UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

Date of event requiring this shell company report

Commission file number

001-32520

NEWLEAD HOLDINGS LTD.

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

Bermuda

(Jurisdiction of incorporation or organization)

83 Akti Miaouli & Flessa Str., Piraeus Greece 185 38

(Address of principal executive offices)

Mr. Michail S. Zolotas

83 Akti Miaouli & Flessa Str.

Piraeus Greece 185 38

Tel: + 30 213 014 8000, Fax: + 30 213 014 8609

E-mail: mzolotas@newleadholdings.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:

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:

There were 309,453,336 and 425,668,806 of the registrant’s common shares outstanding as of December 31, 2014 and May 12, 2015, respectively.

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

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

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     ☐     No     ☒

 TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

In this report, “we,” “us,” “our,” “NewLead” and the “Company” all refer to NewLead Holdings Ltd. and its subsidiaries. With respect to our coal business, “we,” “us,” “our,” “NewLead” and the “Company” all refer to NewLead Holdings Ltd., its subsidiaries, and its joint venture entities.

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 therewith. This document and any other written or oral statements made by the Company or on its behalf may include forward-looking statements that reflect its current views with respect to future events and financial performance. This report includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking statements.” We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. When used in this document, the words “anticipate,” “estimate,” “project,” “forecast,” “plan,” “potential,” “may,” “should” and “expect” reflect forward-looking statements.

All statements in this document that are not statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, such matters as future operating or financial results; our liquidity position and cash flows, our ability to borrow and, if needed, to obtain waivers from our lenders and restructure our debt, and our ability to continue as a going concern; statements about planned, pending or recent vessel disposals and/or acquisitions, business strategy, future dividend payments and expected capital spending or operating expenses, including dry-docking and insurance costs; statements about trends in the oil tanker / asphalt carriers and dry bulk vessel shipping segments, including charter rates and factors affecting supply and demand; expectations regarding the availability of vessel acquisitions; completion of repairs; length of off-hire; availability of charters; our ability to obtain coal supplies; the consummation of conditional contracts or of acquisition, disposition or financing transactions and the effects thereof on our business; the reliability of reserve reports and our assumptions concerning economically recoverable coal reserve estimates; our ability to extract coal and fulfill contracts; our potential inability to enter into new coal processing agreements with existing customers due to unfavorable results of competitive bid processes or the shutdown of a power facility due to new environmental legislation or regulations; our ability to obtain and renew permits necessary for our existing and planned operation in a timely manner; our production capabilities; availability of transportation; our ability to timely obtain necessary supplies and equipment; and trends and other factors relating to coal prices and the coal market; and anticipated developments with respect to any pending litigation.

The forward-looking statements in this report 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 NewLead believes 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, NewLead cannot assure you that it will achieve or accomplish these expectations, beliefs or projections described in the forward-looking statements contained in this report. Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include our ability to come to a satisfactory resolution with our lenders; the strength of world economies and currencies; general market conditions, including changes in charter rates and vessel values; failure of a seller to deliver one or more vessels; failure of a buyer to accept delivery of a vessel; inability to procure acquisition financing; default by one or more charterers of our vessels; our ability to complete documentation of agreements in principle; changes in demand for oil and oil products; the effect of changes in OPEC’s petroleum production levels; worldwide oil consumption and storage; changes in demand that may affect attitudes of time charterers; scheduled and unscheduled dry-docking; additional time spent in completing repairs; changes in NewLead’s voyage and operating expenses, including bunker prices, dry-docking and insurance costs; changes in governmental rules and regulations or actions taken by regulatory authorities; potential liability from pending or future litigation; domestic and international political conditions; potential disruption of shipping routes due to accidents, international hostilities and political events or acts by terrorists or pirates; material adverse events affecting NewLead; changes that may affect the price of coal and other factors relating to the coal market; the failure of our third-party suppliers to provide us with our coal processing supplies in accordance with our processing contracts; environmental concerns related to future coal mining and combustion and the cost and perceived benefits of alternative sources of energy; inherent risks of future coal mining beyond our control, including weather and geologic conditions or catastrophic weather-related damage; the market demand for coal and electricity; competition, including competition from alternative sources such as natural gas; our relationships with, and other conditions affecting, our customers; employee workforce factors; coal fired power plant capacity, including the impact of environmental regulations, energy policies and other factors that may cause utilities to phase out or close existing coal-fired power plants or reduce construction of any new coal fired power plants; the effect of Environmental Protection Agency inquiries and regulations on the operations of our customer’s power facilities; and other factors discussed in NewLead’s filings with the U.S. Securities and Exchange Commission, or the SEC, from time to time.

 PART I

Not applicable.

Not applicable.

Unless the context otherwise requires, as used in this report, the terms “the Company,” “NewLead,” “we,” “us” and “our” refer to NewLead Holdings Ltd. and all of its subsidiaries and, with respect to our coal business, the terms “the Company,” “NewLead,” “we,” “us” and “our” refer to NewLead Holdings Ltd., all of its subsidiaries, and its joint venture entities. We use the sign $ for U.S. dollars. We use the term deadweight tons, or dwt, in describing the size of vessels. The dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, refers to the maximum weight of cargo and supplies that a vessel can carry.

We also use the metric system of weights and measures in relation to our coal business. The United States equivalent units of the most common metric units used by us are the following: 1 kilometer equals approximately 0.6214 miles, 1 meter equals approximately 3.2808 feet, 1 centimeter equals approximately 0.3937 inches, 1 hectare equals approximately 2.4710 acres, 1 short ton (“ST”) equals 907 kilograms or approximately 2,000 pounds and 1 metric ton (“MT”) equals 1,000 kilograms or approximately 2,205 pounds.

On October 17, 2013 and on December 6, 2013, a 1 for15 and a 1 for 3 reverse stock splits of our common shares were effected respectively, after the approval by our Board of Directors and by written consent of the majority of our shareholders. The reverse stock splits consolidated every fifteen common shares and every three common shares respectively into one common share with par value of $0.01 per share. In addition, on March 6, 2014, consolidation of our common shares was effected at a ratio of a 1 for 10 after the approval by our Board of Directors and by written consent of the majority of our shareholders. Every ten common shares were consolidated into one common share, with a par value of $0.10 per share. In addition, on May 15, 2014 consolidation of our common shares was effected at a ratio of a 1 for 50 after the approval by our Board of Directors and by written consent of the majority of our shareholders such that every 50 common shares of par value $0.10 per share were consolidated into one common share of par value of $5.00 per share. By the approval of our Board of Directors and by written consent of the majority of our shareholders, a reduction of issued share capital was effected by way of cancelling paid-up share capital to the extent of $4.99 on each issued common share, so that the par value of the common shares be reduced to $0.01; such being effective as of June 14, 2014. In addition, on July 15, 2014 consolidation of our common shares was effected at a ratio of a 1 for 50 after the approval by our Board of Directors and by written consent of the majority of our shareholders. Every 50 common shares of par value of $0.01 were consolidated into one common share of par value of $0.50 per share. By the approval of our Board of Directors and by written consent of the majority of our shareholders, on October 24, 2014, a reduction in the par value of the common shares was effected from $0.50 to $0.01 by way of cancelling paid-up share capital to the extent of $0.49 on each issued common share. There can be no assurance that we will not undertake further reverse splits or consolidations of our common shares subsequent to the filing of this report. With respect to the underlying common shares associated with share options and any derivative securities, such as warrants and convertible notes, as may be required by such securities where applicable, the conversion and exercise prices and number of common shares issued have been adjusted retrospectively in accordance to the 1:15 ratio, 1:3 ratio, 1:10 ratio, 1:50 ratio and 1:50 ratio, for all periods presented. Due to such alterations in our share capital numbers of common shares, earnings per share, common shares obtainable upon conversion or exercise of convertible notes, warrants and share options have been adjusted retrospectively as well, where applicable. The accompanying consolidated financial statements for the years ended December 31, 2014, 2013 and 2012 including the notes to financial statements reflect the aforementioned alterations of our share capital.

