liquidity and Capital Resources".





We have
no other material contracts, other than contracts entered into in the ordinary
course of business, to which the Company or any member of the group is a
party.





D.
            Exchange
      controls





Under the
laws of the countries of incorporation of the Company and its subsidiaries,
there are currently no restrictions on the export or import of capital,
including foreign exchange controls or restrictions that affect the remittance
of dividends, interest or other payments to non-resident holders of our common
stock.





E.
            Taxation





Marshall
Islands Tax Considerations





OceanFreight
is incorporated in the Marshall Islands. Under current Marshall Islands law,
OceanFreight will not be subject to tax on income or capital gains, and no
Marshall Islands withholding tax will be imposed upon payments.





United
States Federal Income Tax Considerations





The
following is a discussion of the material United States federal income tax
considerations with respect to the Company and to U.S. Holders and Non-U.S.
Holders, each as defined below, of its common shares.





This
discussion does not purport to deal with the tax consequences of owning common
shares to all categories of investors, some of which, such as dealers in
securities, investors whose functional currency is not the dollar and investors
that own, actually or under applicable constructive ownership rules, 10% or more
of our common shares, may be subject to special rules. This discussion deals
only with holders who hold the common shares as a capital asset. Investors are
encouraged to consult their own tax advisors concerning the overall tax
consequences arising in their own particular situations under United States
federal, state, local or foreign law of the ownership of common
shares.





Taxation
of Operating Income: In General





Unless
exempt from United States federal income taxation under the rules discussed
below, a foreign corporation is subject to United States federal income taxation
in respect of any income that is derived from the use of vessels, from the
hiring or leasing of vessels for use on a time, voyage or bareboat charter
basis, from the participation in a pool, partnership, strategic alliance, joint
operating agreement, code sharing arrangements or other joint venture it
directly or indirectly owns or participates in that generates such income, or
from the performance of services directly related to those uses, which we refer
to as "shipping income," to the extent that the shipping income is derived from
sources within the United States. For these purposes, 50% of shipping income
that is attributable to transportation that begins or ends, but that does not
both begin and end, in the United States constitutes income from sources within
the United States, which we refer to as "U.S.-source shipping
income."


70





Shipping
income attributable to transportation that both begins and ends in the United
States is considered to be 100% from sources within the United States. We are
not permitted by law to engage in transportation that produces income which is
considered to be 100% from sources within the United States.





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





Exemption
of Operating Income from United States Federal Income Taxation





Under
Section 883 of the United States Internal Revenue Code, or the Code, we will be
exempt from United States federal income taxation on our U.S.-source shipping
income if:





(1)
            we
      are organized in a foreign country (our "country of organization") that
      grants an "equivalent exemption" to corporations organized in the United
      States; or





(2)
            either:





(A)
            more
      than 50% of the value of our stock is owned, directly or indirectly, by
      individuals who are "residents" of our country of organization or of
      another foreign country that grants an "equivalent exemption" to
      corporations organized in the United States, which we refer to as the "50%
      Ownership Test,"





(B)
            a
      class of our stock representing more than 50% of the vote and value of our
      outstanding stock is "primarily and regularly traded on an established
      securities market" in our country of organization, in another country that
      grants an "equivalent exemption" to United States corporations, or in the
      United States, which we refer to as the "Publicly-Traded
      Test."





The
Republic of the Marshall Islands, the jurisdiction where we and our ship-owning
subsidiaries are incorporated, grants an "equivalent exemption" to United States
corporations. Therefore, we will be exempt from United States federal income
taxation with respect to our U.S.-source shipping income if we satisfy either
the 50% Ownership Test or the Publicly-Traded Test.





We
believe that we satisfied the Publicly-Traded Test for the 2009 Taxable Year
since our stock was "primarily and regularly traded" on the Nasdaq Global
Market, which is an "established securities market" in the United States and we
intend to take this position on our United States federal income tax returns for
the 2009 Taxable Year.





Taxation
in Absence of Exemption





To the
extent the benefits of Section 883 are unavailable, our U.S. — source shipping
income, to the extent not considered to be "effectively connected" with the
conduct of a United States trade or business, as described below, would be
subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without
the benefit of deductions. Since under the sourcing rules described above, no
more than 50% of our shipping income would be treated as being derived from
United States sources, the maximum effective rate of U.S. federal income tax on
our shipping income would never exceed 2% under the 4% gross basis tax
regime.





To the
extent the benefits of the Section 883 exemption are unavailable and our
U.S.-source shipping income is considered to be "effectively connected" with the
conduct of a United States trade or business, as described below, any such
"effectively connected" U.S.-source shipping income, net of applicable
deductions, would be subject to the United States federal corporate income tax
currently imposed at rates of up to 35%. In addition, we may be subject to the
30% "branch profits" taxes on earnings effectively connected with the conduct of
such trade or business, as determined after allowance for certain adjustments,
and on certain interest paid or deemed paid attributable to the conduct of its
United States trade or business.





Our
U.S.-source shipping income would be considered "effectively connected" with the
conduct of a United States trade or business only if:





•
            We
      have, or are considered to have, a fixed place of business in the United
      States involved in the earning of shipping income;
  and





•
            substantially
      all of our U.S.-source shipping income is attributable to regularly
      scheduled transportation, such as the operation of a vessel that follows a
      published schedule with repeated sailings at regular intervals between the
      same points for voyages that begin or end in the United
      States.


71




We do not
intend to have, or permit circumstances that would result in having any vessel
operating to the United States on a regularly scheduled basis. Based on the
foregoing and on the expected mode of our shipping operations and other
activities, we believe that none of our U.S.-source shipping income will be
"effectively connected" with the conduct of a United States trade or
business.





United
States Taxation of Gain on Sale of Vessels





If, as we
believe, we qualify for exemption from tax under Section 883 in respect of the
shipping income derived from the international operation of our vessels, then
gain from the sale of any such vessel should likewise be exempt from tax under
Section 883. If, however, our shipping income from such vessels does not for
whatever reason qualify for exemption under Section 883, then any gain on the
sale of a vessel will be subject to U.S. federal income tax if such sale occurs
in the United States. To the extent possible, we intend to structure our sales
of vessels so that the gain therefrom is not subject to U.S. federal income tax.
However, there is no assurance we will be able to do so.





United
States Federal Income Taxation of U.S. Holders





As used
herein, the term "U.S. Holder" means a beneficial owner of common stock
that





•
            is
      an individual United States citizen or resident, a United States
      corporation or other United States entity taxable as a corporation, an
      estate of which the income is subject to United States federal income
      taxation regardless of its source, or a trust if a court within the United
      States is able to exercise primary jurisdiction over the administration of
      the trust and one or more United States persons have the authority to
      control all substantial decisions of the
trust;





•
            owns
      OceanFreight common stock as a capital asset;
  and





•
            owns
      less than ten percent (10%) of OceanFreight's common stock for United
      States federal income tax purposes.





If a
partnership holds OceanFreight common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding OceanFreight's common
stock, you are encouraged to consult your tax advisor.





Tax
Treatment of Common Stock





Distributions





Subject
to the discussion of passive federal foreign investment companies below,
distributions made by OceanFreight with respect to OceanFreight's common stock
to a U.S. Holder will generally constitute dividends to the extent of
OceanFreight's current or accumulated earnings and profits, as determined under
United States federal income tax principles, and will be included in the U.S.
Holder's gross income. Distributions in excess of such earnings and profits
first are treated a taxable return of capital to the extent of the U.S. Holder's
tax basis in his common stock on a dollar – for – dollar basis and thereafter as
capital gain. Because OceanFreight is not a United States corporation, U.S.
Holders that are corporations will not be entitled to claim a dividends
reduction with respect to any distributions it receives from OceanFreight.
Dividends paid with respect to OceanFreight's common stock will generally be
treated as "passive category income" for purposes of computing allowable foreign
tax credits for United States foreign tax credit purposes.


72





Dividends
paid on OceanFreight's common stock to a U.S. Holder who is an individual, trust
or estate, a U.S. Non – Corporate Holder, will, under current law, generally be
treated as "qualified dividend income" that is taxable to such U.S. Non –
Corporate Holder at preferential tax rates (through 2010), provided that (1) the
common stock is readily tradable on an established securities market in the
United States (such as the Nasdaq National Market on which our common stock is
listed); (2) OceanFreight is not a passive foreign investment company for the
taxable year during which the dividend is paid or the immediately preceding
taxable year (which OceanFreight does not believe it has been, is or will be, as
discussed in more detail below); (3) the U.S. Non – Corporate Holder has owned
the common stock for more than sixty (60) days in the 121 – day period beginning
sixty (60) days before the date on which the common stock becomes ex-dividend;
and (4) the U.S. Non – Corporate Holder is under no obligation to make related
payments with respect to positions in substantially similar or related property.
Special rules may apply to any "extraordinary dividend" generally, a dividend in
an amount equal to or in excess of ten percent of a stockholder's adjusted basis
in a share of common stock paid by OceanFreight. If OceanFreight pays an
"extraordinary dividend" on its common stock that is treated as "qualified
dividend income", then any loss derived by a U.S. Non – Corporate Holder from
the sale or exchange of such common stock will be treated as long – term capital
loss to the extent of such dividend.





Legislation
has previously been introduced in the U.S. Congress which, if enacted in its
present form would preclude OceanFreight's dividends from qualifying for such
preferential rates prospectively from the date of enactment.





There is
no assurance that any dividends paid on OceanFreight's common stock will be
eligible for these preferential rates in the hands of a US Non-Corporate Holder,
although OceanFreight believes that they will be so eligible. Any dividends out
of earnings and profits OceanFreight pays, which are not eligible for these
preferential rates, will be taxed as ordinary income to a US Non-Corporate
Holder.





Sale,
Exchange or Other Disposition of Common Stock





Assuming
OceanFreight does not constitute a passive foreign investment company for any
taxable year, a U.S. Holder generally will recognize taxable gain or loss up on
a sale, exchange or other disposition of OceanFreight common stock in an amount
equal to the difference between the amount realized by the U.S. Holder from such
sale, exchange or other disposition and the U.S. Holder's tax basis in such
stock. Such gain or loss will be treated as long – term capital gain or loss if
the U.S. Holder's holding period is greater than one year at the time of the
sale, exchange or other disposition. Such capital gain or loss will generally be
treated as United States source income or loss, as applicable, for United States
foreign tax credit purposes. Long – term capital gains of U.S. Non – Corporate
Holders are eligible for reduced rates of taxation. A U.S. Holder's ability to
deduct capital losses is subject to certain limitations.





Passive
Foreign Investment Company Status and Significant Tax Consequences





A foreign
corporation will be treated as a "passive foreign investment company", or a
PFIC, for U.S. federal income tax purposes, if 75% or more of its gross income
consists of certain types of passive income or 50% or more of its assets produce
or are held for the production of passive income.





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





OceanFreight
does not believe that it was a PFIC during the 2009 taxable year. In addition,
based on present operations and future projections, OceanFreight does not expect
to become a PFIC for any future taxable year. Although there is no legal
authority directly on point, and OceanFreight is not relying upon an opinion of
counsel on this issue, this belief is based principally on the position that,
for purposes of determining whether OceanFreight is a PFIC, the gross income
OceanFreight derives or is deemed to derive from the time chartering and voyage
chartering activities of its wholly owned subsidiaries should constitute
services income, rather than rental income.





Correspondingly,
such income should not constitute passive income, and the assets that
OceanFreight or its wholly owned subsidiaries own and operate in connection with
the production of such income, in particular, the vessels, should not constitute
passive assets for purposes of determining whether OceanFreight is a PFIC. There
is substantial legal authority supporting this position consisting of case law
and IRS pronouncements concerning the characterization of income derived from
time charters as services income for other tax purposes.  However,
there is also authority which characterizes time charter income as rental income
rather than services income for other tax purposes.  It should be
noted that in the absence of any legal authority specifically relating
to the statutory provisions governing PFICs, the IRS or a court could disagree
with this position.  Therefore, based on OceanFreight's current
operations and future projections, OceanFreight should not be treated as a PFIC
with respect to any taxable year after the offering. Although we intend to
conduct our affairs in a manner to avoid being classified as a PFIC with respect
to any taxable year, we cannot ensure that the nature of our operations will not
change in the future.


73




If
OceanFreight was to be classified as a PFIC in any taxable year, a U.S. Holder
(i) would generally be required to treat any gain on sales of our shares held by
him as ordinary income and pay an interest charge on the value of the deferral
of the U.S. federal income tax attributable to such gain and (ii) could also be
subject to an interest charge on distributions paid by us. The above results may
be eliminated if a "mark-to-market" election or "qualified electing fund"
election is available and a U.S. Holder validly makes such an
election.





United
States Federal Income Taxation of Non-U.S. Holders





A
beneficial owner of common stock (other than a partnership) that is not a U.S.
Holder is referred to herein as a Non-U.S. Holder.





Dividends
on Common Stock





Non- U.S
Holders generally will not be subject to United States federal income tax or
withholding tax on dividends received with respect to OceanFreight common stock,
unless that income is effectively connected with the Non – U.S. Holder's conduct
of a trade or business in the United States. If the Non – U.S. Holder is
entitled to the benefits of a United States income tax treaty with respect to
those dividends, that income is taxable only if it is attributable to a
permanent establishment maintained by the Non – U.S. Holder in the United
States. See discussion above under "United States Tax Consequences — Taxation of
Operating Income: In General".





Sale,
Exchange or other Disposition of Common Stock





Non-U.S.
Holders generally will not be subject to United States federal income tax or
withholding tax on any gain realized upon the sale, exchange or other
disposition of OceanFreight's common stock or warrants, unless:





•
            the
      gain is effectively connected with the Non-U.S. Holder's conduct of a
      trade or business in the United States (and, if the Non-U.S. Holder is
      entitled to the benefits of an income tax treaty with respect to that
      gain, that gain is attributable to a permanent establishment maintained by
      the Non-U.S. Holder in the United States);
or





•
            the
      Non-U.S. Holder is an individual who is present in the United States for
      183 days or more during the taxable year of disposition and other
      conditions are met.





If the
Non – U.S. Holder is engaged in a United States trade or business for United
States federal income tax purposes, the income from the common stock, including
dividends and the gain from the sale, exchange or other disposition of the stock
or warrants, that is effectively connected with the conduct of that trade or
business, will generally be subject to regular United States federal income tax
in the same manner as discussed in the previous section relating to the taxation
of U.S. Holders. In addition, if the shareholder or warrant holder is a
corporate Non – U.S. Holder, the shareholder's earnings and profits that are
attributable to the effectively connected income, which are subject to certain
adjustments, may be subject to an additional branch profits tax at a rate of
30%, or at a lower rate as may be specified by an applicable income tax
treaty.





Backup
Withholding and Information Reporting





In
general, dividend payments or other taxable distributions, made within the
United States to the shareholder, will be subject to information reporting
requirements if the shareholder is a non-corporate U.S. Holder. Such payments or
distributions may also be subject to backup withholding tax if the shareholder
is a non-corporate U.S. Holder and:


74





•
            fails
      to provide an accurate taxpayer identification
  number;





•
            is
      notified by the IRS that the shareholder failed to report all interest or
      dividends required to be shown on the shareholder's federal income tax
      returns; or





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





Non-U.S.
Holders may be required to establish their exemption from information reporting
and backup withholding by certifying their status on IRS Form W-8ECI or W-8IMY,
as applicable.





If the
shareholder or warrant holder is a Non-U.S. Holder and sells the Non-U.S.
Holder's common stock or warrants to or through a United States office of a
broker, the payment of the proceeds is subject to both United States backup
withholding and information reporting unless the Non-U.S. Holder certifies that
the Non-U.S. Holder is a non-United States person, under penalties of perjury,
or otherwise establishes an exemption. If the Non-U.S. Holder sells common stock
or warrants through a non-United States office of a non-United States broker and
the sales proceeds are paid to the Non-U.S. Holder outside the United States,
then information reporting and backup withholding generally will not apply to
that payment. United States information reporting requirements, but not backup
withholding, however, will apply to a payment of sales proceeds, even if that
payment is made to the Non-U.S. Holder outside the United States, if the
Non-U.S. Holder sells common stock or warrants through a non-United States
office of a broker that is a United States person or has some other contacts
with the United States. Such information reporting requirements will not apply,
however, if the broker has documentary evidence in its records that the
shareholder or warrant holder is a non-United States person and certain other
conditions are met, or otherwise establishes an exemption.





The
conclusions expressed above are based on current United States tax law. Future
legislative, administrative or judicial changes or interpretations, which can
apply retroactively, could affect the accuracy of those
conclusions.