Recent Developments

Fleet

As of May 12, 2015, we control a fleet of five dry bulk vessels, which includes three Handysize and two Panamax vessels, and five oil tanker/asphalt carriers. The asphalt carriers are also commonly known as bitumen tanker vessels. 

We continue to negotiate with Piraeus Bank A.E. (as the successor of Cyprus Popular Bank Public Co. Ltd. (formerly, Marfin Egnatia Bank S.A.) the “Piraeus Bank (CPB loan)”) to amend the terms of our loan agreement in order to amend and restate such agreement to enable us to regain compliance, with certain of its covenants and to be able to do so on an ongoing basis to allow and enable the Newlead Markela, one of the two dry bulk Panamax vessels, to remain in our fleet.

Coal Business 

As of December 31, 2014 and May 12, 2015, our coal business consists of our coal preparation plant, which has entered into various coal processing agreements. However, there can be no assurance that we will be able to effectively manage those operations or expand those limited operations in the future.

The NewLead historical information is derived from the audited consolidated financial statements of NewLead for the years ended December 31, 2014, 2013, 2012, 2011 and 2010. The information is only a summary and should be read in conjunction with “Item 5.-Operating and Financial Review and Prospects”.

Not applicable.

Not applicable.

The following risks relate principally to the industries in which we operate and our business in general. Other risks relate to the securities market and ownership of our common shares. If any of the circumstances or events described below actually arises or occurs, our business, results of operations, cash flows, financial condition and ability to pay dividends in the future could be materially adversely affected. In any such case, the market price of our common shares could decline, and you may lose all or part of your investment.

Company Specific Risk Factors

There is substantial doubt about our ability to continue as a going concern.

Our financial statements were prepared using principles under Generally Accepted Accounting Principles in the United States of America (GAAP) applicable to a going concern. Because of our losses, working capital deficiencies, negative operating cash flow and shareholders’ deficiency, we concluded that there is substantial doubt as to our ability to continue as a going concern.

We have experienced net losses, negative operating cash flows, working capital deficiencies, and have a shareholders’ deficiency, which have affected, and which are expected to continue to affect, our ability to satisfy our obligations. In addition, we are in default under various debt obligations which are currently due on demand. Charter rates for bulkers have experienced a high degree of volatility and continue to be distressed. The coal business has experienced some of the lowest prices in coal history. However, charter rates for the oil tanker/asphalt carriers are within expected levels. To date, we have also been unable to generate sustainable positive cash flows from operating activities. For the year ended December 31, 2014, our loss from continuing operations was $68.3 million. As of December 31, 2014, the Company’s cash and cash equivalents were $0.4 million and current liabilities of $247.5 million including $122.3 million of debt and convertible notes in default due on demand, were payable within the next twelve months.

The above conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we are unable to continue as a going concern.

If all of our indebtedness was accelerated as a result of our current events of default, we may not have sufficient funds at the time of acceleration to repay most of our indebtedness and we may not be able to find additional or alternative financing to refinance any such accelerated obligations on terms acceptable to us or on any terms, which could have a material adverse effect on our ability to continue as a going concern.

Our existing debt agreements and our future debt agreements contain and will contain restrictions and limitations that could significantly impact our ability to operate our business and if we receive waivers and/or restructure our remaining indebtedness, our lenders may impose additional restrictions on us and/or modify the terms of our loans. Any default or breach of the covenants in our debt agreements could have a material adverse effect on our operations and financial position.

Our facility agreements require us to maintain compliance with certain financial covenants as of the end of each fiscal quarter. They contain certain restrictions and limitations that could significantly limit our ability to operate our business. In the absence of a consent or waiver, these restrictions may limit our ability to, among other things:

In addition, our existing credit facilities require us, among other things, to maintain compliance with financial covenants, including, but not limited to the maintenance of the following ratios (all as defined in the respective credit facilities):

As a result of such covenants, we will need to seek permission from our lenders in order to engage in some corporate and commercial actions that we believe would be in the best interest of our business, and a denial of permission may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. As discussed elsewhere in this annual report, we are also in default under certain of our debt agreements and as a result, our lenders’ interests may be different from our interests, our shareholders’ interests or the interests of the holders of our notes, and we cannot guarantee that we will be able to obtain our lenders’ permission when needed or at all. This may prevent us from taking actions that are in our best interest. Any future debt agreement, including debt agreements entered into in connection with financing our coal business, may include similar or more restrictive covenants.

Our ability to comply with the covenants and restrictions contained in our existing and future debt agreements and other indebtedness may be affected by economic, financial and industry conditions and other factors beyond our control. If we are not able to come to a resolution with our lenders regarding our existing defaults or, if we are able to come to a successful resolution, but default on our future debt obligations, and such defaults are not waived by the relevant lenders, the applicable creditors may accelerate such indebtedness and, in the absence of any agreement with the lenders, if such indebtedness is secured, such creditors could proceed against the collateral securing that indebtedness. In any such case, we may be unable to borrow under our credit facility agreements, if any are available at such time, and may not be able to repay the outstanding amounts due under our credit facility agreements and our outstanding notes. Furthermore, if any of our debt is accelerated, all of our other indebtedness may be accelerated pursuant to cross-acceleration or cross-default provisions. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent. Our ability to comply with these covenants will also depend substantially on the value of our assets, our charter rates, our success at keeping our costs low and our ability to successfully implement our overall business strategy. Any future credit agreement or amendment or debt instrument may contain similar or more restrictive covenants.

Furthermore, in connection with any waivers and/or restructuring of our remaining indebtedness, our lenders may impose additional requirements or restrictions on us. Such additional restrictions may further limit our ability to engage in actions that we believe would be in the best interest of our company. As discussed elsewhere in this annual report, we are currently in default under certain of our debt agreements and are in the process of attempting to restructure certain of our remaining indebtedness. See “Item 5.-Operating and Financial Review and Prospects-Recent Developments” and the risk factor above titled “There is substantial doubt about our ability to continue as a going concern”.

We are highly leveraged, anticipate that we will continue to have a high degree of leverage, and may incur substantial additional debt, which could materially adversely affect our financial health and our ability to obtain financing in the future, react to changes in our business and make debt service payments.

As of December 31, 2014, our outstanding indebtedness was $207.2 million, including $122.3 million of debt and convertible notes in default due on demand. Despite our efforts, as of May 12, 2015, we continue to have a substantial amount of indebtedness amounting to approximately $211.8 million, including $149.7 million of debt and convertible notes in default due on demand, excluding the Beneficial Conversion Feature (“BCF”) of the 7% Notes. (see Item 5 for amount currently in default)

Although it is likely that any agreements governing our future indebtedness, including the terms of any indebtedness remaining outstanding as a result of the restructuring, will contain limitations on our ability to incur indebtedness, the covenants in such debt agreements typically contain a number of exceptions. As such, we may still be able to incur a significant amount of additional indebtedness. Our high level of indebtedness could have important consequences to our shareholders.

As discussed elsewhere in this annual report, we are currently unable to meet certain of our debt service requirements and our indebtedness remains significant. Since our relative leverage continues to remain high after our restructuring during the period 2011 through 2013, and since we have a diminished basis from which we can generate revenue, and since our recent coal business acquisitions have not yet fully commenced operations, there is no assurance we will be able to service our significant indebtedness.