F.
            Dividends
      and paying agents





Not
applicable.





G.
            Statement
      by experts





Not
applicable.





H.
            Documents
      on display





We file
reports and other information with the SEC. These materials, including this
annual report and the accompanying exhibits, may be inspected and copied at the
public reference facilities maintained by the Commission at 100 F Street, N.E.,
Washington, D.C. 20549, or from the SEC's website http://www.sec.gov. You may
obtain information on the operation of the public reference room by calling 1
(800) SEC-0330 and you may obtain copies at prescribed rates.





I.
            Subsidiary
      information





Not
applicable.





Item
11. Quantitative and Qualitative Disclosures about Market Risk





Interest Rate
Risk





For
fiscal year 2009, the interest rate we paid under all of our long-term debt was
LIBOR plus a margin. Amounts drawn under our long-term arrangements are secured
by the assets of the Company. Because the interest on the debt was at a floating
rate, changes in interest rates would have no effect on the value of the debt.
Under the terms of our loan agreements a change in the LIBOR rate of 100 basis
points would have changed interest expense for year 2009 by $3
million.





On
January 29, 2008, we entered into two interest swap agreements to partially
hedge our exposure to variability in LIBOR rates. Under the terms of the
agreements we have fixed our interest rate at 6.05% inclusive of
margin.


75


Currency and
Exchange Rates





We
generate all of our revenues in U.S. dollars but currently incur approximately
23.7% of our operating expenses and the majority of our administration expenses
in currencies other than the U.S. dollar, primarily the Euro. For accounting
purposes, expenses incurred in Euros are converted into U.S. dollars at the
exchange rate prevailing on the date of each transaction. Because a significant
portion of our expenses are incurred in currencies other than the U.S. dollar,
our expenses may from time to time increase relative to our revenues as a result
of fluctuations in exchange rates, particularly between the U.S. dollar and the
Euro, which could affect our net income. As of December 31, 2009, the effect of
a 1% adverse movement in U.S. dollar/Euro exchange rates would not have a
material effect on our net income. While we historically have not mitigated the
risk associated with exchange rate fluctuations through the use of financial
derivatives, we may determine to employ such instruments from time to time in
the future in order to minimize this risk. Our use of financial derivatives,
including interest rate swaps, would involve certain risks, including the risk
that losses on a hedged position could exceed the nominal amount invested in the
instrument and the risk that the counterparty to the derivative transaction may
be unable or unwilling to satisfy its contractual obligations, which could have
an adverse effect on our results.





Item
12. Description of Securities Other than Equity Securities





Not
applicable.





PART
II





Item
13. Defaults, Dividend Arrearages and Delinquencies





Please
see Note 6 to our consolidated financial statements.





Item 14. Material Modifications to
the Rights of Security Holders and Use of Proceeds





Not
applicable.





Item
15. Controls and Procedures





a)   
Disclosure Controls and Procedures





Management,
including our Chief Executive Officer and Chief Financial Officer, has conducted
an evaluation of the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this report. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in the reports that it
files or submits to the SEC under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms.





b)   
Management's Annual Report on Internal Control over Financial
Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange
Act. The Company's internal control over financial reporting is a process
designed under the supervision of the Company's Chief Executive Officer to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the Company's financial statements for external reporting
purposes in accordance with accounting principles generally accepted in the
United States.





Management
has conducted an assessment of the effectiveness of the Company's internal
control over financial reporting based on the framework established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
has determined that the Company's internal control over financial reporting as
of December 31, 2009 is effective.


76


c)   
Attestation Report of Independent Registered Public Accounting
Firm





The
registered public accounting firm that audited the consolidated financial
statements, Ernst & Young (Hellas), Certified Auditors Accountants S.A., has
issued an attestation report on the Company's internal control over financial
reporting, appearing under Item 18, and is incorporated herein by
reference.





d)   
Changes in Internal Control over Financial Reporting





None.





Inherent
Limitations on Effectiveness of Controls





Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls or our internal control over
financial reporting will prevent or detect all error and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system's objectives will be met. Our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving their objectives. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, within the Company have been
detected.





These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness to future
periods are subject to risks. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with
policies or procedures.





Item 16A. Audit Committee Financial
Expert





Our Board
of Directors has determined that Mr. Stephen Souras, who serves on the Audit
Committee, qualifies as an "audit committee financial expert" and that he is
"independent" according to Securities and Exchange Commission
rules.





Item 16B. Code of
Ethics





We have
adopted a code of ethics applicable to officers, directors and employees. Our
code of ethics complies with applicable guidelines issued by the SEC and is
available for review on our website: http://
www.oceanfreightinc.com.





Item 16C. Principal Accountant Fees
and Services





Our
principal accountants for the years ended December 31, 2009 and 2008 were Ernst
& Young (Hellas) Certified Auditors Accountants S.A. The "Audit Fees" for
the years ended December 31, 2009 and 2008 were Euro 409,500 and Euro 669,900,
respectively. There were no additional "Audit-Related Fees," "Tax Fees" or
"Other Fees" billed in 2009 and 2008. Audit fees in 2009 relate to audit
services provided in connection with SAS 100 reviews, the audit of our
consolidated financial statements, the audit of internal control over financial
reporting, as well as audit services performed in connection with the Company's
equity offerings.





The Audit
Committee is responsible for the appointment, replacement, compensation,
evaluation and oversight of the work of the independent auditors. As part of
this responsibility, the Audit Committee pre-approves the audit and non-audit
services performed by the independent auditors in order to assure that they do
not impair the auditor's independence from the Company. The Audit Committee has
adopted a policy which sets forth the procedures and the conditions pursuant to
which services proposed to be performed by the independent auditors may be
pre-approved.





All audit
services and other services provided by Ernst and Young (Hellas) Certified
Auditors Accountants S.A., were pre-approved by the Audit
Committee.





Item 16D. Exemptions from the Listing
Standards for Audit Committees





Not
applicable.


77





Item 16E. Purchases of Equity
Securities by the Issuer and Affiliated Purchasers





Not
applicable.





Item 16F. Change in Registrant's
Certifying Accountant





Not
applicable.





Item 16G. Corporate
Governance





We have
certified to Nasdaq that our corporate governance practices are in compliance
with, and are not prohibited by, the laws of the Republic of the Marshall
Islands. Therefore, we are exempt from many of Nasdaq's corporate governance
practices other than the requirements regarding the disclosure of a going
concern audit opinion, submission of a listing agreement, notification of
material non-compliance with Nasdaq corporate governance practices and the
establishment of an audit committee in accordance with Nasdaq Marketplace Rules
4350(d)(3) and 4350(d)(2)(A)(ii). The practices we follow in lieu of Nasdaq's
corporate governance rules are as follows:





•
            Our
      Board of Directors is comprised of a majority of independent directors
      which holds at least one annual meeting at which only independent
      directors are present, consistent with Nasdaq corporate governance
      requirements; however we are not required under Marshall Islands law to
      maintain a majority independent Board of Directors and we cannot guarantee
      that we will always in the future maintain a Board of Directors with a
      majority of independent members.





•
            In
      lieu of obtaining shareholder approval prior to the issuance of designated
      securities, we will comply with provisions of the Marshall Islands
      Business Corporations Act, which allows the Board of Directors to approve
      share issuances.





•
            As
      a foreign private issuer, we are not required to solicit proxies or
      provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance
      rules or Marshall Islands law. Consistent with Marshall Islands law and as
      provided in our bylaws, we will notify our shareholders of meetings
      between 15 and 60 days before the meeting. This notification will contain,
      among other things, information regarding business to be transacted at the
      meeting. In addition, our bylaws provide that shareholders must give us
      between 150 and 180 days advance notice to properly introduce any business
      at a meeting of shareholders.





Other
than as noted above, we are in full compliance with all other Nasdaq corporate
governance standards applicable to U.S. domestic issuers.





PART
III





Item
17. Financial Statements





See Item
18.





Item
18. Financial Statements




The
financial information required by this Item is set forth on pages F-1 to F-24
and is filed as part of this annual report.







78











OCEANFREIGHT
INC.


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS


PagesReport
      of Independent registered public accounting firm
            F-2Report
      of Independent registered public accounting firm on internal control over
      financial reporting
            F-3Consolidated
      Balance Sheets as of December 31, 2008 and 2009
            F-4Consolidated
      Statements of Operations for the years ended December 31, 2007, 2008
      and 2009
            F-5Consolidated
      Statements of Stockholders' Equity for the years ended December 31, 2007,
      2008 and 2009
            F-6Consolidated
      Statements of Cash Flows for the years ended December 31, 2007, 2008 and
      2009
            F-7Notes
      to Consolidated Financial Statements
            F-8





F-1


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Board
of Directors and Stockholders of OCEANFREIGHT INC.





We have
audited the accompanying consolidated balance sheets of OceanFreight Inc. as of
December 31, 2009 and 2008, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2009. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.





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





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of OceanFreight Inc. at
December 31, 2009 and 2008, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2009, in conformity with U.S. generally accepted accounting
principles.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), OceanFreight Inc.'s internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 9, 2010
expressed an unqualified opinion thereon.





/s/ Ernst
& Young (Hellas) Certified Auditors Accountants S.A.





Athens,
Greece


March 9,
2010


F-2





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL


CONTROL
OVER FINANCIAL REPORTING





The Board
of Directors and Stockholders of OCEANFREIGHT INC.





We have
audited OceanFreight Inc.'s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). OceanFreight Inc.'s management is responsible
for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management's Report on Internal Control over
Financial Reporting appearing under Item 15.b in the Company's Annual Report on
Form 20-F for the year ended December 31, 2009. Our responsibility is to express
an opinion on the Company's internal control over financial reporting based on
our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial
statements.





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





In our
opinion, OceanFreight Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on the
COSO criteria.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of OceanFreight
Inc. as of December 31, 2009 and 2008 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2009, of OceanFreight Inc. and our report dated
March 9, 2010 expressed an unqualified opinion thereon.





/s/ Ernst
& Young (Hellas) Certified Auditors Accountants S.A.





Athens,
Greece


March 9,
2010


F-3





OCEANFREIGHT INC.


Consolidated Balance
Sheets


December
31, 2008 and 2009


(expressed
in thousands of U.S. Dollars-except for share and per share data)


2008
            
            
            2009ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
            
            $
            23,069
            
            
            $
            37,272Restricted
      cash
            
            
            —
            
            
            
            2,500Receivables
            
            
            2,073
            
            
            
            2,254Inventories
            
            
            1,338
            
            
            
            1,158Prepayments
      and other
            
            
            2,197
            
            
            
            6,035Vessels
      held for sale
            
            
            —
            
            
            
            51,080Total
      current assets
            
            
            28,677
            
            
            
            100,299FIXED
      ASSETS, NET:Advances
      for vessel acquisition
            
            
            —
            
            
            
            9,900Vessels,
      net of accumulated depreciation of $56,837 and $43,486,
      respectively
            
            
            587,189
            
            
            
            423,242Other,
      net of accumulated depreciation of $31 and $123,
    respectively
            
            
            159
            
            
            
            856Total
      fixed assets, net
            
            
            587,348
            
            
            
            433,998OTHER
      NON-CURRENT ASSETS:Deferred
      financing fees, net of accumulated amortization of $1,634 and $2,378,
      respectively
            
            
            2,081
            
            
            
            1,362Restricted
      cash
            
            
            6,511
            
            
            
            6,511Other
            
            
            953
            
            
            
            7,102Total
      assets
            
            $
            625,570
            
            
            $
            549,272LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Accounts
      payable
            
            $
            1,767
            
            
            $
            1,053Due
      to related parties
            
            
            111
            
            
            
            785Accrued
      liabilities
            
            
            9,731
            
            
            
            11,219Unearned
      revenue
            
            
            1,822
            
            
            
            1,323Derivative
      liability
            
            
            6,771
            
            
            
            7,443Sellers’
      credit
            
            
            25,000
            
            
            
            0Current
      portion of imputed deferred revenue
            
            
            10,290
            
            
            
            1,558Current
      portion of long-term debt
            
            
            60,889
            
            
            
            49,947Total
      current liabilities
            
            
            116,381
            
            
            
            73,328NON-CURRENT
      LIABILITIES:Derivative
      liability, net of current portion
            
            
            9,376
            
            
            
            3,606Imputed
      deferred revenue, net of current portion
            
            
            5,741
            
            
            
            -Long-term
      debt, net of current portion
            
            
            247,111
            
            
            
            215,727Total
      non-current liabilities
            
            
            262,228
            
            
            
            219,333COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITY:Preferred
      shares, par value $0.01; 5,000,000 shares authorized, none
      issued
            
            
            —
            
            
            
            —Common
      Shares, par value $0.01; 1,000,000,000 shares authorized, 18,544,493 and
      158,450,001 shares issued and outstanding at December 31, 2008 and 2009,
      respectively
            
            
            185
            
            
            
            1,584Subordinated
      Shares, par value $0.01; 10,000,000 shares authorized, none shares issued
      and outstanding
            
            
            —
            
            
            
            -Additional
      paid-in capital
            
            
            271,824
            
            
            
            458,757Accumulated
      deficit
            
            
            (25,048
            )
            
            
            (203,730
            )Total
      stockholders’ equity
            
            
            246,961
            
            
            
            256,611Total
      liabilities and stockholders’ equity
            
            $
            625,570
            
            
            $
            549,272





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


F-4


OCEANFREIGHT INC.


Consolidated Statements of
Operations
 For the
years ended December 31, 2007, 2008 and 2009
 (expressed
in thousands of U.S. Dollars-except for share and per share data)
 2007
              
              
              2008
              
              
              2009REVENUES:Voyage
      revenue
              
              $
              36,135
              
              
              $
              147,116
              
              
              $
              118,462Gain
      on forward freight agreements
              
              
              —
              
              
              
              —
              
              
              
              570Imputed
      deferred revenue
              
              
              4,998
              
              
              
              10,318
              
              
              
              14,47341,133
              
              
              
              157,434
              
              
              
              133,505EXPENSES:Voyage
      expenses
              
              
              (1,958
              )
              
              
              (14,275
              )
              
              
              (5,549
              )Vessels’
      operating expenses
              
              
              (9,208
              )
              
              
              (28,980
              )
              
              
              (43,915
              )General
      and administrative expenses
              
              
              (3,460
              )
              
              
              (9,127
              )
              
              
              (8,540
              )Survey
      and drydocking costs
              
              
              (1,685
              )
              
              
              (736
              )
              
              
              (5,570
              )Depreciation
              
              
              (13,210
              )
              
              
              (43,658
              )
              
              
              (48,272
              )Impairment
      on vessels
              
              
              
              
              
              
              
              
              
              
              (52,700
              )Loss
      on sale of vessels and vessel held for sale
              
              
              —
              
              
              
              —
              
              
              
              (133,176
              )Operating
      income/(loss )
              
              
              11,612
              
              
              
              60,658
              
              
              
              (164,217
              )OTHER
      INCOME (EXPENSES):Interest
      income
              
              
              2,214
              
              
              
              776
              
              
              
              271Interest
      and finance costs
              
              
              (5,671
              )
              
              
              (17,565
              )
              
              
              (19,834
              )Gain/(loss)
      on derivative instruments
              
              
              —
              
              
              
              (16,147
              )
              
              
              5,098Total
      other income (expenses)
              
              
              (3,457
              )
              
              
              (32,936
              )
              
              
              (14,465
              )Net
      Income/(loss)
              
              $
              8,155
              
              
              $
              27,722
              
              
              $
              (178,682
              )Earnings
      (losses) per common share, basic and diluted
              
              $
              0.84
              
              
              $
              1.94
              
              
              $
              (2.27
              )Earnings
      per subordinated share, basic and diluted
              
              $
              0.57
              
              
              $
              —
              
              
              $
              —Weighted
      average number of common shares, basic and diluted
              
              
              8,353,270
              
              
              
              14,321,471
              
              
              
              78,556,327Weighted
      average number of subordinated shares, basic and diluted
              
              
              2,042,566
              
              
              
              —
              
              
              
              —
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-5
  OCEANFREIGHT INC.
 Consolidated Statements of
Stockholders’ Equity
 For the
years ended
 December
31, 2007, 2008 and 2009
 (Expressed
in thousands of U.S. Dollars-except for share and per share data)
 Common
      Shares
              
              Subordinated
      Shares
              
              AdditionalComprehensive
                Income
      (Loss)
              
              #
      of
                shares
              
              Par
                value
              
              #
      of
                shares
              
              Par
                value
              
              paid-in
                capital
              
              Accumulated
                deficit
              
              TotalBALANCE,
      December 31, 2006
              
              
              
              
              —
              
              
              —
              
              
              2,000,000
              
              
              20
              
              $
              576
              
              $
              (105
              )
              $
              491-  Net income
              
              $
              8,155
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              8,155
              
              
              8,155-  Proceeds from Initial Public Offering, net of
                related expenses
              
              
              —
              
              
              12,362,500
              
              
              124
              
              
              —
              
              
              —
              
              
              216,670
              
              
              —
              
              
              216,794- 
      Stock based compensation expenses
              
              
              —
              
              
              31,579
              
              
              —
              
              
              63,158
              
              
              1
              
              
              849
              
              
              —
              
              
              850-   Capital contribution of executive
      management
                services and rent
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              168
              
              
              —
              
              
              168- 
      Cash dividends
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (13,048
              )
              
              (13,048
              )- 
      Comprehensive income
              
              $
              8,155BALANCE,
      December 31, 2007
              
              
              
              
              
              12,394,079
              
              
              124
              
              
              2,063,158
              
              
              21
              
              
              218,263
              
              
              (4,998
              )
              
              213,410- 
      Net income
              
              $
              27,722
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              27,722
              
              
              27,722-  Proceeds from Controlled Equity Offering, net
                of related expenses
              
              
              —
              
              
              4,000,000
              
              
              40
              
              
              —
              
              
              —
              
              
              50,860
              
              
              —
              
              
              50,900-  Stock
      based compensation expense
              
              
              —
              
              
              52,105
              
              
              —
              
              
              85,150
              
              
              1
              
              
              2,700
              
              
              —
              
              
              2,701-  Cancellation
      of common and subordinated
                stock
              
              
              —
              
              
              (7,894
              )
              
              —
              
              
              (42,105
              )
              
              (1
              )
              
              1
              
              
              —
              
              
              —-  Conversion
      of subordinated stock to common
                stock
              
              
              —
              
              
              2,106,203
              
              
              21
              
              
              (2,106,203
              )
              
              (21
              )
              
              —
              
              
              —
              
              
              —- 
      Cash dividends
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (47,772
              )
              
              (47,772
              )- 
      Comprehensive income
              
              $
              27,722BALANCE,
      December 31, 2008
              
              
              
              
              
              18,544,493
              
              
              185
              
              
              —
              
              
              —
              
              
              271,824
              
              
              (25,048
              )
              
              246,961-  Net loss
              
              
              (178,682
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (178,682
              )
              
              (178,682
              )-   Proceeds from standbyequity
      purchase and
                distribution agreements,net
      of related
                expenses
              
              
              
              
              
              139,905,508
              
              
              1,399
              
              
              —
              
              
              —
              
              
              186,889
              
              
              —
              
              
              188,288-    Stock based compensationexpense
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              44
              
              
              —
              
              
              44-    Comprehensive loss
              
              $
              (178,682
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —BALANCE,
      December 31, 2009
              
              
              
              
              
              158,450,001
              
              
              1,584
              
              
              —
              
              
              —
              
              $
              458,757
              
              $
              (203,730
              )
              $
              256,611
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-6
 
 OCEANFREIGHT INC
 Consolidated Statements of Cash
Flows
 For the years ended December 2007, 2008 and
2009
 (Expressed
in thousands of U.S. Dollars)
 2007
              
              
              2008
              
              
              2009Cash
      Flows from Operating Activities:Net
      income/(loss):
              
              $
              8,155
              
              
              $
              27,722
              
              
              $
              (178,682
              )Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
              
              
              13,210
              
              
              
              43,658
              
              
              
              48,272Amortization
      of financing costs
              
              
              1,159
              
              
              
              475
              
              
              
              744Amortization
      of imputed deferred revenue
              
              
              (4,998
              )
              
              
              (10,318
              )
              
              
              (14,473
              )Amortization
      of stock based compensation
              
              
              850
              
              
              
              2,701
              
              
              
              44(Gain)/Loss
      on derivative instruments
              
              
              -
              
              
              
              16,147
              
              
              
              (5,098
              )Impairment
      on vessels
              
              
              —
              
              
              
              —
              
              
              
              52,700Loss
      on sale of vessels and vessel held for sale
              
              
              —
              
              
              
              —
              
              
              
              133,176Executive
      management compensation and rent
              
              
              168
              
              
              
              —
              
              
              
              —Changes
      in operating assets and liabilities:Receivables
              
              
              (226
              )
              
              
              (1,847
              )
              
              
              (181
              )Inventories
              
              
              (678
              )
              
              
              (660
              )
              
              
              180Prepayments
      and other current and non-current
              
              
              (761
              )
              
              
              (1,434
              )
              
              
              (9,987
              )Accounts
      payable
              
              
              2,427
              
              
              
              (660
              )
              
              
              (714
              )Due
      to/(from) related parties
              
              
              742
              
              
              
              (631
              )
              
              
              163Accrued
      liabilities
              
              
              2,898
              
              
              
              6,822
              
              
              
              907Unearned
      revenue
              
              
              1,488
              
              
              
              334
              
              
              
              (499
              )Net Cash provided by
      Operating Activities
              
              
              24,434
              
              
              
              82,309
              
              
              
              26,552Cash
      Flows from Investing Activities:Advances
      for vessels acquisition
              
              
              —
              
              
              
              —
              
              
              
              (9,900
              )Additions
      to vessel cost (excluding sellers’ credit)
              
              
              (467,143
              )
              
              
              (120,537
              )
              
              
              (180,501
              )Net
      proceeds from sale of vessels
              
              
              —
              
              
              
              —
              
              
              
              60,404Refund
      from/(payment to) shareholder
              
              
              2
              
              
              
              —
              
              
              
              —Other
              
              
              (75
              )
              
              
              (128
              )
              
              
              (789
              )Net
      Cash used in Investing Activities
              
              
              (467,216
              )
              
              
              (120,665
              )
              
              
              (130,786
              )Cash
      Flows from Financing Activities:Proceeds
      from Initial Public Offering, net of related expenses
              
              
              216,794
              
              
              
              —
              
              
              
              —Proceeds
      from Standby Equity Purchase and Distribution Agreement, net of related
      costs
              
              
              —
              
              
              
              —
              
              
              
              188,288Proceeds
      from Controlled Equity offering, net of related expenses
              
              
              —
              
              
              
              50,900
              
              
              
              —Proceeds
      from long-term debt
              
              
              378,600
              
              
              
              63,400
              
              
              
              29,563Repayment
      of long-term debt
              
              
              (118,000
              )
              
              
              (16,000
              )
              
              
              (71,889
              )Repayment
      of sellers’ credit
              
              
              —
              
              
              
              —
              
              
              
              (25,000
              )Cash
      dividends
              
              
              (13,048
              )
              
              
              (47,772
              )
              
              
              —Increase
      in restricted cash
              
              
              —
              
              
              
              (6,511
              )
              
              
              (2,500
              )Increase
      in other assets
              
              
              —
              
              
              
              (940
              )
              
              
              —Payment
      of financing costs
              
              
              (3,019
              )
              
              
              (696
              )
              
              
              (25
              )Net Cash provided by
      Financing Activities
              
              
              461,327
              
              
              
              42,381
              
              
              
              118,437Net
      increase in cash and cash equivalents
              
              
              18,545
              
              
              
              4,025
              
              
              
              14,203Cash and cash equivalents at
      beginning of year
              
              
              499
              
              
              
              19,044
              
              
              
              23,069Cash
      and cash equivalents at end of year
              
              $
              19,044
              
              
              $
              23,069
              
              
              $
              37,272SUPPLEMENTAL
      CASH INFORMATIONCash
      paid for interest, net of amounts capitalized
              
              $
              3,481
              
              
              $
              12,340
              
              
              $
              18,509Non-cash
      operating activities: Executive management services and
    rent
              
              $
              168
              
              
              $
              —
              
              
              $
              —Non-cash
      financing activities:Fair
      value of charterers assumed in connection with vessel
      acquisitions
              
              $
              (31,347
              )
              
              $
              —
              
              
              $
              —Sellers’
      credit
              
              $
              —
              
              
              $
              25,000
              
              
              $
              —
 
 The
accompanying notes are an integral part of these consolidated financial
statements  F-7


OCEANFREIGHT
INC


Notes to Consolidated Financial
Statements


December
31, 2009


(Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)





1.
            Basis of Presentation and
      General Information:





The
accompanying consolidated financial statements include the accounts of
OceanFreight Inc. ("OceanFreight") and its wholly owned subsidiaries
(collectively, the "Company"). OceanFreight was incorporated on September 11,
2006 under the laws of the Marshall Islands. In late April 2007, OceanFreight
completed its Initial Public Offering in the United States under the United
States Securities Act of 1933, as amended, the net proceeds of which amounted to
$216,794. The Company's common shares are listed on the Nasdaq Global Market.
The Company started generating revenue from its planned principal operations of
seaborne transportation of commodities in early June 2007 when it took delivery
of four drybulk carriers. Accordingly, during the period from its inception to
the date it commenced operations, the Company was a development stage enterprise
in accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 915 "Development Stage Entities".





The
Company is engaged in the marine transportation of drybulk and crude oil cargoes
through the ownership and operation of drybulk and tanker vessels. Effective May
2009, the Company is also engaged in Forward Freight Agreements (FFA) trading
activities.





As of
December 31, 2009, the technical and commercial management of the Company's
fleet is contracted under separate management agreements with Cardiff Marine
Inc. ("Cardiff"), a related technical and commercial management company (Note
3). Previously, the technical management of the drybulk carriers was performed
by Wallem Ship Management Ltd. ("Wallem") and the technical management of the
tanker vessels and the commercial management of all vessels was performed by
Cardiff. In connection with the FFA trading activities, the Company has
appointed Cardiff as its broker (Note 3).





As of
December 31, 2009, the Company is the ultimate owner of all outstanding shares
of the following shipowning subsidiaries, each of which is domiciled in the
Republic of the Marshall Islands:




Company
    name
              Vessel
      name
              Deadweight
                Tonnage
                (in
      metric tons)
              Year
                Built
              Acquisition
      dateOceanship
      Owners Limited
              M/V
      Trenton
              75,229
              1995
              June
      4, 2007Oceanwealth
      Owners Limited
              M/V
      Pierre
              70,316
              1996
              June
      6, 2007Oceanventure
      Owners Limited
              M/V
      Austin
              75,229
              1995
              June
      6, 2007Oceanenergy
      Owners Limited
              M/V
      Helena
              73,744
              1999
              July
      30, 2007Oceantrade
      Owners Limited
              M/V
      Topeka
              74,710
              2000
              August
      2, 2007Oceanclarity
      Owners Limited
              M/T
      Pink Sands
              93,723
              1993
              December
      7, 2007Kifissia
      Star Owners Inc.
              M/V
      Augusta
              69,053
              1996
              December
      17, 2007Oceanfighter
      Owners Inc.
              M/T
      Olinda
              149,085
              1996
              January
      17, 2008Ocean
      Faith Owners Inc.
              M/T
      Tigani
              95,951
              1991
              October
      14, 2008Ocean
      Blue Spirit Owners Inc.
              M/T
      Tamara
              95,793
              1990
              October
      17, 2008Oceanwave
      Owners Limited
              M/V
      Partagas
              173,880
              2004
              July
      30, 2009Oceanrunner
      Owners Limited
              M/V
      Robusto
              173,949
              2006
              October
      19, 2009Oceanfire
      Owners Inc.
              M/V
      Cohiba
              174,200
              2006
              December
      9, 2009Oceanpower
      Owners Inc. (i)Freightwise
      Investment Ltd (ii)Companies
      with vessels soldOceanstrength
      Owners Limited
              Owner
      of M/V Lansing sold on July 1, 2009Oceanprime
      Owners Limited
              Owner
      of M/V Richmond sold on September 30, 2009Oceanresources
      Owners Limited
              Owner
      of M/V Juneau sold on October 23,
2009


F-8


OCEANFREIGHT
INC
 Notes to Consolidated Financial
Statements
 December
31, 2009
 (Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)





Voyage
revenues for 2007, 2008 and 2009 included revenues derived from the following
significant charterers (in percentages of total voyage revenues):




Charterer
              
              
              2007
              
              2008
              
              2009
              
              Reportable
      segment(Note
      14)A
              
              
              
              12
              %
              
              
              19
              %
              
              
              -
              
              DrybulkB
              
              
              
              30
              %
              
              
              13
              %
              
              
              16
              %
              DrybulkC
              
              
              
              14
              %
              
              
              13
              %
              
              
              -
              
              DrybulkD
              
              
              
              16
              %
              
              
              12
              %
              
              
              11
              %
              DrybulkE
              
              
              
              13
              %
              
              
              -
              
              
              
              -
              
              DrybulkF
              
              
              
              12
              %
              
              
              -
              
              
              
              -
              
              DrybulkG
              
              
              
              -
              
              
              
              -
              
              
              
              15
              %
              Drybulk


2.     Significant Accounting
Policies:





(a)
            Principles of
      Consolidation: The accompanying consolidated financial statements
      have been prepared in accordance with U.S. generally accepted accounting
      principles and include the accounts of OceanFreight Inc. and its wholly
      owned subsidiaries referred to in Note 1 above. All significant
      inter-company balances and transactions have been eliminated in the
      consolidation.





(b)
            Use of Estimates: The
      preparation of financial statements in conformity with U.S. generally
      accepted accounting principles 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.





(c)
            Foreign Currency
      Translation: The functional currency of the Company is the U.S.
      Dollar because the Company operates in international shipping markets, and
      therefore will primarily transact business in U.S. Dollars. The Company's
      accounting records are maintained in U.S. Dollars. Transactions involving
      other currencies during the periods presented are converted into U.S.
      Dollars using the exchange rates in effect at the time of the
      transactions. At the balance sheet date, monetary assets and liabilities,
      which are denominated in other currencies, are translated into U.S.
      Dollars at the period-end exchange rates. Resulting translation gains or
      losses are included in General and administrative expenses in the
      accompanying consolidated statements of
  operations.





(d)
            Concentration of Credit
      Risk: Financial instruments, which potentially subject the Company
      to significant concentrations of credit risk, consist principally of cash
      and cash equivalents and trade accounts receivable. The Company places its
      cash and cash equivalents, consisting mostly of deposits, with qualified
      financial institutions with high creditworthiness. The Company performs
      periodic evaluations of the relative creditworthiness of those financial
      institutions that are considered in the Company's investment strategy. The
      Company limits its credit risk with accounts receivable by performing
      ongoing credit evaluations of its customers' financial condition and
      generally does not require collateral for its accounts
      receivable.





(e)
            Cash and Cash
      Equivalents: The Company considers highly liquid investments such
      as time deposits and certificates of deposit with an original maturity of
      three months or less to be cash
equivalents.





(f)
            Receivables: The amount
      shown as receivables, at each balance sheet date, includes receivables
      from charterers for hire, freight and demurrage billings, net of a
      provision for doubtful accounts, if any. At each balance sheet date, all
      potentially uncollectible accounts are assessed individually for purposes
      of determining the appropriate provision for doubtful accounts. There were
      no doubtful receivables for the years ended December 31, 2009 and
      2008.





(g)
            Inventories: Inventories
      consist of consumable bunkers and lubricants which are stated at the lower
      of cost or market value. Cost is determined by the first in-first out
      method.


F-9


OCEANFREIGHT
INC
 Notes to Consolidated Financial
Statements
 December
31, 2009
 (Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)




(h)
              Insurance Claims: The
      Company records insurance claim recoveries for insured losses incurred on
      damage to fixed assets and for insured crew medical expenses. Insurance
      claim recoveries are recorded, net of any deductible amounts, at the
      time the Company's fixed assets suffer insured damages or when crew
      medical expenses are incurred, recovery is probable under the related
      insurance policies, and the Company makes an estimate of the amount to be
      reimbursed following the insurance claim. As of December 31 2009, the
      Company had two hull and machinery insurance claims of approximately $625
      with expected collection in the first or second quarter of 2010. No claims
      existed in 2008.


(i)
            Vessels, Net: Vessels
      are stated at cost, which consists of the contract price and any material
      expenses incurred in connection with the acquisition (initial repairs,
      improvements, delivery expenses and other expenditures to prepare the
      vessel for her initial voyage as well as professional fees directly
      associated with the vessel acquisition). Subsequent expenditures for major
      improvements are also capitalized when they appreciably extend the life,
      increase the earning capacity or improve the efficiency or safety of the
      vessels; otherwise, these amounts are charged to expense as
      incurred.