Because we are highly leveraged, we will continue to remain subject to the following risks:

Highly leveraged companies are significantly more vulnerable to unanticipated downturns and setbacks, whether directly related to their business or flowing from a general economic or industry condition, and therefore are more vulnerable to a business failure or bankruptcy. Accordingly, it also heightens the risk of owning our securities.

The market values of our vessels and the related charters, if applicable, have declined and may further decrease, which could lead to the loss of our vessels and/or we may incur a loss if we sell vessels following a decline in their market value.

The fair values of our vessels have generally experienced high volatility and have recently declined significantly. If we sell one or more of our vessels at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our consolidated financial statements, the sale may be less than the vessel’s carrying value on our consolidated financial statements, resulting in a loss and a reduction in earnings. Furthermore, if vessel values fall significantly, we may have to record further impairment adjustments in our consolidated financial statements, which could materially adversely affect our financial results.

Furthermore, our existing debt agreements contain, and our future debt agreements may contain, financial covenants based on a security cover ratio. We are currently in breach of the security cover ratio under certain of our debt arrangements (see “Item 5.-Operating and Financial Review and Prospects-Liquidity and Capital Resources”) and we may violate similar covenants in any future debt agreements if the values of our vessels decrease significantly. Any such violation would materially and adversely affect our financial condition.

We have sold, and might continue to sell, vessels as part of arrangements with our lenders to reduce and discharge our obligations. During the period from September 2011 to July 2012, we sold, disposed of or handed control over to our lenders 20 of our vessels and hulls under construction (or our ownership of the shipowning subsidiaries) in connection with our restructuring. To the extent that we have sold our vessels, the sales proceeds have been used to repay related debt. We are currently in negotiations with certain of our lenders, namely Piraeus Bank (CPB loan). Our negotiations with Piraeus Bank (CPB loan) aim to amend the terms of our loan agreement, whereby the agreement will be amended and restated to enable us to comply with certain of its covenants on an ongoing basis and enable the Newlead Markela, a dry bulk Panamax vessel, to remain in our fleet. There can be no assurance that we will be able to reach a final arrangement with Piraeus Bank (CPB loan) at acceptable terms or at all. Furthermore, the amended agreement with Portigon states that Portigon will have the option to demand the sale of the vessel Newlead Victoria at any time the market value of the vessel is at least equal to the amount of the loan outstanding on that date. Portigon will be entitled to 75% of the balance of the proceeds after repayment of the outstanding loan balance, any other amounts owned under the loan agreement (i.e. accrued interest), any direct sale costs approved by Portigon and any trade debt outside the owned fleet for an amount which will not exceed in the aggregate $0.5 million.

We have historically derived a significant part of our revenue from a small number of charterers.

For the year ended December 31, 2014, 49% of our revenue from continuing operations was derived from two charterers (each of which comprised 41% and 8% of revenues, respectively and all other charterers comprising below 5%). For the year ended December 31, 2013, 100% of our revenue from continuing operations was derived from three charterers (each of which comprised 83%, 13% and 4% of revenues, respectively). For the years ended December 31, 2012, approximately 100% of our revenue was derived from two charterers (each of which comprised 70% and 30% of revenues, respectively). The loss of charterers upon whom we have historically been dependent may adversely affect our results of operations, cash flows and financial condition.

Our charterers may terminate or default on their charters, which could materially affect our results of operations and cash flow. When the charter agreements expire or terminate, we will need to find new employment for the respective vessels in the currently depressed charter market, which may adversely affect our results of operations and cash flows.

Our charterers may terminate their charters earlier than the dates indicated in their charter agreements. The terms of our charters vary as to which events or occurrences will cause a charter to terminate or give the charterer the option to terminate the charter, but these generally include a total or constructive total loss of the related vessel, the requisition for hire of the related vessel or the failure of the related vessel to meet specified performance criteria. In addition, the ability of each of our charterers to perform its obligations under a charter will depend on a number of factors that are beyond our control. These factors may include general economic conditions, the condition of a specific shipping market sector, the charter rates received for specific types of vessels and various operating expenses. The costs and delays associated with the default by a charterer of a vessel may be considerable and may materially adversely affect our business, results of operations, cash flows and financial condition.

Recent economic conditions have caused certain of our charterers to experience financial difficulties. This has resulted in an increase in the time it takes for us to realize our receivables. We cannot predict whether our charterers will, upon the expiration of their charters, re-charter our vessels on favorable terms or at all. If our charterers decide not to re-charter our vessels, we may not be able to re-charter them on terms similar to the terms of our current charters. In the future, we may continue to employ our vessels on the spot charter market, which is subject to greater rate fluctuation than the time charter market.

Currently, charter rates for bulkers, after showing signs of stabilization for a period, have declined to levels of lower than the 10 year historical average.

In addition, in depressed market conditions, our charterers may no longer need a vessel that is currently under charter or may be able to obtain a comparable vessel at lower rates. As a result, charterers may seek to renegotiate the terms of their existing charter parties or avoid their obligations under those contracts. Should counterparty fail to honor its obligations under agreements with us, we could sustain significant losses, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.

The spot charter market is highly competitive and freight rates within this market are highly volatile, while longer-term charter contracts provide income at pre-determined rates over more extended periods of time. Furthermore, we cannot assure you that we will be successful in keeping our remaining vessels under long-term agreements or keeping them fully employed in the short-term markets, if needed, or that future spot rates will be sufficient to enable any of such vessels to be operated profitably. A significant decrease in spot market rates or our inability to fully employ our vessels by taking advantage of the spot market would reduce the incremental revenue received from spot chartering and adversely affect our results of operation, including our profitability and cash flows, which, in turn, could impair our ability to service our debt.

Our vessels may be subject to periods of off-hire, which could materially adversely affect our business, financial condition and results of operations.

Under the terms of the charter agreements under which our vessels operate, when a vessel is “off-hire,” or not available for service or otherwise deficient in its condition or performance, the charterer generally is not required to pay the hire rate, and we will be responsible for all costs (including the cost of bunker fuel) unless the charterer is responsible for the circumstances giving rise to the lack of availability. A vessel generally will be deemed to be off-hire if there is an occurrence preventing the full working of the vessel due to, among other things:

Furthermore, while the vessel is seized by pirates, the charterer may withhold charter payments until the vessel is released. A charterer may also claim that a vessel seized by pirates was not “on-hire” for a certain number of days and it is therefore entitled to cancel the charter party, a claim that we would dispute. Despite the fact that our vessels are covered against such risks, 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 and/or hijacking of our vessels as a result of an act of piracy, 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.

We may be unable to attract and retain key management personnel and other employees in the shipping and coal industries, which may negatively impact the effectiveness of our management and our results of operations.

Our success depends to a significant extent upon the abilities and efforts of our management team. Our success will depend upon our ability to retain key members of our management team and to hire new members as may be necessary. The loss of any of these individuals could adversely affect our business prospects and financial condition. Difficulty in hiring and retaining replacement personnel could have a similar effect. We do not maintain “key man” life insurance on any of our officers.

If we are unable to operate the oil tanker/asphalt carriers, we may be unsuccessful in competing in the oil tanker/asphalt carriers market.