The
      cost of each of the Company's vessels is depreciated from the date of its
      acquisition on a straight-line basis during the vessel's remaining
      economic useful life, after considering the estimated residual value
      (vessel's residual value is equal to the product of its lightweight
      tonnage and estimated scrap rate of $200 per lwt). Management estimates
      the useful life of the Company's vessels to be 25 years from the date of
      initial delivery from the shipyard. When regulations place limitations
      over the ability of a vessel to trade on a worldwide basis, its remaining
      useful life is adjusted at the date such regulations are
      adopted.




(j)
            Vessels Held for Sale:
      It is the Company's policy to dispose of vessels and other fixed assets
      when suitable opportunities arise and not necessarily to keep them until
      the end of their useful life. The Company classifies assets and disposal
      groups as being held for sale in accordance with the ASC 360, Property,
      Plant and Equipment, when the following criteria are met: (i) management
      possessing the necessary authority has committed to a plan to sell the
      asset (disposal group); (ii) the asset (disposal group) is immediately
      available for sale on an "as is" basis; (iii) an active program to find
      the buyer and other actions required to execute the plan to sell the asset
      (disposal group) have been initiated; (iv) the sale of the asset (disposal
      group) is probable, and transfer of the asset (disposal group) is expected
      to qualify for recognition as a completed sale within one year; and (v)
      the asset (disposal group) is being actively marketed for sale at a price
      that is reasonable in relation to its current fair value and actions
      required to complete the plan indicate that it is unlikely that
      significant changes to the plan will be made or that the plan will be
      withdrawn. Long-lived assets or disposal groups classified as held for
      sale are measured at the lower of their carrying amount or fair value less
      cost to sell. These assets are not depreciated once they meet the criteria
      to be held for sale and are classified in current assets on the
      Consolidated Balance Sheet.




(k)
            Impairment of Long-Lived
      Assets:The Company uses ASC 360, Property, Plant and Equipment,
      which addresses financial accounting and reporting for the impairment or
      disposal of long-lived assets. The standard requires that long-lived
      assets and certain identifiable intangibles held and used by an entity be
      reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of the assets may not be recoverable.
      When the estimate of undiscounted cash flows, excluding interest charges,
      expected to be generated by the use of the asset is less than its carrying
      amount, the Company evaluates the asset for an impairment loss.
      Measurement of the impairment loss is based on the fair value of the
      asset. The Company determines the fair value of its assets based on
      management estimates and assumptions and by making use of available market
      data and taking into consideration third party
  valuations.




The Company evaluates the
      carrying amounts of its vessels and the periods over which they are
      depreciated to determine if events have occurred which would require
      modification to their carrying values or useful lives. In evaluating
      useful lives and carrying values of long-lived assets, management reviews
      certain indicators of potential impairment, such as undiscounted projected
      operating cash flows, vessel sales and purchases, business plans and
      overall market conditions.

                
                The
      current economic and market conditions, including the significant
      disruptions in the global credit markets, are having broad effects on
      participants in a wide variety of industries. Since mid 2008, the charter
      rates in the shipping industry have declined significantly, especially in
      the drybulk sector, and vessel values have also declined both as a result
      of a slowdown in the availability of global credit and the significant
      deterioration in charter rates; conditions that the Company considers
      indicators of a potential impairment.
                
                The
      Company's initial assessment for impairment losses commenced with the
      acquisition of vessels in June 2007. During 2007 and through much of the
      third quarter of 2008, both charter rates and vessel values were rising
      due to high demand, particularly for drybulk vessels, much of which was
      driven by the expanding world economy led by China, and for tanker
      vessels, given the world wide demand for oil due to expanding economic
      conditions. Consequently, there were no impairment loss indicators
      identified through the third quarter of 2008. However, in the fourth
      quarter of 2008, the shipping industry experienced significant declines in
      charter rates and vessel values. The current economic and market
      conditions, including the significant disruptions in the global credit
      markets, are having broad effects on participants in a wide
      variety of industries. The recent decline in charter rates, and the
      related declines in vessel values,coupled with a reduction in
      the availability of global credit, has resulted in conditions that the
      Company considers indicators of a potential
impairment.
 F-10
 OCEANFREIGHT
INC
 Notes to Consolidated Financial
Statements
 December
31, 2009
 (Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)
 The
      Company determines undiscounted projected net operating cash flows for
      each vessel and compares it to the vessel's carrying value. In developing
      estimates of future cash flows, the Company must make assumptions about
      future charter rates, vessel operating expenses, fleet utilization, and
      the estimated remaining useful lives of the vessels. These assumptions are
      based on historical trends as well as future expectations. The projected
      net operating cash flows are determined by considering the charter
      revenues from existing time charters for the fixed fleet days and an
      estimated daily time charter equivalent for the unfixed days (based on the
      most recent 10 year historical average of the six month, one year and
      three year time charter rates for drybulk vessels, the three year
      projected time charter rate for the first three years and the 10 year
      historical average of the one year and three year time charter rates
      thereafter for the Suezmax tanker vessel and the three year projected time
      charter rate for the Aframax tanker vessels, over the remaining estimated
      life of each vessel assuming an annual growth rate of 3.0%, net of
      brokerage commission for drybulk vessels and no growth rate for the tanker
      vessels. Expected outflows for scheduled vessels' maintenance and vessel
      operating expenses are based on historical data, and adjusted annually
      assuming an average annual inflation rate of 2%. Effective fleet
      utilization is assumed to be 99% and 97% for drybulk carriers and tanker
      vessels, respectively, in the Company's exercise, taking into account the
      period(s) each vessel is expected to undergo her scheduled maintenance
      (drydocking and special surveys), as well as an estimate of 1% off hire
      days each year for drybulk carriers and 3% for tanker vessels. The Company
      has assumed no change in the remaining estimated useful lives of the
      current fleet, and scrap values based on $200 per lwt at
      disposal.
                    
                    In 2009, the Company in assessing its exposure to
      impairment risks for its tanker fleet, has considered the current
      conditions of the of international tanker industry, the decline of the
      market values of its tanker vessels, the deterioration of the charter
      hires and the expected slow recovery of the market, the age of its tanker
      vessels and the increased costs for their maintenance and upgrading. As a
      result it has determined that the utilization of its tanker vessels over
      their remaining useful lives has been negatively impacted by the market
      conditions with low possibilities for recovery and, accordingly, has
      decided to write down two of its tanker vessels to their market values by
      recording an impairment charge of $52,700 in the 2009 consolidated
      financial statements (note 5). Same assessments were also made by the
      Company for its drybulk vessels without identifying any circumstances that
      would require  the write down of its drybulk vessel
values.
                    
                    No impairment loss was identified or recorded for 2008
      or 2007 and the Company has not identified any other facts or
      circumstances that would require the write down of vessel values
                    
                    The current assumptions used and the estimates made are
      highly subjective, and could be negatively impacted by further significant
      deterioration in charter rates or vessel utilization over the remaining
      life of the vessels which could require the Company to record a material
      impairment charge in future
periods.




(l)
            Accounting for Survey and
      Drydocking Costs: Special survey and drydocking costs are expensed
      in the period they are incurred.





(m)
            Financing Costs:Costs
      associated with new loans or refinancing of existing ones including fees
      paid to lenders or required to be paid to third parties on the lender's
      behalf for obtaining new loans or refinancing existing ones are recorded
      as deferred charges. Such fees are deferred and amortized to interest and
      finance costs during the life of the related debt using the effective
      interest method. Unamortized fees relating to loans repaid or refinanced,
      meeting the criteria of debt extinguishment, are expensed in the period
      the repayment or refinancing is
made.





(n)
            Imputed Prepaid/Deferred
      Revenue:The Company records any identified assets or liabilities
      associated with the acquisition of a vessel at fair value, determined by
      reference to market data. The Company values any asset or liability
      arising from the market value of assumed time charters as a condition of
      the original purchase of a vessel at the date when such vessel is
      initially deployed on its charter when a vessel is acquired. The value of
      the asset or liability is based on the difference between the current fair
      value of a charter with similar characteristics as the time charter
      assumed and the net present value of contractual cash flows of the time
      charter assumed, to the extent the vessel capitalized cost does not exceed
      its fair value without a time charter contract.
              
              When the
      present value of contractual cash flows of the time charter assumed is
      greater than its current fair value, the difference is recorded as imputed
      prepaid revenue. When the opposite situation occurs, the difference is
      recorded as imputed
      deferred revenue. Such assets and liabilities are amortized as a reduction
      of, or an increase in, revenue, respectively, during the period of the
      time charter assumed.





F-11


OCEANFREIGHT
INC


Notes to Consolidated Financial
Statements


December
31, 2009


(Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)





(o)
            Accounting for Revenue and
      Related Expenses:The Company generates its revenues from
      charterers for the charter hire of its vessels. Vessels are chartered
      using either voyage charters, where a contract is made in the spot market
      for the use of a vessel for a specific voyage at a specified charter rate,
      or time charters, where a contract is entered into for the use of a vessel
      for a specific period of time and at a specified daily charter hire rate.
      If a charter agreement exists and collection of the related revenue is
      reasonably assured, revenue is recognized as it is earned ratably during
      the duration of the period of each voyage or time charter. A voyage is
      deemed to commence upon the completion of discharge of the vessel's
      previous cargo and is deemed to end upon the completion of discharge of
      the current cargo. Demurrage income represents payments by a charterer to
      a vessel owner when loading or discharging time exceeds the stipulated
      time in the voyage charter and is recognized ratably as earned during the
      related voyage charter's duration period. Unearned revenue includes cash
      received prior to the balance sheet date and is related to revenue earned
      after such date.
              
              Voyage
      expenses, primarily consisting of port, canal and bunker expenses that are
      unique to a particular charter, are paid for by the charterer under time
      charter arrangements or by the Company under voyage charter arrangements,
      except for commissions, which are either paid for by the Company or are
      deducted from the hire or freight revenue, regardless of charter type. All
      voyage and vessel operating expenses are expensed as incurred, except for
      commissions. Commissions are deferred and amortized over the related
      voyage charter period to the extent revenue has been deferred since
      commissions are earned as the Company's revenues are earned.
              
              For
      the Company's vessels operating in pools, revenues and voyage expenses are
      pooled and allocated to each pool's participant on a time charter basis in
      accordance with an agreed-upon
formula.




(p)
            Earnings/(loss) per Common
      Share:Basic earnings (loss) per common share is computed by
      dividing net income available to common stockholders by the weighted
      average number of common shares outstanding for the year. Diluted earnings
      (loss) per common share reflects the potential dilution that could occur
      if securities or other contracts to issue common stock were exercised. As
      the Company was incorporated on September 11, 2006 but did not commence
      operations nor issue any shares of its capital stock until September 26,
      2006, the common shares issued to the Company's sole shareholder (as
      discussed in Note 7(a)) are considered as outstanding for the entire
      period from September 11, 2006 (date of inception) to December 31, 2006
      for purposes of both basic and diluted loss per share calculations. As
      further discussed in Note 7, on April 4, 2007 the Company amended its
      articles of incorporation and on April 30, 2007 successfully completed its
      Initial Public Offering and issued common and subordinated shares with
      different participation rights in dividends. The subordinated shares were
      converted into commons shares in August 2008. Accordingly, the Company,
      until the second quarter of 2008 followed the two-class presentation for
      purposes of both basic and diluted earnings per share
      calculation.




(q)
              Accounting
      for Financial Instruments:ASC 815, Derivatives and Hedging,
      requires all derivative contracts to be recorded at fair value, as
      determined in accordance with ASC 820, Fair Value Measurements and
      Disclosures, which is more fully discussed in Note 9. The changes in fair
      value of a derivative contract are recognized in earnings unless specific
      hedging criteria are met. The Company has not met those criteria and,
      therefore, the changes in fair value are recognized as an increase or
      decrease in other income and expense.


(r)
            Segment Reporting:ASC
      280, Segment Reporting, requires descriptive information about its
      reportable operating segments. Operating segments, as defined, are
      components of an enterprise about which separate financial information is
      available that is evaluated regularly by the chief operating decision
      maker in deciding how to allocate resources and in assessing performance.
      The Company reports financial information and evaluates its operations and
      operating results by type of vessel and not by the length or type of ship
      employment for its customers. The Company does not use discrete financial
      information to evaluate the operating results for each such type of
      charter. Although revenue can be identified for different types of
      charters or for charters with different duration, management cannot and
      does not identify expenses, profitability or other financial information
      for these charters. Furthermore, when the Company charters a vessel to a
      charterer, the charterer is free to trade the vessel worldwide and, as a
      result, the disclosure of geographic information is impracticable. The
      reportable segments of the company are the tankers segment and the drybulk
      carriers segment.





(s)
            Stock Based
      Compensation: In addition to cash compensation, the Company
      provides for the grant of restricted and subordinated shares to key
      employees. In accordance with ASC 718, Compensation – Stock Compensation,
      the Company measures the cost of employee services received in exchange
      for these awards based on the fair value of the Company's shares at the
      grant date (measurement date). The cost is recognized over the requisite
      service period, or vesting period. If these equity awards are modified
      after the grant date, incremental compensation cost is recognized in an
      amount equal to the
      excess of the fair value of the modified award over the fair value of the
      original award immediately before the
  modification.




F-12


OCEANFREIGHT
INC
 Notes to Consolidated Financial
Statements
 December
31, 2009
 (Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)
  (t)
              Income
      taxation: The Company is not liable for
      any income tax on its income derived from shipping operations. Instead, a
      tax is levied based on the tonnage of the vessels, which is included in
      vessel operating expenses in the accompanying consolidated statements of
      operations. The Company anticipates its income will continue to be exempt
      in the future, including U.S. federal income tax.  However, in
      the future, the Company may not continue to satisfy certain criteria in
      the U.S. tax laws and as such, may become subject to U.S. federal income
      tax on future U.S. source shipping
  income.




(u)
              Commitments
      and Contingencies: Commitments are
      recognized when the Company has a present legal or constructive obligation
      as a result of past events and it is probable that an outflow of resources
      embodying economic benefits will be required to settle this obligation,
      and a reliable estimate of the amount of the obligation can be made.
      Provisions are reviewed at each balance
  sheet




(v)
            New
      Accounting Pronouncements:
              
              In
      June 2009, the Financial Accounting Standards Board issued ASC 860,
      Transfers and Servicing, (an Amendment to ASC 860) to improve the
      relevance, representational faithfulness, and comparability of the
      information that a reporting entity provides in its financial statements
      about a transfer of financial assets; the effects of a transfer on its
      financial position, financial performance, and cash flows; and a
      transferor's continuing involvement, if any, in transferred financial
      assets. This Statement must be applied as of the beginning of each
      reporting entity's first annual reporting period that begins after
      November 15, 2009, for interim periods within that first annual reporting
      period and for interim and annual reporting periods thereafter. Earlier
      application is prohibited. We do not expect the adoption of ASC 860 to
      have an effect on our consolidated financial
      statements.
              In
      June 2009, the FASB issued "The FASB Accounting Standards Codification and
      the Hierarchy of Generally Accepted Accounting Principles. The objective
      of this Statement is to establish the FASB Accounting Standards
      Codification ("Codification") as the source of authoritative accounting
      principles recognized by the FASB to be applied by nongovernmental
      entities in the preparation of financial statements in conformity with
      U.S. GAAP. Rules and interpretive releases of the Securities and Exchange
      Commission ("SEC") under authority of federal securities laws are also
      sources of authoritative U.S. GAAP for SEC registrants. All guidance
      contained in the Codification carries an equal level of authority. The
      Statement will be effective for the Company for financial statements
      issued for interim and annual periods ending after September 15, 2009. On
      the effective date of this Statement, the Codification superseded all
      then-existing non-SEC accounting and reporting standards. All other
      non-grandfathered non-SEC accounting literature not included in the
      Codification became non-authoritative. The Company does not anticipate the
      adoption of this statement will have any impact on the Company's financial
      position or results of operations.
                
                In June 2009, the
      Financial Accounting Standards Board issued ASC 810, Consolidation,to improve financial reporting by enterprises involved with
      variable interest entities. This Statement shall be effective as of the
      beginning of each reporting entity's first annual reporting period that
      begins after November 15, 2009, for interim periods within that first
      annual reporting period, and for interim and annual reporting periods
      thereafter. Earlier application is prohibited.The
      Company does not anticipate the adoption of this guidance will have any
      impact on its financial position or results of operations.
                
                In
      June 2009, the FASB issued Statement of Financial Accounting Standard No.
      167 (SFAS No. 167), "Amendments to FASB Interpretation No.46(R)",
      improving financial reporting by enterprises involved with variable
      interest entities. SFAS No. 167 is currently being processed for inclusion
      in the ASC 810, "Consolidation." SFAS No. 167 addresses (1) the effects on
      certain provisions of FASB Interpretation No. 46 (revised December 2003),
      "Consolidation of Variable Interest Entities" already codified in ASC 810
      "Consolidation," SFAS No. 167 addresses (1) the effects on certain
      provisions as a result of the elimination of the qualifying
      special-purpose entity concept, and (2) constituent concerns about the
      application of certain key provisions of Interpretation 46(R), including
      those in which the accounting and disclosures under the Interpretation do
      not always provide timely and useful information about an enterprise's
      involvement in a variable interest entity. SFAS No. 167 is effective as of
      the beginning of each reporting entity's first annual reporting period
      that begins after November 15, 2009, for interim periods within that first
      annual reporting period, and for interim and annual reporting periods
      thereafter. Earlier application is prohibited. The Company does not
      anticipate the adoption of this guidance will have any impact on its
      financial position or results of
  operations.




F-13


OCEANFREIGHT
INC


Notes to Consolidated Financial
Statements


December
31, 2009


(Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)





In January 2010, the FASB issued an
      Accounting Standards Update (ASU) No. 2010-06, "Fair Value Measurements
      and Disclosures (Topic 820): Improving Disclosures about Fair Value
      Measurements." The updated guidance requires new disclosures to separately
      disclose the amounts of significant transfers in and out of Levels 1 and 2
      fair value measurements and describe the reasons for the transfers; and in
      the reconciliation for fair value measurements using significant
      unobservable inputs (Level 3), a reporting entity should present
      separately information about purchases, sales, issuances, settlements. The
      updated guidance also clarifies existing disclosures related to the level
      of disaggregation, and disclosures about inputs and valuation techniques.
      The new disclosures and clarifications of existing disclosures are
      effective for interim and annual reporting periods beginning after
      December 15, 2009, except for the disclosures about purchases, sales,
      issuances, and settlements in the roll forward of activity in Level 3 fair
      value measurements. Those disclosures are effective for fiscal years
      beginning after December 15, 2010, and for interim periods with those
      fiscal years. The Company does not anticipate the adoption of this
      guidance will have any impact on its financial position or results of
      operations.




3.
            Transactions with Related
      Parties:





(a)
            Cardiff Marine Inc.
      ("Cardiff"):The Company uses the services of Cardiff, a ship
      management company with offices in Greece, for the technical and
      commercial management of the Company's fleet. The issued and outstanding
      capital stock of Cardiff is beneficially owned (a) 30% by a
      company the beneficial owner of which is Mrs. Chryssoula Kandylidis,
      the mother of the Company's CEO and (b) 70% by a foundation controlled by
      Mr. George Economou. Mrs. C. Kandylidis is the sister of Mr. G. Economou
      and the wife of one of the Company's directors, Mr. Konstandinos
      Kandylidis.
              
              Cardiff
      is engaged under separate vessel management agreements directly by the
      Company's respective wholly-owned vessel owning subsidiaries. Under the
      vessel management agreements the Company pays a daily management fee per
      vessel, a daily superintendent's fee per vessel plus expenses for any
      services performed relating to evaluation of the vessel's physical
      condition, supervision of shipboard activities or attendance upon repairs
      and drydockings. At the beginning of each calendar year, these fees are
      adjusted upwards according to the Greek consumer price index.
              
              The
      Company has also entered into a services agreement with Cardiff, dated May
      15, 2008 and amended on October 21, 2008, which replaced the then existing
      agreement, whereby Cardiff provided supervisory services for the vessels
      whose technical manager was Wallem in exchange for a daily fee of $0.150
      (€105) per vessel. Effective July 2009, Cardiff ceased providing such
      services as it assumed the management of all of the Company's vessels
      previously managed by Wallem. Cardiff also provides other services under
      this agreement for which the Company pays additional fees, including (1) a
      financing fee of 0.2% of the amount of any loan, credit facility, interest
      rate swap agreement, foreign currency contract and forward exchange
      contract arranged by Cardiff, (2) a commission of 1% of the purchase price
      on sales or purchases of vessels in the Company's fleet that are arranged
      by Cardiff, (3) a commission of 1.25% of charterhire agreements arranged
      by Cardiff, (4) an information technology fee of $37.3 (€26,050) per
      quarter and (5) a fee of $0.747 (€521) per vessel per day in exchange for
      any vessel inspection services performed in connection with a possible
      purchase. At the beginning of each calendar year, these fees are adjusted
      upwards according to the Greek consumer price index. The Company also
      reimburses Cardiff for any out-of-pocket expenses at cost plus
      10%.
              
              Cardiff
      is entitled to a daily management fee per vessel of $1.082 (€755) and
      $1.232 (€860) for the drybulk carriers and tanker vessels, respectively.
      Furthermore, based on the management agreements with Cardiff the Company,
      as of December 31, 2009, has made a security payment of $7,089,
      representing managed vessels' estimated operating expenses and management
      fees for three months which will be settled when the agreements terminate,
      however, in case of a change of control the amount of the management fees
      is not refundable. The amount has been classified under non-current assets
      in the 2009 accompanying consolidated balance sheet.
              
              In
      May 2009, the Company entered into a service agreement with Cardiff
      whereby Cardiff is entitled to a 0.15% brokerage commission on the
      Company's FFA trading transactions.




The fees
charged by Cardiff for 2007, 2008 and 2009 are as follows:


Nature
      of charge
              
              2007
              
              2008
              
              2009
              
              Included
      inManagement
      fees
              $
              351
              
              $
              1,605
              
              $
              4,594
              
              Vessel
      operating expenses - Statement of OperationsCommission
      on charterhire agreements
              
              11
              
              
              698
              
              
              685
              
              Voyage
      expenses - Statement of OperationsCommission
      on FFA trading
              
              —
              
              
              —
              
              
              76
              
              Gain
      on forward freight agreements – Statement of OperationsCommissions
      for purchase of vessels
              
              816
              
              
              1,440
              
              
              1,785
              
              Vessels,
      net - Balance SheetCommissions
      for sale of vessels
              
              —
              
              
              —
              
              
              1,135
              
              Loss
      on sale of vessels – Statement of OperationsFinancing
      fees
              
              —
              
              
              870
              
              
              —
              
              Interest
      and finance costs - Statement of OperationsIT
      related fees
              
              —
              
              
              29
              
              
              —
              
              Other
      fixed assets, net - Balance SheetIT
      related fees
              
              —
              
              
              27
              
              
              —
              
              General
      and administrative expenses - Statement of OperationsFinancing
      fees
              
              —
              
              
              59
              
              
              —
              
              Deferred
      financing fees, net - Balance SheetLegal
      Attendance
              
              —
              
              
              —
              
              
              80
              
              Vessel
      operating expenses - Statement of OperationsMark
      up on reimbursement  of out of pocket expenses
              $
              —
              
              $
              —
              
              $
              13
              
              Vessel
      operating expenses - Statement of
Operations


At
      December 31, 2008 and 2009, $111 and $785, respectively, are payable to
      Cardiff, and are reflected in the accompanying consolidated balance sheets
      as Due to related parties. In addition, $18 due to and $344 due fom
      Cardiff as at December 31, 2008 and 2009, respectively, relating to the
      operations of the vessels under Cardiff's management, are included in
      Accounts Payable and Prepayments and other, respectively, in the
      accompanying consolidated balance sheets.




(b)
            Transbulk 1904 AB
      ("Transbulk"): The vessel M/V Richmondwas employed
      on a time charter with Transbulk for a period of 24 to 28 months at gross
      charter rate of $29.1 per day. On August 1, 2009, the vessel was
      redelivered to the Company due to early termination of the charter party.
      The vessel M/V Lansingwas employed under a time charter with Transbulk until June 29,
      2009 (the vessel was sold on July 1, 2009) at a gross charter hire of $24
      per day. Transbulk is a company based in Gothenburg, Sweden. Transbulk has
      been in the drybulk cargo chartering business for a period of
      approximately 30 years. Mr. George Economou serves on its Board of
      Directors





(c)
            Heidmar Trading LLC("Heidmar
      Trading"):On
      October 14, 2008, the M/T Tiganicommenced her
      time charter employment with Heidmar Trading LLC, for a period of
      approximately one year at a gross daily rate of $29.8 and it was
      redelivered to the Company in December 2009. Up to September 2009, Heidmar
      Trading was owned 49% by a company associated with Mr. George
      Economou.  The Company’s Chief Executive Officer is a member of
      its Board of Directors.





(d)
            Tri-Ocean Heidmar Tankers
      LLC("Tri-Ocean Heidmar"):On
      October 17, 2008, the M/T Tamara, concurrently
      with her delivery commenced her time charter employment with Tri-Ocean
      Heidmar Tankers LLC for a period of approximately 25 to 29 months at a
      gross daily rate of $27. Tri-Ocean Heidmar Tankers LLC is owned by Heidmar
      Inc. Up to September 2009, Heidmar Inc. was owned 49% by a company
      associated with Mr. George Economou..  Mr. George Economou is
      the chairman of the Board of Directors of Heidmar Inc. and the Company’s
      Chief Executive Officer is a member of the Board of Directors of Heidmar
      Inc.





(e)
            Blue Fin Tankers Inc. pool
      ("Blue Fin"):On
      October 29, 2008 the M/T Olindawas employed in
      the Blue Fin tankers spot pool for a minimum period of twelve months. Blue
      Fin is a spot market pool managed by Heidmar Inc. Up to September 2009,
      Heidmar Inc. was owned 49% by a company associated with Mr. George
      Economou.  Mr. George Economou is the chairman of the Board of
      Directors of Heidmar Inc. and the Company’s Chief Executive Officer is a
      member of the Board of Directors of Heidmar Inc. The vessel, as a pool
      participant, is allocated part of the pool’s revenues and voyage expenses,
      on a time charter basis, in accordance with an agreed-upon formula. In
      October 2008, the Company made an initial advance to the pool for working
      capital purposes of $928.4. As of December 31, 2008 and 2009 the Company
      had a receivable from the pool, including advances made to the pool for
      working capital purposes, of $940 (included in Other non- current assets)
      and $1,856 (of which $63 is included in receivables and $1,793 is included
      in prepayments and other assets), respectively, and is in the accompanying
      consolidated balance sheets. The revenue of M/V Olinda deriving from the
      pool amounted to $2,627 and $8,021 for  2008 and 2009,
      respectively and is included in Voyage revenue expenses in the
      accompanying consolidated statements of
  operations.





(f)
            Sigma Tanker Pool
      ("Sigma"): On
      December 22, 2009, the M/T Tigani was employed in
      the Sigma Tankers Inc. pool for a minimum period of twelve months. Sigma
      is a spot market pool managed by Heidmar Inc. Up to September 2009,
      Heidmar Inc. was owned 49% by a company associated with Mr. George
      Economou.  Mr. George Economou is the chairman of the Board of
      Directors of Heidmar Inc. and the Company’s Chief Executive Officer is a
      member of the Board of Directors of Heidmar Inc. The vessel, as a pool
      participant, is allocated part of the pool’s revenues and voyage expenses,
      on a time charter basis, in accordance with an agreed-upon formula. As of
      December 31, 2009, the Company had a receivable from the pool of $933
      which is included in receivables in the accompanying consolidated balance
      sheets. The revenue of the M/V Tigani deriving from the pool amounted to
      $178 for the year ended December 31, 2009 and is included in Voyage
      revenue expenses in the accompanying consolidated statements of
      operations.





(g)
            Lease agreement: The
      Company has leased office space in Athens, Greece, from Mr. George
      Economou. The lease commenced on April 24, 2007, with a duration of six
      months and the option for the Company to extend it for another six months.
      The monthly rental amounts to Euro 0.680 ($0.975 at the December 31, 2009
      exchange rate). This agreement is renewed with the same monthly rental and
      will be terminated upon mutual agreement of the parties. The rent charged
      for the years ended December 31, 2007, 2008 and 2009 amounted to $7.8,
      $12.1 and $11.4, respectively and is included in General and
      Administrative expenses in the accompanying consolidated statements of
      operations.


F-14


OCEANFREIGHT
INC


Notes to Consolidated Financial
Statements


December
31, 2009


(Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)





(h)
            Acquisition of Vessels:In January and October 2008 the Company took delivery of the tanker
      vessels M/T Olinda, M/T Tiganiand M/T Tamarafrom interests
      associated with Mr. George Economou for an aggregate consideration of
      $144,000. The purchase price was financed by a sellers' unsecured credit
      of $25,000 ($12,000 for the M/T Tamaraand $13,000 for
      the M/T Tigani)
      and the Company's own funds. The sellers' credit was payable 18 months
      after the physical delivery of the vessel and bore interest at 9.0% per
      annum for the amount relating to the M/T Tamaraand 9.5 % per
      annum for the amount relating to the M/T Tigani(Note 6). The
      total interest charged in this respect for 2008 and 2009 amounted to $500
      and $639, respectively and is included in Interest and finance costs in
      the accompanying consolidated statements of operations. The Company also
      paid Cardiff $1,440 representing a 1% commission on the vessels' purchase
      price.
              
              As provided in the Memorandum of Agreements of M/T
      Tiganiand M/T
      Tamara,following
      the resignation of one of the Company's directors on November 25, 2008,
      the sellers of the vessels had the right to demand the immediate payment
      of the Sellers' Credit of $25,000. The sellers of the above vessels on
      December 9, 2008, waived their contractual right to demand prompt
      prepayment of the Sellers' Credit until the amendment of the Nordea credit
      facility became effective (the "Amendatory Agreement") (Note 6). On
      February 6, 2009, following the effectiveness of the Amendatory Agreement
      with Nordea, the sellers of the M/T Tiganiand M/T Tamaraexercised their
      option, and requested the repayment of the sellers' credit to be made in
      cash from the proceeds of the Standby Equity Purchase Agreement discussed
      in Note 7 as also provided in the Amendatory Agreement, and waived their
      option for the settlement of the Sellers' Credit of $25,000 in the form of
      the Company's common stock at any date, effective December 9, 2008. As of
      December 31, 2009, the Company had fully repaid the Sellers'
    Credit.





4.
            Vessels
      held for sale:
              On
      December 11, 2009, the Company signed a Memorandum of Agreement with an
      unrelated party for the sale of M/V Pierreat a price of
      $22,580. Upon signing of the agreement, the new owners paid 20% of the
      purchase price into an escrow account until the vessel's delivery to them.
      The vessel is expected to be delivered to her new owners with its existing
      charter between March 1, 2010 and April 15, 2010. In November 2009 the
      Company initiated negotiations with unrelated third parties for the sale
      of M/T Olinda
      and M/T Tigani
      for a total consideration of $28,500 (see Note 15 (f)).  The
      Company has classified the above three vessels as “held for sale” in the
      accompanying December 31, 2009 consolidated balance sheet at their
      estimated sale proceeds as all criteria required for their classification
      as “Held for Sale” were met. The estimated loss of approximately $81,293
      is included in “Loss on sale of vessels and vessels held for sale” in the
      accompanying 2009 consolidated statement of
      operations.




5.
            Vessels,
      Net:
              
              The
      amounts in the accompanying consolidated balance sheets are analyzed as
      follows:




Cost
            
            
            Accumulated
              Depreciation
            
            
            Net
      Book
              ValueBalance
      December 31, 2007
            $
            498,490
            
            $
            (13,210
            )
            $
            485,280Additions
            
            145,537
            
            
            (43,628
            )
            
            101,909Balance
      December 31, 2008
            $
            644,027
            
            $
            (56,838
            )
            $
            587,189Additions
            
            180,501
            
            
            (48,180
            )
            
            132,321Impairment
      –( Note 2(k))
            
            (67,903
            )
            
            15,203
            
            
            (52,700
            )Vessel
      held for sale
            
            (153,622
            )
            
            22,341
            
            
            (131,281
            )Vessels
      sold
            
            (136,275
            )
            
            23,988
            
            
            (112,287
            )Balance
      December 31, 2009
            $
            466,728
            
            $
            (43,486
            )
            $
            423,242


The
Memoranda of Agreement associated with the acquisition of the vessels, M/V Austin, M/V Pierre, M/V Trentonand M/V Topekastipulated that the
vessels were delivered to the Company with their current charter parties,
expiring in 2010. The assumed charters were below market charter rates at the
time of the delivery and, accordingly, a portion of the consideration paid for
the vessels was allocated to the assumed charters to the extent the vessel
capitalized cost would not exceed its fair value without a time charter
contract.





The
Company recorded imputed deferred revenue totaling $31,347, with a corresponding
increase in the vessels' purchase price, which is being amortized to revenue on
a straight-line basis during the remaining duration of the corresponding
charter. The amortization of imputed deferred revenue for 2007, 2008 and 2009,
amounted to $4,998, 10,318 and $14,473, respectively and is separately reflected
in the accompanying consolidated statements of operations.