The operation of oil tanker/asphalt carriers and transportation of petroleum products is extremely competitive. Competition arises primarily from oil tanker/asphalt carriers’ owners, including major oil companies as well as independent oil tanker/asphalt carriers companies, some of whom have substantially greater resources than our own. Competition for the transportation of oil and oil products can be intense and depends on price, location, size, age, condition and the acceptability of the tanker and its operators to the charterers. Due in part to the highly fragmented market, competitors with greater resources could enter the oil tanker/asphalt carriers shipping markets 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 not be able to compete profitably in new geographic regions or provide new services. New markets may require different skills, knowledge or strategies, and the competitors in those new markets may have greater financial strength and capital resources than we do.

The operation of oil tanker/asphalt carriers involves certain unique operational risks.

The operation of oil tanker/asphalt carriers has unique operational risks associated with the transportation of oil or asphalt. Compared to other types of vessels, oil tanker/asphalt carriers 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 or asphalt transported in oil tanker/asphalt carriers. If we are unable to maintain or safeguard the vessels under our operations adequately, we may be unable to prevent these events. Any of these circumstances or events could negatively impact our business. In addition, the loss of any of the oil tanker/asphalt carriers under our operations could harm our reputation as a safe and reliable vessel owner and operator.

We may not be able to grow or effectively manage our growth, which may negatively impact our cash flows and operating results

A part of our strategy may involve growth through expanding our fleet as opportunities are identified. Our future growth will depend on a number of factors. One of our potential growth strategies is to expand our fleet as opportunities are identified and the success of this strategy will depend on numerous factors. These factors include our ability to:

A deficiency in any of these factors could adversely affect our ability to achieve growth. In addition, competition from other buyers could reduce our acquisition opportunities or cause us to pay a higher price than we might otherwise pay.

The process of integrating acquired vessels into our operations may result in unforeseen operating difficulties, may absorb significant management attention and may require significant financial resources that would otherwise be available for the ongoing development and expansion of our existing operations. Future acquisitions could result in the incurrence of additional indebtedness and liabilities that could have a material adverse effect on our business, results of operations, cash flows and financial condition. Further, if we issue additional common shares, your interest in our Company will be diluted.

Capital expenditures and other costs necessary to operate and maintain our vessels may increase due to changes in governmental regulations or safety or other equipment standards.

Changes in governmental regulations or safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations and customer requirements or competition, may require us to make additional expenditures to operate and maintain our vessels. These expenditures could increase as a result of changes in:

In order to satisfy these requirements, we may, from time to time, be required to take our vessels out of service for extended periods of time, with corresponding losses of revenues. In the future, market conditions may not justify these expenditures or enable us to operate some or all of our vessels profitably during the remainder of their economic lives.

If we are unable to fund our capital expenditures, we may not be able to operate our vessels, which would have a material adverse effect on our business.

In order to fund our capital expenditures, we may be required to incur additional borrowings or raise capital through the sale of debt or equity securities. Our ability to access the capital markets through future offerings may be limited by our financial condition at the time of any such offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Generally, significant capital expenditures are required to take delivery of future newbuilding vessels, if any. In addition, our existing vessels may require significant capital expenditures, such as expenditures for scheduled and unscheduled dry-docking and regulatory compliance, to continue operations. As a result, the failure to obtain the funds necessary for our capital expenditures could have a material adverse effect on our business, results of operations and financial condition.

Unless we set aside reserves or are able to borrow funds for vessel replacement, our revenue will decline at the end of a vessel’s useful life, which would materially 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 useful lives, which we estimate to be 25 to 30 years, except as otherwise extended. 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 and financial condition in the future will be materially and adversely affected. Any reserves set aside for vessel replacement may not be available for dividends, if any, in the future.

Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.

Our vessel-owning subsidiaries generate revenues in U.S. dollars but incur certain expenses in other currencies, primarily Euros. During the year ended December 31, 2014, the value of the U.S. dollar reached a high of $1.38 and a low of $1.23 compared to the Euro. Due to the sovereign debt crisis in certain EU-member countries, the U.S. dollar-Euro exchange rate continues to experience volatility. An adverse or positive movement in these currencies could increase our expenses. During the year ended December 31, 2014, we experienced $0.03 million realized negative effect. However, we experienced $0.48 million unrealized positive effect of exchange rate movement.

Our incorporation under the laws of Bermuda may limit the ability of our shareholders to protect their interests.

We are a Bermuda registered company. Our memorandum of association and bye-laws and the Bermuda Companies Act of 1981, as amended (the “BCA”), govern our corporate affairs. Investors may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction. Under Bermuda law, a director generally owes a fiduciary duty only to the company, not to the company’s shareholders. Our shareholders may not have a direct cause of action against our directors. In addition, Bermuda law does not provide mechanism for shareholders to bring a class action lawsuit. Furthermore, our bye-laws provide for the indemnification of our directors or officers against any liability arising out of any act or omission, except for an act or omission constituting fraud or dishonesty. There is a statutory remedy under Section 111 of the BCA, which provides that a shareholder may seek redress in the courts as long as such shareholder can establish that our affairs are being conducted, or have been conducted, in a manner oppressive or prejudicial to the interests of some of our shareholders, including such shareholder.

If the recent volatility in LIBOR continues, it could affect our profitability, earnings and cash flow.

LIBOR has recently been very low. These conditions are the result of the recent disruptions in the international credit markets. However, an increase in LIBOR rates may be expected. Because the interest rates borne by our outstanding indebtedness fluctuate with changes in LIBOR, if an increase is to be realized, it would affect the amount of interest payable on our debt, which, in turn, could have an adverse effect on our profitability, earnings and cash flow. Recently, however, lenders have insisted on provisions that entitle the lenders, in their discretion, to replace published LIBOR as the base for the interest calculation with their cost-of-funds rate. If we are required to agree to such a provision in future loan agreements, our lending costs could increase significantly, which would have an adverse effect on our profitability, earnings and cash flow.

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

We and a number of our subsidiaries are incorporated in jurisdictions outside the U.S., and part of our assets and those of our subsidiaries are located outside the U.S. In addition, all of our directors and officers are non-residents of the U.S., and all or a substantial portion of the assets of such officers and directors 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 to enforce a judgment against us or our subsidiaries 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 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 the laws of such jurisdictions.

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. shareholders.

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 (determined as of the end of each quarter of the foreign corporation’s taxable year) produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property, 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 and the excess of gains over losses from transactions in any commodities (gains and losses from certain “qualified active sales” and qualified hedging transactions are excluded from “passive income”). For purposes of these tests, income derived from the performance of services does not constitute “passive income.” U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime applicable 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.

Based on our method of operation, through the end of 2014, we do not believe that we have been a PFIC. We may, however, be a PFIC in 2015 and/or in future taxable years. In this regard, we treat the gross income we derive or are deemed to derive from our chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our 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.

In addition, 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 2015 or any future taxable year due to changes in the nature and extent of our assets and operations, including our entry into the commodities business. If, for example, the activity of purchasing and trading coal gives rise to at least 85% of our taxable income for any taxable year, it would be considered active income under the “qualified active sales” exception; if not most likely passive income.

If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders would face adverse and special U.S. tax consequences. Among other things, the distributions a shareholder received with respect to our shares and the gain, if any, a shareholder derived from his sale or other disposition of our shares would be taxable as ordinary income (rather than as qualified dividend income or capital gain, as the case may be), would be treated as realized ratably over his holding period in our common shares, and would be subject to an additional interest charge. However, a U.S. shareholder may be able to make certain tax elections that would ameliorate these consequences. See the discussion under “Item 10.-Additional Information-Taxation-United States Federal Income Taxation of U.S. Holders-Passive Foreign Investment Company Status and Significant Tax Consequences.”

We may have to pay tax on U.S.-source income, which would reduce our earnings.

Under the United States Internal Revenue Code, referred to herein as the Code, 50% of the gross shipping income of a vessel-owning or chartering corporation, such as our Company and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as U.S.-source shipping income and is subject to a 4% United States federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the related treasury regulations, referred to herein as “Treasury Regulations”.

We expect that we and each of our subsidiaries qualify for this statutory tax exemption, and we take this position for United States federal income tax reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our U.S.-source income. If we or our subsidiaries are not entitled to exemption under Section 883 of the Code for any taxable year, the imposition of a 4% U.S. federal income tax on our U.S.-source shipping income and that of our subsidiaries could have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders. See the discussion under “Item 10.-Additional Information-Taxation- United States Federal Income Taxation of Our Company.”

Being a foreign private issuer exempts us from certain SEC requirements.

We are a foreign private issuer within the meaning of rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are exempt from certain provisions applicable provisions applicable to United States public companies including:

• The rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;

• The sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

• The provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and

• The sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction (i.e. a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months).

Because of these exemptions, investors are not afforded the same protections or information generally available to investors holding shares in public companies organized in the United States.

Industry Specific Risk Factors

Charter rates for dry bulk vessels are experiencing high volatility and, in view of the cyclical nature of the business, may decrease further in the future, which may adversely affect our earnings.

The degree of charter rate volatility among different types of dry bulk vessels has varied widely and after reaching historical highs in mid-2008, charter rates for dry bulk vessels have declined significantly. If the shipping industry is depressed when our charters expire or are otherwise terminated, our revenues, earnings and available cash flow may be adversely affected. In addition, a further decline in charter rates will likely cause the value of our vessels to further decline. Also, in case any of our charterers experience financial difficulties, it may result in an increase in time for us to realize our receivables and/or our charterers may be unable to fulfill their obligations under their charters. If any of our charterers are unable to perform their obligations, we may be forced to reclaim and re-charter the related vessel(s). Given the currently depressed market conditions, we may not be able to successfully charter these vessels in the future or renew our existing charters at rates sufficient to allow us to operate our business profitably. We anticipate that the future demand for our dry bulk carriers and dry bulk charter rates will be dependent upon demand for imported commodities, economic growth in the emerging markets, including the Asia Pacific region (including China), India, Brazil and Russia and the rest of the world, seasonal and regional changes in demand and changes to the capacity of the world fleet. Recent adverse economic, political, social or other developments have decreased demand and prospects for growth in the shipping industry and thereby could reduce revenue significantly. A decline in demand for commodities transported in dry bulk carriers or an increase in supply of dry bulk vessels could cause a further decline in charter rates, which could materially adversely affect our results of operations and financial condition. If we sell a vessel at a time when the market value of our vessels has fallen, the sale may be at less than the vessel’s carrying amount, resulting in a loss.

The dry bulk vessel markets are cyclical with high volatility in charter rates and industry profitability. The factors affecting the supply and demand for dry bulk vessels are outside of our control and are unpredictable. The nature, timing, direction and degree of changes in industry conditions are also unpredictable.

The factors that influence the demand for tonnage capacity include:

The factors that influence the supply of vessel capacity include:

If the number of new vessels delivered exceeds the number of vessels being scrapped, lost and converted, tonnage capacity will increase. If the supply of tonnage capacity increases but the demand for tonnage capacity does not increase correspondingly, charter rates and vessel values could materially decline.

Downturns in the oil tanker/asphalt carriers and dry bulk vessels charter markets may have an adverse effect on our earnings, affect compliance with our existing and future loan covenants and our ability to pay dividends if reinstated in the future.

Charter rates for dry bulk vessels have declined sharply since the highs of 2008. The increase of supply (because of the newbuilding deliveries) and the decrease of demand (because of slowdown of the world economies) drove down charter rates during the period from the second half of 2008 to 2014. Charter rates started falling during the second half of 2008 and weakened gradually to the lowest level in December of the same year. Afterwards, and while a steady upturn happened during 2009 and the first half of 2010, charter rates experienced a further drop until 2014, mainly due to the newbuilding deliveries which had started to hit the market. Such drop is reflected on the average of the 4TC routes of Panamax Baltic Index which averaged at $19,295 and $25,041 in 2009 and 2010 accordingly, while then dropped down to $9,712 per day as the average for the period between 2011 and 2014.

If the market remains at or below these levels, it will have a negative effect on our earnings. We endeavor to charter vessels in our fleet under period charters with floor hire rates plus profit sharing elements in order to benefit from a potential increase in the charter market. However, we cannot assure you that we will be able to enter into such period charters with upside potential.

 Our ability to re-charter tanker vessels on the expiration or termination of our current charters, the charter rates payable under any replacement charters and vessel values will depend upon, among other things, economic conditions in the oil tanker/asphalt carriers markets at that time, changes in the supply and demand for vessel capacity and changes in the supply and demand for oil and oil products.

Furthermore, the recent economic slowdown in the U.S. and Japan, together with the deteriorating economic situation in Europe caused by the sovereign debt crises in certain European Union (“EU”) member countries, may further reduce demand for transportation of oil over long distances and supply of tankers that carry oil, which may materially and adversely affect our future revenues.

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

Many parts of the world experienced deteriorating economic trends and were in a recession in 2008 and 2009 and continued to experience weakness thereafter and up to now. Despite recent signs of recovery, the outlook for the world economy remains uncertain. General market volatility has resulted from uncertainty about sovereign debt and fears of countries such as Greece, Portugal, Cyprus, Spain and Ireland defaulting on their governments’ financial obligations. In addition, continued hostilities in the Middle East and recent tensions in North Africa could adversely affect the economies of the United States and other countries.

The credit markets in the United States have experienced significant contraction, deleveraging and reduced liquidity, and the United States federal government and state 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 SEC, other regulators, self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies, and may affect changes in law or interpretations of existing laws.

We anticipate that a significant number of the port calls made by our vessels will continue to involve the loading or discharging of commodities in ports in the Asia Pacific region. In recent years, China has been one of the world’s fastest growing economies in terms of gross domestic product, which has had a significant impact on shipping demand. As a result, negative changes in economic conditions in any Asia Pacific country, particularly in China, may exacerbate the effect of recent slowdowns in the economies of the United States and the European Union and may have a material adverse effect on our business, financial condition and results of operations, as well as our future prospects. Moreover, the current economic weakness in the economies of the United States, the European Union and other Asian countries may further adversely affect economic growth in China and other emerging countries. Our business, financial condition and results of operations, as well as our future prospects, will likely be materially and adversely affected by a further economic downturn in any of these countries.

We face risks attendant to changes in economic environments, changes in interest rates, and instability in the banking and securities markets around the world, 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 any existing or future financial arrangements. We cannot predict how long the current market conditions will last. However, these recent and developing economic and governmental factors, together with the concurrent decline in charter rates and vessel values, may have a material adverse effect on our results of operations, financial condition or cash flows.

The instability of the euro or the inability of countries to refinance their debts could have a material adverse effect on our revenue, profitability and financial position.

As a result of the credit crisis in Europe, in particular in Greece, Italy, Ireland, Cyprus, Portugal and Spain, the European Commission created the European Financial Stability Facility, or the EFSF, and the European Financial Stability Mechanism, or the EFSM, to provide funding to Eurozone countries in financial difficulties that seek such support. In March 2011, the European Council agreed on the need for Eurozone countries to establish a permanent stability mechanism, the European Stability Mechanism, or the ESM, which was established on September 27, 2012, to assume the roles of the EFSF and the EFSM in providing external financial assistance to Eurozone countries. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations and the overall stability of the euro. An extended period of adverse development in the outlook for European countries could reduce the overall demand for oil and gas and for our services. These potential developments, or market perceptions concerning these and related issues, could affect our financial position, results of operations and cash flow.