In
January 2008, the Company acquired and took delivery of a Suezmax tanker vessel,
the M/T Olinda, for a
total consideration of $65,665 including $650 of commission paid to Cardiff and
pre-delivery expenses of $15.


F-15


OCEANFREIGHT
INC


Notes to Consolidated Financial
Statements


December
31, 2009


(Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)





In
October 2008 the Company took delivery of two Aframax tanker vessels, the M/T
Tamaraand M/T Tigani. The related memoranda
of agreements were concluded in August and September 2008, respectively, with
interests associated with Mr. George Economou for an aggregate purchase price of
$79,792 including $790 of commissions paid to Cardiff and pre-delivery expenses
of $2. The purchase price was financed by a sellers' unsecured credit of $25,000
($12,000 for the M/T Tamaraand $13,000 for the M/T Tigani) and the Company's own
funds (Note 3(h)).





On May
21, 2009, the Company signed a Memorandum of Agreement with a third party for
the sale of M/V Lansingat a price of $21,950. The vessel was delivered to its new owners on July
1, 2009. The sale of the vessel resulted in a loss of $14,770 and is included in
"Loss from sale of vessels" in the accompanying 2009 consolidated statements of
operations.





On June
26, 2009, the Company signed a Memorandum of Agreement with a third party to
purchase the 2004 Capesize bulk carrier (173,880 dwt) M/V Partagasfor an aggregate
price of $56,647 including $560 of commissions paid to Cardiff and pre-delivery
expenses of $87. The vessel was delivered on July 30, 2009 and commenced a three
year time charter at a gross daily rate of $27.5. The purchase price of the
vessel was financed by equity raised under the Company's Standby Equity Purchase
Agreement and using the existing Nordea revolving credit facility (Note
6).





On July
8, 2009, the Company signed a Memorandum of Agreement with a third party to
purchase the 2006 Capesize bulk carrier (173,949 dwt) M/V Robustofor an aggregate
price of $61,945 including $612.5 of commissions paid to Cardiff and
pre-delivery expenses of $82.5. The vessel was delivered on October 19, 2009 and
commenced a minimum five year time charter at a gross daily rate of $26. The
purchase price of the vessel was financed by equity raised under the Company's
Standby Equity Purchase Agreement and using the existing Nordea revolving credit
facility (Note 6).





On July
10, 2009, the Company signed a Memorandum of Agreement with a third party for
the sale of M/V Juneauat a price of $19,900. The vessel was delivered to her new owners charter
free on October 23, 2009. The sale of the vessel resulted in a loss of $16,270
and is included in "Loss from sale of vessels" in the accompanying 2009
consolidated statements of operations.





On July
18, 2009, the Company signed a Memorandum of Agreement with a third party to
purchase a 2006 Capesize bulk carrier (174,200 dwt) M/V Cohibafor an aggregate price
of $61,909 including $612.5 of commissions paid to Cardiff and pre-delivery
expenses of $46.3. The vessel was delivered on December 9, 2009 and commenced a
minimum five year time charter at a gross daily rate of $26.25. The purchase
price of the vessel was financed by equity raised under the Company's Standby
Equity Purchase Agreement and using the existing Nordea revolving credit
facility (Note 6).





On August
7, 2009, the Company signed a Memorandum of Agreement with a third party for the
sale of M/V Richmondat
a price of $20.6 million. The vessel was delivered to her new owners on
September 30, 2009. The sale of the vessel resulted in a loss of $20,842 and is
included in "Loss from sale of vessels" in the accompanying 2009 consolidated
statements of operations.





On
September 30, 2009, the Company signed a Memorandum of Agreement with a third
party to purchase the 2005 Capesize bulk carrier (180,263 dwt) M/V Montecristofor an aggregate
price of $49,500. The vessel is scheduled to be delivered between April 1, 2010
and June 30, 2010. The vessel has been fixed under a minimum fouryear time charter that
will commence upon her delivery at a gross daily rate of $23.50 for the initial
four-year period. The charterer has the option to extend thecharter period for
additional four years at escalated to a gross daily rate of $24.5. The purchase
price of the vessel will be financed by equity raised under our SEDAagreement, from
Company's cash and/or from other forms of financing. As provided in the relate
Memorandum of Agreement, in October 2009 the Company made an advance payment
equal to the 20% of the selling price under the Memorandum of Agreement, or
$9,900, to a joint account held with the sellers, which is included in "Advances
for vessels acquisitions" in the accompanying 2009 consolidated balance
sheet.





The
Company's vessels have been pledged as collateral to secure the bank loans
discussed in Note 6.





As of
December 31, 2009, except for the M/T Olinda and the M/T Tigani that are employed in
separate tanker pools, all vessels were operating under time charters, the last
of which expires in February 2015. Contracts with expected duration in excess of
one year as of December 31, 2009, were as follows:


Vessel name
              
              Daily
      time charter gross rate
                (in U.S. Dollars)
              
              Estimated Expiration of
    CharterDrybulk CarriersM/V
      Robusto
              
              $
              26,000
              
              
              August
      2014 - December 2014M/V
      Cohiba
              
              $
              26,250
              
              
              October
      2014 - February 2015M/V
      Partagas
              
              $
              27,500
              
              
              July
      2012 - December 2012M/V
      Topeka
              
              $
              18,000
              
              
              January
      2011 - March 2011M/V
      Helena
              
              $
              32,000
              
              
              May
      2012 - January 2013M/V
      Augusta
              
              $
              16,000
              
              
              November
      2011 - March 2012M/V
      Austin
              
              $
              26,000
              
              
              March
      2010 - August 2010M/V
      Trenton
              
              $
              26,000
              
              
              April
      2010 - August 2010Tanker VesselsM/T
      Pink
      Sands
              
              $
              27,450
              
              
              October
      2010 - January 2011M/T
      Tamara
              
              $
              27,000
              
              
              December
      2010 - March 2011Drybulk Held for SaleM/V
      Pierre
              
              $
              23,000
              
              
              June
      2010  (Note 15)Tankers Held for
      SaleM/T
      Olinda
              
              Spot
      PoolM/T
      Tigani
              
              Spot
      Pool


6.
            Long-term
      Debt:





Credit Facility with Nordea Bank
Norge ASA (the "Nordea credit facility")





On
September 18, 2007, the Company entered into an agreement with Nordea Bank Norge
ASA ("Nordea"), for a $325,000 Senior Secured Credit Facility (the "Facility" or
the "Nordea Credit Facility") for the purpose of refinancing the then
outstanding balance of $118,000 of a facility with Fortis Bank concluded in June
2007, to partially finance the acquisition cost of vessels M/V Trenton, M/V Pierre, M/V Austin, M/V Juneau, M/V Lansing, M/V Helena, M/V Topeka, M/V Richmondand M/T Pink Sandsand financing the
acquisition of additional vessels. The Company and Nordea completed the
syndication of the Nordea credit facility on February 12, 2008 which resulted in
certain amendments to repayment terms and financial covenants, increased
interest margins and commitment fees on the undrawn portion of the
Facility.





On
January 9, 2009, the Company entered into an amendatory agreement to the Nordea
credit facility which became effective on January 23, 2009 and waived the breach
of the collateral maintenance coverage ratio covenant contained in such credit
facility resulting from the decrease in the market value of the Company's
vessels and reduced the level of the collateral maintenance coverage ratio for
the remaining term of the agreement. The waiver was effective from the date the
breach occurred, which was December 9, 2008. Under the terms of the amendatory
agreement the Company on January 23, 2009, made a prepayment of $25,000 and,
among other requirements, is also required (i) to ensure that under the reduced
collateral maintenance coverage ratio, the aggregate fair market value of the
vessels in the Company's fleet other than the M/T Tamaraand M/T Tigani, plus proceeds from a
vessel's sale or insurance proceeds from a vessel's loss, and the excess of the
fair market value of each of the M/T Tamaraand M/T Tiganiover the recorded
amount of the first priority ship mortgage over each such vessel under the
Company's DVB loan, described below, be not less than (a) 90% of the aggregate
outstanding balance under the Nordea credit facility plus any unutilized
commitment in respect of Tranche A until June 30, 2009, (b) 100% of the
aggregate outstanding balance under the Nordea credit facility plus any
unutilized commitment in respect of Tranche A from July 1, 2009 to December 31,
2009, (c) 110% of the aggregate outstanding balance under the Nordea credit
facility plus any unutilized commitment in respect of Tranche A from January 1,
2010 to March 31, 2010, (d) 115% of the aggregate outstanding balance under the
Nordea credit facility plus any unutilized commitment in respect of Tranche A
from April 1, 2010 to June 30, 2010, and (e) 125% of the aggregate outstanding
balance under the Nordea credit facility plus any unutilized commitment in
respect of Tranche A at all times thereafter; (ii) to pay interest at an
increased margin over LIBOR; (iii) to suspend the payment of dividends; and (iv)
to pay the sellers' credit only with the proceeds of new equity offerings or,
common shares, which the seller may request at any time, (v) from the closing
date and until all commitments are terminated and all amounts due under the
Facility have been repaid, the weighted average age of the vessels(weighted by
the fair market value of the vessels) shall not exceed 18 years; if any vessel
reaches the age of 21 years or more during this period, such vessel shall be
assigned no value in the calculation of the aggregate fair market value of the
vessels and (vi) liquidity must be at least $500 multiplied by the number of
vessels owned.





As
provided in the first amendatory agreement to the Nordea credit facility, in the
case of a sale of a vessel the Company has the option of either using the sale
proceeds for the prepayment of the facility or depositing such proceeds in an
escrow account pledged in favor of Nordea and using the funds to finance the
purchase of a new vessel of the same type or better within 90 days. The Company
made use of this option and used the sale proceeds of the M/V Lansing, M/V Richmond,M/V Juneau and M/V Pierre to
partially finance the acquisition of M/V Partagas, M/V Robusto,M/V Cohiba and M/V Montecristo, respectively,
and may use this option for M/T Olinda
as well.


F-16


OCEANFREIGHT
INC


Notes to Consolidated Financial
Statements


December
31, 2009


(Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)




The amended Nordea credit facility is comprised of the following two Tranches
and bears interest at LIBOR plus a margin:





Tranche A
is a reducing revolving credit facility in a maximum amount of $200,000 of which
the Company utilized $199,000 to repay the outstanding balance of the credit
facility with Fortis of $118,000, to partially finance the acquisition of
vessels and for working capital purposes. As of December 31, 2009, there is no
unused portion of the credit facility and the balance of Tranche A will be
reduced or repaid in 11 semi-annual equal installments in the amount of $11,000
each and a balloon installment in an amount of $40,000.





Tranche B
is a term loan facility in a maximum amount of $125,000 which was fully utilized
to partially finance the acquisition of vessels.As of December 31, 2009,
the balance of Tranche B is repayable in 12 equal consecutive semi-annual
installments in the amount of $6,944 each and a balloon installment in the
amount of $2,778.





The
Facility is secured with first priority mortgages over the vessels, first
priority assignment of vessels' insurances and earnings, specific assignment of
the time charters, first priority pledges over the operating and retention
accounts, corporate guarantee and pledge of shares.





Loan agreement with DVB Bank
SE





On
December 23, 2008, the Company entered into a loan agreement with DVB Bank SE
("DVB") for a new secured (by first priority ship mortgage over each of the M/T
Tamaraand M/T Tigani) term loan facility ("loan" or "DVB
loan") for an amount of $29.56 million, which was fully drawn in January 2009.
The Company used the proceeds of the loan to make the prepayment in the amount
of $25.0 million under its amendatory agreement to its Nordea credit facility.
As of December 31, 2009, the balance of DVB loan  of $ 18,563 is
repayable in 4 equal consecutive semi-annual installments in the amount of $2.31
million , followed by eight installments of $1.09 million each, plus a balloon
installment of $0.6 million payable together with the last installment. The loan
bears interest at 3.0% over LIBOR. The loan is secured with first preferred
mortgages on the two vessels, a corporate guarantee by the Company, assignment
of earnings and insurances and pledge of shares of the borrowers. The loan
agreement includes, among other covenants, financial covenants requiring that
(i) liquidity must be at least $500 multiplied by the number of vessels owned,
(ii) total interest bearing liabilities over the sum of total interest bearing
liabilities plus shareholders' equity adjusted to account for the market value
of the vessels must not exceed 90% up to June 30, 2010, 80% up to December 31,
2010 and 70% thereafter; (iii) the ratio of EBITDA to net interest expense of
any accounting period must not be less than 2.50 to 1; and (iv) the aggregate
charter free fair market value of the two vessels must not be less than 140%
(increasing by five percentage points each year, reaching 155% in the last year)
of the aggregate outstanding balance. The Company is permitted to pay dividends
under the loan of up to 50% of quarterly net profits. The Company will pay a
commitment fee of 0.65% per annum on the undrawn balance of the loan. The loan
agreement contains certain events of default, including a change of control, a
cross-default with respect to other financial indebtedness and a material
adverse change in the financial position or prospects of the borrowers or the
Company. Upon signing the loan agreement, the Company paid an upfront fee of
$443.5, which was included in "Deferred Financing fees" in the accompanying
December 31, 2008 and 2009 consolidated balance sheets and is amortized in
accordance with the policy discussed in Note 2(l).




On
November 24, 2009, DVB consented to a reduction of the collateral maintenance
coverage ratio to 125% for the period from November 24, 2009 to December 17,
2010, in consideration of a  deposit of $2.5 million in a retention
account that will be blocked during the above period. The Company has classified
this retention account in restricted cash included in current assets in
accompanying 2009 consolidated balance sheet. Following
the classification of the M/T Tigani as an asset held for
sale, the balance of its loan of $9,583 as of December 31, 2009 has been
classified under current portion of long term debt in the accompanying 2009
consolidated financial statements.





As at
December 31, 2009, the Company estimated that the collateral maintenance
coverage ratio was 94%.  After considering the aforementioned deposit
of $2.5 million in the retention account and the payment of the next scheduled
loan installment of $2.3 million, due on March 15, 2010, the Company concluded
that there is no need to classify as current liabilities any additional amounts
to maintain a collateral maintenance coverage ratio of 125%.  The next
date by which the Company must report its covenant compliance is March 31, 2010.
The Company’s calculation assumes no deterioration in the current fair market
values of the two vessels used as collateral.




The
principal payments required to be made after December 31, 2009 for the long-term
debt discussed above are as follows:




Year
      ending December 31,
              
              Nordea
                Tranche
      A
              
              Nordea
                Tranche
      B
              
              DVB
              
              
              Total2010
              
              
              22,000
              
              
              
              13,889
              
              
              
              14,058
              
              
              
              49,9472011
              
              
              22,000
              
              
              
              13,889
              
              
              
              2,116
              
              
              
              38,0052012
              
              
              22,000
              
              
              
              13,889
              
              
              
              2,389
              
              
              
              38,2782013
              
              
              22,000
              
              
              
              13,889
              
              
              
              -
              
              
              
              35,8892014
              
              
              22,000
              
              
              
              13,889
              
              
              
              -
              
              
              
              35,8892015
      and thereafter
              
              
              51,000
              
              
              
              16,666
              
              
              
              -
              
              
              
              67,666161,000
              
              
              
              86,111
              
              
              
              18,563
              
              
              
              265,674
  F-17
 OCEANFREIGHT
INC
 Notes to Consolidated Financial
Statements
 December
31, 2009
 (Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)


Total
      interest expense for 2007, 2008 and 2009 amounted to $4,250, $15,873 and
      $18,226 respectively, and is included in interest and finance costs in the
      accompanying 2007, 2008 and 2009 consolidated statements of operations
      (Note 13). The Company's weighted average interest rate (including the
      margin) for 2007, 2008 and 2009 was 6.23%, 4.49% and 3.41%,
      respectively.