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 (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. Recently, China began appointing new members to its Politburo Standing Committee, who are replacing members of the committee who have served for periods of up to 10 years, which obscures the future policy plans of the country. 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.  

The value of our vessels may fluctuate, which may adversely affect our liquidity.

Vessel values can fluctuate substantially over time due to a number of different factors, including:

In addition, as vessels grow older, and provided that all other factors remain the same, they generally decline in value. Due to the cyclical nature of the oil tanker/asphalt carriers and dry bulk vessel markets, if for any reason we sell vessels at a time when prices have fallen, we could incur a loss and our business, results of operations, cash flows, financial condition and ability to pay dividends in the future could be adversely affected. Furthermore, our existing debt agreements contain, and our future debt agreements may contain, financial covenants based on a security cover ratio. We are currently in breach of the security cover ratio under our debt arrangements (see “Item 5.-Operating and Financial Review and Prospects-Liquidity and Capital Resources”) and we may violate similar covenants in any future debt agreements if the values of our vessels decrease significantly. Any such violation would materially and adversely affect our financial condition.

An oversupply of oil tanker / asphalt carrier capacity may lead to reductions in freight rates, which could materially adversely affect our profitability.

Oil tanker / asphalt carrier market is niche and highly dependent upon the number of similar vessels which are trading in each geographic area. In case more vessels are repositioned in the area(s) where our vessels are trading, supply will be increased and a possible oversupply might have a negative effect on the freight rates and our profitability.

Another factor, which may lead to oversupply, stands on the newbuilding vessels entering the market. As of February 2015, about 20 vessels are in order which represents about 8% of the current world oil tanker / asphalt carrier fleet, including newbuilding vessels. These vessels are expected to be delivered during 2015 and 2016. In case the number of new entries is higher than the number of vessels which will be scrapped during the same period, while demand for new vessels is not increased, an oversupply may have a negative effect on the freight rates.

An oversupply of dry bulk vessel capacity may lead to further reductions in charter rates, and disproportionately affect older vessels, which could materially adversely affect our profitability.

The market supply of dry bulk vessels has been increasing, and the carrying capacity (measured in dwt) on order is at a historically high level. As of March 2015, approximately 157 million dwt of dry bulk vessels are on order, representing approximately 20% of the existing fleet (in terms of dwt capacity). This may lead to an oversupply of dry bulk vessel capacity, resulting in a reduction of charter rates and a decrease in the value of our dry bulk vessels. Even in the case of high order cancellations and high delayed deliveries, new deliveries are expected to be higher than usual and it is unclear whether this increase of supply will be absorbed by the increase of demand. Significant fleet expansion would cap rate levels over the next couple of years. The reduction in rates may affect the ability of our customers who charter our dry bulk vessels to make charter hire payments to us. This and other factors affecting the supply and demand for dry bulk vessels are outside our control and the nature, timing and degree of changes in the industry may affect the ability of our charterers to make charter hire payments to us.

During periods when the shipping industry is experiencing excess capacity, falling demand and/or declining rates, older vessels are generally adversely affected in a disproportionate manner because newer vessels are generally preferred by customers. As the severity and length of such periods increase, more old vessels tend to get scrapped because the costs for keeping an older vessel in the fleet may exceed the benefits. However, we may be unable to scrap some of our older vessels if, for example, such vessels have loan obligations that exceed their scrap values. In such a case, we may be restricted from taking the most economically prudent course of action, which may negatively affect our results of operations. See also “-The risks and costs associated with vessels increase along with the vessels age.”

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

Acts of piracy have historically affected ocean-going vessels trading in certain regions of the world, such as the South China Sea Indonesia and in the Gulf of Aden off the coast of Somalia. It has been observed that piracy incidents have reduced dramatically in West Africa and Indonesia during the period from 2013 to February 2015, where pirates and other criminals are often violent. In West Africa, pirates have attacked, hijacked and robbed vessels as well as kidnapped crews along the coast, rivers, anchorages, ports and surrounding waters. During 2013, there have been 42 reported incidents in the Indian Ocean region, 37 reported incidents in the West Africa region and 97 reported incidents in Indonesia region. During 2014, there have been 18 reported incidents in the Indian Ocean region (57% reduced from 2013), 32 reported incidents in the West Africa region (13.5% reduced from 2013) and 63 reported incidents in Indonesia region (35% reduced from 2013). From January 1, 2015 until to date there have been 7 reported incidents in West Africa region and 18 reported incidents in Indonesia region. 

A recent and significant example of the heightened level of piracy came on December 30, 2014, at Posn 15 07 N, 042 01 E a Merchant Vessel not affiliated with us, reported being suspiciously approached by two skiffs. Closest distance 1.5 cables. One brown skiff 10 m long with 6 POB, weapons and ladder sighted. On February 5, 2015: 0320 LT and at Posn: Berth 5&6, ENL Jetty, Lagos Harbours, Nigeria, duty AB onboard a berthed chemical tanker spotted a robber attempting to board the vessel. He alerted the onboard security team who chased the robbers away. After a while the robbers attempted to return and the security team fired one warning shot resulting in the robbers aborting the approach. Additionally, on February 25, 2015: 0430 LT and at Posn: 01:08N - 103:28E, at about 3nm East of Pulau Karimun Kecil, Indonesia three robbers boarded a bulk carrier underway. Alarm raised and crew mustered. Seeing the crew alertness, the robbers escaped empty handed. 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 and West Africa, or Joint War Committee (JWC) “war and strikes” listed areas, premiums payable for insurance coverage could increase significantly and such insurance coverage may be more difficult to obtain.

In addition, crew costs, including costs due to employing onboard security guards, could increase in such circumstances. In addition, when the vessel is seized by pirates at Indian Ocean, the charterer may withhold charter payments until the vessel is released. A charterer may also claim that a vessel seized by pirates was not “on-hire” for a certain number of days and it is therefore entitled to cancel the charter party, a claim that we would dispute. Despite the fact that our vessels are covered against such risks, 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 and/or hijacking of our vessels as a result of an act of piracy, 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.

Increases in fuel, or bunker prices, may adversely affect profits.

Fuel is a significant factor in negotiating charter rates as well as performing the charters. 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 our largest, expense in our shipping operations when vessels are under voyage charter. Increases in the price of fuel may adversely affect our profitability and may also affect our charterer’s profitability if vessels are employed on time charter. As a result, it may be difficult for us to realize on our receivables and/or our charterers may be unable to fulfill their obligations under their charters. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail.

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

The shipping business and vessel operations are materially affected by government regulation in the form of international conventions, national, state and local laws, and regulations in force in the jurisdictions in which vessels operate, as well as in the country or countries of their registration. Many of these requirements are designed to reduce the risk of oil spills, air emissions or other pollution. Because such conventions, laws and regulations are often revised, we cannot predict the ultimate cost of complying with such conventions, laws and regulations, or the impact thereof on the fair market price or useful life of our vessels. Compliance with these laws and regulations, as well as with standards imposed by maritime self-regulatory organizations and customer requirements or competition, may require us to make capital and other expenditures; affect the resale value or useful lives of our vessels; require reductions in cargo capacity, ship modifications or other operational changes or restrictions; lead to reduced availability of insurance coverage or increased policy costs; or result in denial of access to certain jurisdictional ports or waters, or detention in certain ports. In order to satisfy any such requirements, we may be required to take our vessels out of service for extended periods of time, with corresponding losses of revenues. In the future, market conditions may not justify these expenditures or enable us to operate our vessels profitably, particularly older vessels, during the remainder of their economic lives. This could lead to significant asset write-downs.

A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or suspension or termination of our operations. We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations. A decision by an agency to deny or delay issuing a new or renewed permit, license or certificate, or to revoke or substantially modify an existing one, could materially adversely affect our operations.

Government regulation of vessels, particularly environmental and safety requirements, may become stricter in the future and require us to incur significant capital expenditure on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether. Additional legislation or amendments to existing legislation is expected in areas such as ship recycling, garbage management, energy efficiency, sewage systems, air emission control (including emission of greenhouse gases) and ballast treatment and handling. For example, amendments to revise the regulations of the International Convention for the Prevention of Pollution from Ships, or MARPOL, regarding the prevention of air pollution from ships were approved and formally adopted by the Marine Environment Protection Committee, or MEPC, in October 2008. The amendments establish a series of progressive standards limiting the sulfur content in fuel oil and new tiers of nitrogen oxide emission standards for new marine diesel engines. The amendments came into effect in July 2010 and we incurred significant costs for compliance. The amendments implement a phased reduction of the sulfur content of fuel and allows for stricter sulfur limits in designated emission control areas (“ECAs”). Thus far, ECAs have been formally adopted for the Baltic Sea and the North Sea including the English Channel and the Turkish inland waters (when berthed at Turkish Ports). Waters off of the North American coast were established as an ECA on August 1, 2012, and the United States Caribbean Sea ECA came into force on January 1, 2013, with an effective date of January 1, 2014. These ECAs will limit sulfur oxide (SOx), nitrogen oxide (NOx) and particulate matter emissions.

In addition, various jurisdictions and regulatory organizations, including the International Maritime Organization, or the IMO, the U.S. and states within the U.S., have proposed or implemented requirements relating to the management of ballast water to prevent the introduction of foreign invasive species having adverse ecological impacts. Significant expenditures for the installation of new equipment or new systems on board our vessels and changes in operating procedure may be necessary to comply with future regulations regarding ballast water management. Such future regulations may also result in increased port disposal costs.

Additionally, as a result of marine accidents in recent years, safety regulation of the shipping industry is likely to continue to become more stringent and more expensive for us and our competitors. The IMO and the European Union have both accelerated their existing phase-out schedules for vessels without double hulls in response to highly publicized oil spills and shipping accidents involving companies unrelated to us. Legislation is also being discussed that would subject vessels to centralized routing. Future incidents may result in the adoption of even more stringent laws and regulations, which could limit our operations or our ability to do business, require capital expenditures or otherwise increase our cost of doing business, which may adversely affect our operations, as well as the shipping industry generally.

We could incur material liabilities, including cleanup obligations and natural resource damages, in the event there is a release of oil or other hazardous substances from our vessels or otherwise in connection with our operations.

For all vessels, including those operated under our fleet, at present, international liability for bunker oil pollution is governed by the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention. In 2001, the IMO adopted the Bunker Convention, which imposes strict liability on ship owners for pollution damage in jurisdictional waters of ratifying states caused by discharges of “bunker oil.” The Bunker Convention defines “bunker oil” as “any hydrocarbon mineral oil, including lubricating oil, used or intended to be used for the operation or propulsion of the ship, and any residues of such oil.” The Bunker Convention also requires registered owners of ships over a certain size to maintain insurance 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, or the 1976 Convention). The Bunker Convention came into effect on November 21, 2008, and as of July 31, 2013 was in effect in 72 countries. In other jurisdictions, liability for spills or releases of oil from ships’ bunkers continues to be determined by the national or other domestic laws in the jurisdiction where the events or damages occur.

With respect to oil pollution liability, generally, 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 of 1969, as amended in 2000, or the CLC. Under this convention, and depending on whether the country in which the damage results is a party to the CLC, a registered owner of a tanker that is carrying a cargo of “persistent oil” as defined by the CLC is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses and liability limits. This liability is subject to a financial limit calculated by reference to the tonnage of the ship. The right to limit liability may be lost if the spill is caused by the owner’s intentional or reckless conduct. Vessels trading to states that are parties to these conventions must provide evidence of insurance covering the liability of the owner. When a tanker is carrying clean oil products that do not constitute “persistent oil” for the purposes of CLC, liability for any pollution damage will generally fall outside the CLC and will depend on national or other domestic laws in the jurisdiction where the spillage occurs. The United States is not a party to the CLC. 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.

The most widely applicable international regime limiting maritime pollution liability is the 1976 Convention referred to above. Rights to limit liability under the 1976 Convention are forfeited when a spill is caused by a shipowner’s intentional or reckless conduct. Certain states have ratified the IMO’s 1996 Protocol, or the 1996 LLMC Protocol, to the 1976 Convention. The 1996 LLMC Protocol provides for substantially higher the liability limits to apply in those jurisdictions than the limits set forth in the 1976 Convention. Finally, some jurisdictions are not a party to either the 1976 Convention or the 1996 LLMC Protocol, and, therefore, a shipowner’s rights to limit liability for maritime pollution in such jurisdictions may be uncertain.

Environmental legislation in the United States merits particular mention as it is in many respects more onerous than international laws, representing a high-water mark of regulation with which ship owners and operators must comply, and of liability likely to be incurred in the event of non-compliance or an incident causing pollution. U.S. federal legislation, including notably the Oil Pollution Act of 1990, or the OPA, establishes an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills, including bunker oil spills from dry bulk vessels as well as cargo or bunker oil spills from tankers. The OPA affects all shipowners and operators whose vessels trade in the United States, its territories and possessions, or whose vessels operate in U.S. waters, which includes the United States’ territorial sea and its 200-nautical-mile exclusive economic zone. Under the OPA, vessel owners, operators and bareboat charterers are “responsible parties” and 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 discharges or substantial threats of discharges of oil from their vessels. In response to the 2010 Deepwater Horizon oil incident in the Gulf of Mexico, the U.S. House of Representatives passed, and the U.S. Senate considered but did not pass a bill to strengthen certain requirements of the OPA; similar legislation may be introduced in future sessions of the Congress. In addition to potential liability under the OPA, vessel owners may in some instances incur liability on an even more stringent basis under state law in the particular state where the spillage occurred.

In some areas of regulation of ship-source pollution, the EU has introduced new laws without attempting to procure a corresponding amendment of international law. Notably, in 2005, it adopted a directive, as amended in 2009, on ship-source pollution, imposing criminal sanctions for pollution not only where this is caused by intent or recklessness (which would be an offence under the MARPOL), but also where it is caused by “serious negligence”. The concept of “serious negligence” may be interpreted in practice to be little more than ordinary negligence. The directive could therefore result in criminal liability being incurred in circumstances where it would not be incurred under international law. Criminal liability for a pollution incident could not only result in us incurring substantial penalties or fines, but may also, in some jurisdictions, facilitate civil liability claims for greater compensation than would otherwise have been payable.

We currently maintain, for each of our owned vessels, insurance coverage against pollution liability risks in the amount of $1.0 billion per incident. The insured risks include penalties and fines as well as civil liabilities and expenses resulting from accidental pollution. However, this insurance coverage is subject to exclusions, deductibles and other terms and conditions. If any liabilities or expenses fall within an exclusion from coverage, or if damages from a catastrophic incident exceed the $1.0 billion limitation of coverage per incident, our cash flow, profitability and financial position could be adversely impacted.

Climate change and government laws and regulations related to climate change could negatively impact our financial condition.