7.
            Common Stock and Additional
      Paid-In Capital:





(a)
            Preferred stock and common
      stock:On
      April 4, 2007, the Company's articles of incorporation were amended. Under
      the amended articles of incorporation the Company's authorized capital
      stock consists of 5,000,000 shares of preferred shares, par value $0.01
      per share, 95,000,000 common shares (or the "Class A common stock"), par
      value $0.01 per share, and 10,000,000 subordinated shares (or the "Class B
      common stock"), par value $0.01 per share. All of the Company's shares of
      stock are in registered form. The Board of Directors has the authority to
      establish series of preferred stock and to designate preferences and
      relative, participating, optional or special rights and qualifications,
      limitations or restrictions. Through the amended and restated articles of
      incorporation, the 1,000 common shares issued on September 26, 2006 to the
      Company's then sole stockholder were converted into 1,000 subordinated
      shares. On April 5, 2007 the Company effected a stock split in the form of
      a stock dividend and issued 1,999 subordinated shares for each of its
      1,000 subordinated shares. All share and per share data included in the
      accompanying financial statements have been restated to reflect both the
      conversion and the stock dividend discussed above. Common share
      shareholders and subordinated share shareholders are entitled to one vote
      on all matters submitted to a vote of shareholders and to receive
      dividends, if any. The rights of subordinated share shareholders to
      receive dividends are subordinated to the rights of common share
      shareholders. If the Company does not have sufficient available cash to
      pay a quarterly dividend of $0.5125 per share ("base dividend") to its
      common share shareholders, the right of subordinated share shareholders to
      receive dividends will be subordinated to the right of the common share
      shareholders to receive dividends during the subordination period. During
      the subordination period, the Company's common shares will accrue dividend
      arrearages to the extent they do not receive a quarterly dividend of
      $0.5125 per share. The subordinated shares will not accrue any arrearages.
      The subordination period commenced upon completion of the initial public
      offering discussed below and ended on August 14, 2008 (see (f)
      below).





(b)
            Initial Public
      Offering:On
      April 30, 2007, the Company completed its Initial Public Offering in the
      United States under the United States Securities Act of 1933, as amended.
      In this respect, on April 30, 2007, 12,362,500 common shares at par value
      $0.01 were issued for $19.00 per share. The net proceeds of the Initial
      Public Offering which amounted to $216,794 were mainly utilized to
      partially finance the acquisition cost of the vessels M/V Trenton, M/V Austin, M/V Pierre, M/V Juneau, M/V Lansing, M/V Helenaand M/V Topeka. In addition the
      Company issued 31,579 common shares and 63,158 subordinated shares to its
      former Chief Financial Officer and former Chief Executive Officer,
      respectively (Note 10).





(c)
            Additional paid-in capital:The amount shown in the accompanying consolidated balance sheets,
      as additional paid-in capital, represents: (i) payments made by the
      stockholders in excess of the par value of common stock purchased by them,
      (ii) former Chief Executive Officer and Chief Financial Officer stock
      based compensation (Note 10) granted upon completion of the Company's
      initial public offering and (iii) the value of executive management
      services and office space provided by Basset Holdings Inc. until April 23,
      2007, at no charge.





(d)
            Stockholders' Rights
      Agreement:On
      April 17, 2008, the Company approved a Stockholders' Rights Agreement with
      American Stock Transfer & Trust Company, as Rights Agent, effective as
      of April 30, 2008. Under this Agreement, the Company declared a dividend
      payable of one preferred share purchase right, or Right, to purchase one
      one-thousandth of a share of the Company's Series A Participating
      Preferred Stock for each outstanding share of OceanFreight Inc. Class A
      common stock, par value U.S. $0.01 per share. The Rights will separate
      from the common stock and become exercisable after (1) the 10th day after
      public announcement that a person or group acquires ownership of 20% or
      more of the Company's common stock or (2) the 10th business day (or such
      later date as determined by the Company's board of directors) after a
      person or group announces a tender or exchange offer which would result in
      that person or group holding 20% or more of the Company's common stock. On
      the distribution date, each holder of a Right will be entitled to purchase
      for $100 (the "Exercise Price") a fraction (1/1000th) of one share of the
      Company's preferred stock which has similar economic terms as one share of
      common stock. If an acquiring person (an "Acquiring Person") acquires more
      than 20% of the Company's common stock then each holder of a Right (except
      an Acquiring Person) will be entitled to buy at the exercise price, a
      number of shares of the Company's common stock which has a market value of
      twice the exercise price. Any time after the date an Acquiring Person
      obtains more than 20% of the Company's common stock and before that
      Acquiring Person acquires more than 50% of the Company's outstanding
      common stock, the Company may exchange each Right owned by all other
      Rights holders, in whole or in part, for one share of the Company's common
      stock. The Company can redeem the Rights at any time on or prior to the
      earlier of a public announcement that a person has acquired ownership of
      20% or more of the Company's common stock, or the expiration date. The
      Rights expire on the earliest of (1) May 12, 2018 or (2) the exchange or
      redemption of the Rights as described above. The terms of the rights and
      the Stockholders Rights Agreement may be amended without the consent of
      the Rights holders at any time on or prior to the Distribution Date. After
      the Distribution Date, the terms of the rights and the Stockholders Rights
      Agreement may be amended to make changes that do not adversely affect the
      rights of the Rights holders (other than the Acquiring Person). The Rights
      do not have any voting rights. The Rights have the benefit of certain
      customary anti-dilution
protections.


F-18


OCEANFREIGHT
INC
 Notes to Consolidated Financial
Statements
 December
31, 2009
 (Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)


(e)
            Controlled Equity Offering —
      Sales Agreement ("Agreement"):On June 4, 2008, the Company filed a
      shelf registration statement on Form F-3, which was declared effective on
      June 6, 2008, pursuant to which the Company may sell up to $200,000 of an
      indeterminate number of securities. On June 19, 2008 the Company filed a
      Prospectus Supplement to the registration statement relating to the offer
      and sale of up to 4,000,000 common shares, par value $0.01 per share, from
      time to time through Cantor Fitzgerald & Co., as its agent for the
      offer and sale of the common shares, pursuant to the Agreement by and
      between the Company and Cantor Fitzgerald & Co. concluded on June 19,
      2008.




The Company paid to Cantor Fitzgerald & Co. a commission
      of up to 1.75% on the gross sale proceeds. The Controlled Equity Offering
      commenced at the beginning of the third quarter of 2008 and was completed
      on November 10, 2008. The net proceeds from the issuance of the 4,000,000
      shares amounted to $50,900.




(f)
            Subordinated Shares (Class B
      common shares):Following the dividend payment on August 14, 2008
      in the amount of $0.77 per share in respect of the second quarter of 2008,
      the Company satisfied the provisions under its Amended and Restated
      Articles of Incorporation for the early conversion of all of its issued
      and outstanding Class B common shares into Class A common shares on a
      one-for-one basis. Accordingly, on August 15, 2008 the then issued and
      outstanding 2,085,150 Class B common shares were converted into Class A
      common shares on a one for one
basis.





(g)
            Resale Shelf Registration
      Statement for Selling Shareholders:On September 3, 2008, the
      Company filed a resale shelf registration statement on form F-3 to
      register 2,085,150 common shares on behalf of the selling shareholders
      Basset Holdings Inc., Steel Wheel Investments Limited and Seabert Shipping
      Co. Basset Holdings Inc. and Steel Wheel Investments Limited are owned and
      controlled by Mr. Antonis Kandylidis, the Company's Chief Executive.
      Seabert Shipping Co. is controlled by Mr. Michael Gregos, the Company's
      former Chief Operating Officer. This resale shelf registration statement
      was amended on October 30, 2008 and has not yet been declared
      effective.





(h)
              
              
              
              (i)
              
              
              
              
              
              (j)
              
              
              
              (k)
            Dividends:During 2007
      and 2008 the Company paid dividends of $13,048 and $47,772, respectively.
      On December 12, 2008, the Board of Directors determined, after careful
      consideration of various factors, including the current recession in the
      shipping market, to suspend the payment of cash dividends until such time
      as the Board of Directors shall determine in its discretion, in order to
      preserve capital.
              
              Standby Equity Purchase
      Agreement — ("SEPA"):On January 30, 2009, the Company entered into
      a Standby Equity Purchase Agreement, or the SEPA, with YA Global Master
      SPV Ltd., or YA Global, for the offer and sale of up to $147.9 million of
      its common shares, par value $0.01 per share. In accordance with the terms
      of the SEPA, the Company sold 71,850,000 common shares with net proceeds
      amounting to $109,909. YA Global received a discount equal to 1.5% of the
      gross proceeds or $1,674. The SEPA was terminated on May 21, 2009. Of the
      SEPA proceeds, $25,000 was used to fully repay the sellers' credit of the
      M/T Tamaraand
      M/T Tigani,
      discussed in Note 3(h).
              
              Amendment of the Company's
      Articles of Incorporation:On July 13, 2009, during the Company's
      annual general meeting of shareholders, the Company's shareholders
      approved an amendment to the Company's articles of incorporation to
      increase the Company's authorized common shares from ninety-five million
      (95,000,000) common shares to one billion (1,000,000,000) common
      shares.
              
              Standby Equity Distribution
      Agreement — ("SEDA"):On July 24, 2009, the Company entered into a
      Standby Equity Distribution Agreement, or the SEDA, with YA Global,
      pursuant to which the Company may offer and sell up to $450,000 of the
      Company's common shares to YA Global. The SEDA commenced on September 28,
      2009 and has a duration of three years. YA Global is entitled to receive a
      discount equal to 1.5%. As of December 31, 2009, 68,055,508 shares had
      been sold with net proceeds amounting to $78,970. YA Global received a
      discount equal to 1.5% of the gross proceeds or $1,202. (Note
      15).





As
      of December 31, 2009, the Company's issued and outstanding stock amounted
      to 158,450,001 common shares.




F-19


OCEANFREIGHT
INC


Notes to Consolidated Financial
Statements


December
31, 2009


(Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)





8.
            Earnings per
      Share:


The
components for the calculation of earnings per common and subordinated share,
basic and diluted, for the years ended December 31, 2007, 2008 and 2009, are as
follows (due to the conversion of the subordinated shares into common shares
during August 2008 (Note 7 (f)), the basic and diluted per share amounts are
presented only for common shares for the year ended December 31, 2008 and
2009):


2007
              
              
              2008
              
              
              2009Net
      income/(loss)
              
              
              8,155
              
              
              
              27,722
              
              
              
              (178,682
              )-
      Less dividends paidCommon
      shares
              
              
              (11,186
              )
              
              
              (47,772
              )
              
              
              —Subordinated
      shares
              
              
              (1,862
              )
              
              
              —
              
              
              
              —Undistributed
      losses
              
              
              (4,893
              )
              
              
              (20,050
              )
              
              
              (178,682
              )Allocation
      of undistributed losses Common Shares:-
      12,394,079, 18,544,493 and 158,450,001,as of December 31, 2007, 2008 and
      2009, respectively
              
              
              (4,195
              )
              
              
              (19,737
              )
              
              
              (178,682
              )Subordinated
      shares-
      2,063,158, nil and nil as of December 31, 2007, 2008 and 2009,
      respectively
              
              
              (698
              )
              
              
              —
              
              
              
              —(4,893
              )
              
              
              (19,737
              )
              
              
              (178,682
              )
 
 Basic and diluted per share
amounts:
 
 Common
      Shares2009
                
                
                2008Distributed
      earnings
                
                
                —
                
                
                
                3.34Undistributed
      losses
                
                
                (2.27
                )
                
                
                (1.40
                )Total
                
                
                (2.27
                )
                
                
                1.94Weighted
      average number of shares basic and diluted
                
                
                78,556,327
                
                
                
                14,321,471
  2007Common
                  Shares
                
                
                Subordinated
                  SharesDistributed
      earnings
                
                
                1.34
                
                
                
                0.91Undistributed
      losses
                
                
                (0.50
                )
                
                
                (0.34
                )Total
                
                
                0.84
                
                
                
                0.57Weighted
      average number of shares basic and diluted
                
                
                8,353,270
                
                
                
                2,042,566





Due to
the conversion of the subordinated shares into common shares during August 2008
(Note 7 (f)), the basic and diluted per share amounts are presented only for
common shares for the year ended December 31, 2008 and 2009.





9.
            Financial
      Instruments:





Interest
rate risk





On
January 29, 2008, the Company entered into two interest rate swap agreements
with Nordea, the Company's lending bank, to partially hedge its exposure to
fluctuations in interest rates on a notional amount of $316,500, decreasing in
accordance with the debt repayments, by converting the variable rate of its debt
to fixed rate for a period for 5 years, effective April 1, 2008. Under the terms
of the interest rate swap agreement the Company and the bank agreed to exchange
at specified intervals, the difference between paying a fixed rate at 3.55% and
a floating rate interest amount calculated by reference to the agreed notional
amounts and maturities. These instruments have not been designated as cash flow
hedges under ASC 815, Derivatives and Hedging and, consequently, the changes in
fair value of these instruments are recorded through earnings. The fair value of
these instruments at December 31, 2009, is determined based on observable Level
2 inputs, as defined in ASC 820, Fair Value Measurements and Disclosures,
derived principally from or corroborated by observable market data. Inputs
include quoted prices for similar assets, liabilities (risk adjusted) and
market-corroborated inputs, such as market comparables, interest rates, yield
curves and other items that allow value to be determined. The fair value of
these instruments at December 31, 2008 amounted to a liability of $16,147
(excluding accrued interest receivable of $259), of which the current and
non-current portions of $6,771 and $9,376, respectively, are included in current
and non-current derivative liabilities in the accompanying consolidated balance
sheet as of December 31, 2008.   The fair value of these
instruments at December 31, 2009 amounted to a liability of $11,049 (excluding
accrued interest of $2,243), of which the current and non-current portions of
$7,443 and $3,606, respectively, are included in current and non-current
derivative liabilities in the accompanying consolidated balance sheet as of
December 31, 2009. The change in the fair value of these instruments for the
years ended December 31, 2008 and 2009, resulted in an unrealized loss of
$16,147 and an unrealized gain of $5,098, respectively in the accompanying
consolidated statement of operations.


F-20


OCEANFREIGHT
INC
 Notes to Consolidated Financial
Statements
 December
31, 2009
 (Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)


Forward Freight Agreements
      (FFAs)





In May
2009, the Company engaged in Forward Freight Agreements (FFA) trading
activities. The Company trades in the FFAs market with both an objective to
utilize them as economic hedging instruments in reducing the risk on specific
vessel(s), freight commitments, or the overall fleet or operations, and to take
advantage of short term fluctuations in the market prices. FFAs trading
generally have not qualified as hedges for accounting purposes and as such, the
trading of FFAs could lead to material fluctuations in the Company's reported
results from operations on a period to period basis. There were no open
positions as at December 31, 2009.





The net
gains from FFAs amounted to $570 and are separately reflected in the
accompanying 2009 consolidated statement of operations.





10.
            Stock based
      compensation:





The
Company as of the closing date of its Initial Public Offering granted to its
former Chief Executive Officer and former Chief Financial Officer 63,158
subordinated shares and 31,579 restricted common shares, respectively,
representing $1,800 at the initial price of the stock to the public of $19.00
per share. These shares were vesting at various dates as defined in the
employment agreements signed with the executives. On November 30, 2007,
following the departure of the Chief Executive Officer and the Chief Financial
Officer from the Company, the Company's Board of Directors compensated the
former Chief Executive Officer with 21,053 restricted subordinated shares that
had already been vested and the former Chief Financial Officer with 23,685
restricted common shares of which 15,790 vested on January 2, 2008 and 7,895 on
April 30, 2008. On April 22, 2008, within the context of the settlement
agreement discussed in Note 12, the 21,053 restricted subordinated shares were
exchanged for 21,053 common shares and 52,105 new common shares were issued to
the former Chief Executive Officer. The remaining 42,105 restricted subordinated
shares and 7,895 common restricted shares, initially granted to the former Chief
Executive Officer and former Chief Financial Officer, respectively, were
cancelled on January 30, 2008. The related compensation expense of $850 has been
included in General and Administrative expenses in the December 31, 2007
consolidated statement of operations with an offsetting entry to common stock
par value, subordinated stock par value and in additional paid-in capital in the
consolidated statement of stockholders' equity for the year ended December 31,
2007.





On
September 24, 2007, the Company reserved 5,150 restricted subordinated shares,
vesting 25% semi-annually, to Seabert Shipping Co., a company providing
consulting services to the Company in connection with the duties of the former
Chief Operating Officer which is controlled by the former Chief Operating
Officer. The shares were issued on March 13, 2008. Following the resignation of
the Chief Operating Officer in March 2009, the shares vested immediately,
pursuant to a resolution of the Board of Directors.





On
February 12, 2008 the Company granted 80,000 restricted subordinated shares,
vesting 25% annually, to Steel Wheel Investments Limited, a company providing
consulting services to the Company in connection with the duties of the Chief
Executive Officer, which is controlled by the Chief Executive Officer, subject
to contractual restrictions, including applicable vesting period. The shares
were issued on March 27, 2008. Following the conversion of the Company's
subordinated shares into common shares on August 15, 2008, the aggregate of
80,000 restricted subordinated shares mentioned above vested immediately as
provided in the related agreements.





Following
the conversion of the Company's subordinated shares into common shares (Note 7)
the aggregate of 85,150 restricted subordinated shares mentioned above vested
immediately as provided in the related agreements.





There
were no unvested shares as of December 31, 2009. Compensation cost recognized in
the years 2007, 2008 and 2009 amounted to $850, $2,701 and $44,
respectively.





11.
            Income
      Taxes:





Under the
laws of the Republic of Marshall Islands, Cyprus and Malta, the companies are
not subject to tax on international shipping income, however, they are subject
to registration and tonnage taxes, which have been included in vessel operating
expenses in the accompanying consolidated statement of operations.





Pursuant
to the Internal Revenue Code of the United States (the "Code"), U.S. source
income from the international operations of ships is generally exempt from U.S.
tax if the company operating the ships meets both of the following requirements:
(a) the Company is organized in a foreign country that grants an equivalent
exemption to corporations organized in the United States and (b) either (i) more
than 50% of the value of the Company's stock is owned, directly or indirectly,
by individuals who are "residents" of the Company's country of organization or
of another foreign country that grants an "equivalent exemption" to corporations
organized in the United States (50% Ownership Test) or (ii) the Company's stock
is "primarily and regularly traded on
an established securities market" in its country of organization, in another
country that grants an "equivalent exemption" to United States corporations, or
in the United States (Publicly-Traded Test).


F-21


OCEANFREIGHT
INC


Notes to Consolidated Financial
Statements


December
31, 2009


(Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)




Under the
regulations, the Company's stock will be considered to be "regularly traded" on
an established securities market if (i) one or more classes of its stock
representing 50 percent or more of its outstanding shares, by voting power and
value, is listed on the market and is traded on the market, other than in
minimal quantities, on at least 60 days during the taxable year; and (ii) the
aggregate number of shares of our stock traded during the taxable year is at
least 10% of the average number of shares of the stock outstanding during the
taxable year. Notwithstanding the foregoing, the regulations provide, in
pertinent part, that each class of the Company's stock will not be considered to
be "regularly traded" on an established securities market for any taxable year
in which 50% or more of the vote and value of the outstanding shares of such
class are owned, actually or constructively under specified stock attribution
rules, on more than half the days during the taxable year by persons who each
own 5% or more of the value of such class of the Company's outstanding stock ("5
Percent Override Rule").





In the
event the 5 Percent Override Rule is triggered, the regulations provide that the
5 Percent Override Rule will nevertheless not apply if the Company can establish
that among the closely-held group of 5% Stockholders, there are sufficient 5%
Stockholders that are considered to be "qualified stockholders" for purposes of
Section 883 to preclude non-qualified 5% Stockholders in the closely-held group
from owning 50% or more of each class of the Company's stock for more than half
the number of days during the taxable year.





Treasury
regulations are effective for calendar year taxpayers, like the Company,
beginning with the calendar year 2005. All the Company's ship-operating
subsidiaries currently satisfy the 50% Ownership Test. In addition, following
the completion of the Initial Public Offering of the Company's shares (Note
7(b)), the management of the Company believes that by virtue of a special rule
applicable to situations where the ship operating companies are beneficially
owned by a publicly traded company like the Company, the Publicly Traded Test
can be satisfied based on the trading volume and the widely-held ownership of
the Company's shares, but no assurance can be given that this will remain so in
the future, since continued compliance with this rule is subject to factors
outside the Company's control.





12.
            Commitments and
      Contingencies:





Various
claims, suits, and complaints, including those involving government regulations
and product liability, arise in the ordinary course of shipping business. In
addition, losses may arise from disputes with charterers, agents, insurance and
other claims with suppliers relating to the operations of the Company's vessels.
Currently management is not aware of any such claims or contingent liabilities
which should be disclosed, or for which a provision should be established in the
accompanying consolidated financial statements.





The
Company accrues for the cost of environmental liabilities when management
becomes aware that a liability is probable and is able to reasonably estimate
the probable exposure. Currently, management is not aware of any such claim or
contingent liabilities which should be disclosed, or for which a provision
should be established in the accompanying consolidated financial statements. Up
to $1 billion of the liabilities associated with the individual vessels'
actions, mainly for sea pollution, are covered by the Protection and Indemnity
(P&I) Club Insurance.





The
Company's former Chairman, President and Chief Executive Officer, Mr. Cowen, had
asserted a claim for breach of his employment agreement and for unidentified
post-employment conduct by the Company. On April 7, 2008, the Company and the
former Chairman, President and Chief Executive Officer reached a settlement
agreement resolving all claims asserted by him. In connection with this
agreement, the Company issued to the former Chairman, President and Chief
Executive Officer 21,053 common shares in exchange for 21,053 restricted
subordinated shares, plus an additional 52,105 common shares both of which took
effect on April 22, 2008. The related expense was approximately $1,100 and is
included in General and Administrative expenses in the accompanying consolidated
statement of operations for the year ended December 31, 2008. The Company also
granted to the former Chairman, President and Chief Executive Officer certain
registration rights for the 52,105 common shares held by him.





On August
13, 2007, the Company entered into a six-year lease for office facilities in
Athens, which expires in August 2013 with the Company's option to extend the
agreement through October 1, 2017. The monthly lease payment is Euro 4,929 ($7.1
based on the Euro to USD exchange rate at December 31, 2009) and is adjusted on
August 1 of each year based on the inflation rate announced by the Greek State
as defined in the agreement. The future minimum lease payments are $84.8 for
each of the years 2009, 2010, 2011, and 2012 and $60 for the year
2013.





F-22
 OCEANFREIGHT
INC
 Notes to Consolidated Financial
Statements
 December
31, 2009
 (Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)


13.
            Interest and Finance
      Cost:




The
amounts included in the accompanying consolidated statement of operations are
analyzed as follows:
 2007
                
                
                
                2008
                
                
                
                2009Interest
      on long-term debt
                
                
                4,250
                
                
                
                15,873
                
                
                
                18,226Amortization
      and write-off of financing fees
                
                
                1,159
                
                
                
                475
                
                
                
                744Long-term
      debt commitment fees
                
                
                202
                
                
                
                16
                
                
                
                7Finance
      expenses
                
                
                —
                
                
                
                1,127
                
                
                
                709Other
                
                
                60
                
                
                
                74
                
                
                
                1485,671
                
                
                
                17,565
                
                
                
                19,834


14.
            Segment
      Information:




The table below presents information about the
      Company’s reportable segments as of December 31, 2007, 2008 and 2009 and
      for the years then ended. The accounting policies followed in the
      preparation of the reportable segments are the same as those followed in
      the preparation of the Company’s consolidated financial
      statements.


December
31, 2007


Drybulk
                carriers
              
              
              Tankers
              
              
              Other
              
              
              TotalRevenues
      from external customers
              
              
              40,542
              
              
              
              591
              
              
              
              —
              
              
              
              41,133Interest
      expense and finance costs
              
              
              (5,379
              )
              
              
              (257
              )
              
              
              (35
              )
              
              
              (5,671
              )Interest
      Income
              
              
              135
              
              
              
              —
              
              
              
              2,079
              
              
              
              2,214Depreciation
              
              
              (12,925
              )
              
              
              (285
              )
              
              
              —
              
              
              
              (13,210
              )Segment
      profit
              
              
              6,507
              
              
              
              177
              
              
              
              1,471
              
              
              
              8,155Total
      assets
              
              
              441,051
              
              
              
              47,241
              
              
              
              19,633
              
              
              
              507,925
 
 December
31, 2008
 Drybulk
                carriers
              
              
              Tankers
              
              
              Other
              
              
              TotalRevenues
      from external customers
              
              
              114,758
              
              
              
              42,676
              
              
              
              —
              
              
              
              157,434Interest
      expense and finance costs
              
              
              (11,902
              )
              
              
              (5,624
              )
              
              
              (39
              )
              
              
              (17,565
              )Interest
      Income
              
              
              —
              
              
              
              —
              
              
              
              776
              
              
              
              776Loss
      on derivative instruments
              
              
              (11,347
              )
              
              
              (4,800
              )
              
              
              —
              
              
              
              (16,147
              )Depreciation
              
              
              (32,865
              )
              
              
              (10,762
              )
              
              
              (31
              )
              
              
              (43,658
              )Segment
      profit/(loss)
              
              
              31,766
              
              
              
              4,260
              
              
              
              (8,304
              )
              
              
              27,722Total
      assets
              
              
              408,680
              
              
              
              184,753
              
              
              
              32,137
              
              
              
              625,570
  December
31, 2009
 Drybulk
                  carriers
                
                
                Tankers
                
                
                Other
                
                
                TotalRevenues
      from external customers
                
                
                96,672
                
                
                
                36,263
                
                
                
                570
                
                
                
                133,505Interest
      expense and finance costs
                
                
                (12,875
                )
                
                
                (6,914
                )
                
                
                (45
                )
                
                
                (19,834
                )Interest
      Income
                
                
                —
                
                
                
                —
                
                
                
                271
                
                
                
                271Gain
      on derivative instruments
                
                
                3,686
                
                
                
                1,412
                
                
                
                —
                
                
                
                5,098Depreciation
                
                
                (30,100
                )
                
                
                (18,080
                )
                
                
                (92
                )
                
                
                (48,272
                )Impairment
      on vessels
                
                
                —
                
                
                
                (52,700
                )
                
                
                —
                
                
                
                (52,700
                )Loss
      from sale of vessels and vessel held for sale
                
                
                (69,250
                )
                
                
                (63,926
                )
                
                
                —
                
                
                
                (133,176
                )Segment
      loss
                
                
                (46,248
                )
                
                
                (124,865
                )
                
                
                (7,569
                )
                
                
                (178,682
                )Total
      assets
                
                
                444,180
                
                
                
                56,253
                
                
                
                48,839
                
                
                
                549,272




15.
            Subsequent
      Events:





(a)
            On
      January 12, 2010, the Company filed a shelf registration statement on Form
      F-3, which was declared effective on January 21, 2010, pursuant to which
      it may sell up to $400,000 of an undeterminable number of
      securities.





(b)
            On
      January 14, 2010, the Company's Board of Directors adopted and approved
      the 2010 Equity Incentive Plan, under which 30,000,000 common shares were
      reserved for issuance.




F-23
 OCEANFREIGHT
INC
 Notes to Consolidated Financial
Statements
 December
31, 2009
 (Expressed in thousands of United
States Dollars, except for share and per share data, unless otherwise
stated)


(c)
            On
      January 16, 2010, the charterers of the M/V Pierre terminated their
      time charter agreement as a result of their insolvency. The Company is in
      arbitration with the charterers of the vessel for an amount of $550,000,
      which represents loss of hire and other expenses.  On January 19,
      2010, the vessel entered into a new time charter agreement ending in June
      2010 for the balance of the original charter agreement at a gross daily
      rate of $23. The vessel was delivered to the new charterers on January 27,
      2010.





(d)
            On
      January 18, 2010, the Company's Board of Directors adopted and approved in
      all respect the resolutions of the meetings of the Compensation Committee
      held on January 15, 2010, pursuant to which 3,000,000 common shares were
      awarded to Steel Wheel Investments Limited, a company controlled by the
      Company's Chief Executive Officer and 200,000 common shares were awarded
      to the Company's Directors and
officers.


(e)
              On
      February 2, 2010, for corporate purposes the Company established three
      wholly owned subsidiaries (Oceanview Owners Limited, Oceansurf Owners
      Limited and Oceancentury Owners Limited) incorporated the Marshall
      Islands.
 (f)
                  
                  
                  (g)
                On
      February 22, 2010, the Company's Board of Directors authorized the
      Company's management to finalize the sale of M/T Olinda and M/T Tigani, which
      was initiated in November 2009.
                  
                  Under
      the rules of The Nasdaq Stock Market, listed companies are required to
      maintain a share price of at least $1.00 per share and if the closing
      share price stays below $1.00 for a period of 30 consecutive business
      days, then the listed company would have a cure period of at least 180
      days to regain compliance with the $1.00 per share minimum.  The
      Company’s  stock price has declined below $1.00 per share for a
      period of 30 consecutive business days, and on March 1, 2010 the
      Company received notice from The Nasdaq Stock Market that it is
      not in compliance with the minimum bid price
  rule.


(h)
            As
      of March 9, 2010, 20,150 of common shares had been issued with net
      proceeds of $19,257 under our SEDA agreement (Note 7). The YA Global
      discount of 1.5% amounted to $293.3.  As of March 9, 2010, the issued
      and outstanding common shares of the Company amounted to 181,800,001
      including 3,200,000 shares issued under the 2010 Equity Incentive
      Plan.




F-24




Item
19. Exhibits




Exhibit
      Number
            Description  1.1
            Amended
      and Restated Articles of Incorporation of the Company
  (1)1.2
            Amended
      and Restated By-laws of the Company (2)2.1
            Form
      of Share Certificate (3)4.1
            Stockholders
      Rights Agreement dated April 30, 2008 (4)4.2
            Form
      of Registration Rights Agreement (5)4.3
            2010
      Equity Incentive Plan4.4
            Controlled
      Equity offering Sales Agreement between the Company and Cantor Fitzgerald
      & Co. (2)4.5
            Amended
      and Restated Loan Agreement with Nordea Bank Finland Plc
    (6)4.6
            Amendatory
      Agreement to Amended and Restated Loan Agreement with Nordea Bank Finland
      Plc (7)4.7
            Secured
      Term Loan Facility Agreement with DVB Bank SE (7)4.8
            Standby
      Equity Purchase Agreement between the Company and YA Global Master SPV
      Ltd. (7)4.9
            First
      Amendment to the Standby Equity Purchase Agreement between the Company and
      YA Global Master SPV Ltd. (8)4.10
            Standby
      Equity Distribution Agreement between the Company and YA Global Master SPV
      Ltd. (9)4.11
            Form
      of Vessel Management Agreement (M/T Pink Sands)
      (10)4.12
            Addendum
      dated May 15, 2008 to Vessel Management Agreements with Cardiff (For M/V
      Juneau, M/T Pink Sands& M/T
      Olinda)
      (10)4.13
            Addendum
      dated October 21, 2008 to Vessel Management Agreements with Cardiff as
      amended on May 15, 2008 (For M/V Juneau, M/T Pink Sands& M/T
      Olinda)
      (10)4.14
            Addendum
      dated January 14, 2009 to Vessel Management Agreements with Cardiff as
      amended on October 21, 2008 (For M/V Juneau, M/T Pink Sands& M/T
      Olinda)
      (10)4.15
            Addendum
      dated January 14, 2009 to Vessel Management Agreements with Cardiff dated
      October 13, 2008 (For M/T Tamara& M/TTigani)
      (10)4.16
            Addendum
      dated January 14, 2009 to Vessel Management Agreements with Cardiff dated
      January 2, 2009 (For Eight Panamax Drybulk Vessels)
(10)4.17
            Services
      Agreement with Cardiff dated May 15, 2008 (10)4.18
            Addendum
      dated October 21, 2008 to Services Agreement with Cardiff dated May 15,
      2008 (10)4.19
            Addendum
      dated January 14, 2009 to Services Agreement with Cardiff dated May 15,
      2008, as amended on October 21, 2008 (10)8.1
            Subsidiaries
      of the Company12.1
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer12.2
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer13.1
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200213.2
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200215.1
            Consent
      of Independent Registered Accounting
Firm




____________





(1)
            Filed
      as an Exhibit to the Company's Registration Statement on Form F-3 (File
      No. 333-160784) on July 24, 2009.





(2)
            Filed
      as an Exhibit to the Company's report on Form 6-K filed on June 19,
      2008.





(3)
            Filed
      as an Exhibit to the Company's Amended Registration Statement on Form
      F-1/A (Amendment No.1) (File No. 333-141958 ) on April 18,
      2007.





(4)
            Filed
      as an Exhibit to the Company's Registration Statement on Form 8-A filed
      April 30, 2008.





(5)
            Filed
      as an Exhibit to the Company's Amended Registration Statement on Form
      F-1/A (Amendment No.3) (File No. 333-141958 ) on April 20,
      2007.





(6)
            Filed
      as an Exhibit to the Company's Annual Report on Form 20-F for the year
      ended December 31, 2007 on March 7,
2008.





(7)
            Filed
      as an Exhibit to the Company's report on Form 6-K filed on February 2,
      2009.





(8)
            Filed
      as an Exhibit to the Company's report on Form 6-K filed on February 13,
      2009.





(9)
            Filed
      as an Exhibit to the Company's report on Form 6-K filed on July 24,
      2009.





(10)  Filed
as an Exhibit to the Company's Annual Report on Form 20-F for the year ended
December 31, 2008 on March 23, 2009.











SIGNATURES





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





OceanFreight
      Inc.(Registrant)Dated: 
      March 9, 2010/s/
      Antonis KandylidisAntonis
      KandylidisChief
      Executive Officer











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