In addition to other climate-related risks set forth in this “Risk Factors” section, we are and will be, directly and indirectly, subject to the effects of climate change and may, directly or indirectly, be affected by government laws and regulations related to climate change. A number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions, such as carbon dioxide and methane. In the United States, the United States Environmental Protection Agency (“U.S. EPA”) has declared greenhouse gases to be dangerous pollutants and has issued greenhouse gas reporting requirements for emissions sources in certain industries (which do not include the shipping industry). The U.S. EPA is also considering petitions to regulate greenhouse gas emissions from marine vessels.

In addition, while the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (“UNFCCC”), which requires adopting countries to implement national programs to reduce greenhouse gas emissions, the IMO intends to develop limits on greenhouse gases from international shipping. It has responded to the global focus on climate change and greenhouse gas emissions by developing specific technical and operational efficiency measures and a work plan for market-based mechanisms in 2011. These include the mandatory measures of the ship energy efficiency management plan (“SEEMP”), outlined below, and an energy efficiency design index (“EEDI”) for new ships. The IMO is also considering its position on market-based measures through an expert working group, which was expected to report back to its Marine Environment Protection Committee (“MEPC”) in late 2012. Among the numerous proposals being considered by the working group are the following: a port state levy based on the amount of fuel consumed by the vessel on its voyage to the port in question; a global emissions trading scheme which would allocate emissions allowances and set an emissions cap; and an international fund establishing a global emissions reduction target for international shipping, to be set either by the UNFCCC or the IMO. At its 64th session in October 2012, the MEPC indicated that 2015 was the target year for Member States to identify market-based measures for international shipping.

In December 2011, UN climate change talks took place in Durban and concluded with an agreement referred to as the Durban Platform for Enhanced Action. The Durban Conference did not result in any proposals specifically addressing the shipping industry’s role in climate change but the progress that has been made by the IMO in this area was widely acknowledged throughout the negotiating bodies of the UNFCCC process.

The European Union announced in April 2007 that it planned to expand the European Union emissions trading scheme by adding vessels, and a proposal from the European Commission was expected if no global regime for reduction of seaborne emissions had been agreed to by the end of 2011. That deadline has now expired and it remains to be seen what position the European Union will take in this regard in the future. As of January 31, 2013 the European Commission has stopped short of proposing that emissions from ships be included in the European Union’s emissions-trading scheme (ETS). However, on October 1, 2012 the European Commission announced that it would propose measures to monitor, verify and report on greenhouse-gas emissions from the shipping sector in early 2013. This may be seen as indicative of an intention to maintain pressure on the international negotiating process.

We cannot predict with any degree of certainty what effect, if any, possible climate change and government laws and regulations related to climate change will have on our operations, whether directly or indirectly. However, we believe that climate change, including the possible increase in severe weather events resulting from climate change, and government laws and regulations related to climate change may affect, directly or indirectly, (i) the cost of the vessels we may acquire in the future, (ii) our ability to continue to operate as we have in the past, (iii) the cost of operating our vessels, and (iv) insurance premiums, deductibles and the availability of coverage. As a result, our financial condition could be negatively impacted by significant climate change and related governmental regulation, and that impact could be material.

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 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 IMO is also introducing the first ever mandatory measures for an international greenhouse gas reduction regime for a global industry sector. The measures came into effect on January 1, 2013 and apply to all ships of 400 gross tonnage and above. These measures set a ship energy efficiency management plan (“SEEMP”) which is akin to a safety management plan, which the industry will have to comply with. On August 20, 2013, MLC (Marine Labour Convention), (the “Convention”) entered into force stating that all the countries that were ratified under the convention and as a result all the vessels with the respective country flag must be certified through August 20, 2013. The Convention is comprehensive and sets out, in one place, seafarers' rights to decent working conditions. It covers almost every aspect of their work and life on board. The failure of a shipowner or bareboat charterer to comply with the ISM Code or IMO measures 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. For example, the United States Coast Guard and European Union authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in ports in the United States and European Union. As of the date of this report, each of our vessels is ISM code-certified. However, there can be no assurance that such certification will be maintained indefinitely.

On July 1, 2014, the November 2012 SOLAS amendments entered into force. Specifically, new SOLAS regulation II-1/3-12 to require new ships to be constructed to reduce on-board noise and to protect personnel from noise, in accordance with the revised Code on noise levels on board ships, also adopted, which sets out mandatory maximum noise level limits for machinery spaces, control rooms, workshops, accommodation and other spaces on board ships. Amendments to SOLAS regulation III/17-1 to require ships to have plans and procedures to recover persons from the water, as well as related Guidelines for development of plans and procedures for recovery of persons from the water. Also, a related MSC resolution on Implementation of SOLAS regulation III/17-1 to ships to which SOLAS chapter III does not apply; amendments to SOLAS regulation II-2/10 on fire fighting to require a minimum of duplicate two-way portable radiotelephone apparatus for each fire party for fire fighters’ communication to be carried; amendments to regulation II-2/15 on instructions, on-board training and drills, to require an on-board means of recharging breathing apparatus cylinders used during drills, or a suitable number of spare cylinders; and amendments to regulation II-2/20 on protection of vehicle, special category and ro-ro spaces related to fixed fire-extinguishing systems; and amendments to the appendix to the annex to the SOLAS Convention replacing all forms of certificates and records of equipment, including its 1988 Protocol, and amendments to the forms of the Cargo Ship Safety Construction Certificate and Cargo Ship Safety Equipment Certificate of its 1978 Protocol.

CSC Amendments were active since July 1, 2014. Specifically, amendments to the International Convention for Safe Containers (CSC), 1972, to incorporate amendments to the CSC Convention adopted in 1993 by resolution A.737(18), including amendments relating to the safety approval plate and to the approval of existing and new containers.

The 0.10% fuel oil sulphur limit in ECAs was active since January 1, 2015. The limit for fuel oil sulphur levels falls to 0.10% m/m in emission control areas established to limit SOx and particulate matter emissions. The ECAs concerned are: Baltic Sea area; North Sea area; North American area; United States Caribbean Sea area.

Regulations that we must comply with are the following: April 14, 2015 Nairobi Wreck Removal Convention and the Nairobi International Convention on the Removal Wrecks; September 1, 2015, amendments to MARPOL Annex VI, regulation 13 (NOx);Amendments concerning the date for the implementation of “Tier III” standards within emission control areas (ECAs). The amendments provide for the Tier III NOx standards to be applied to a marine diesel engine that is installed on a ship constructed on or after January 1, 2016 and which operates in the North American Emission Control Area or the U.S. Caribbean Sea Emission Control Area that are designated for the control of NOx emissions. In addition, the Tier III requirements would apply to installed marine diesel engines when operated in other emission control areas which might be designated in the future for Tier III NOx control. The Tier III requirements do not apply to a marine diesel engine installed on a ship constructed prior to January 1, 2021 of less than 500 gross tonnage, of 24 m or over in length, which has been specifically designed and is used solely, for recreational purposes.

Our vessels and/or the cargoes carried on board our vessels may suffer damage due to the inherent operational risks of the seaborne transportation industry and we may experience unexpected dry-docking costs, which could 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. Any resulting legal proceedings may be complex, lengthy and costly and, if decided against us, any of these proceedings or other proceedings involving similar claims or claims for substantial damages may harm our reputation and have a material adverse effect on our business, results of operations, cash flow and financial position. In addition, the legal systems and law enforcement mechanisms in certain countries in which we operate may expose us to risk and uncertainty. Further, we may be required to devote substantial time and cost defending these proceedings, which could divert the attention of management from our business. If our vessels suffer damage, they may need to be repaired at a dry-docking facility. The costs of dry-dock repairs are unpredictable and may be substantial. We may have to pay dry-docking costs that our insurance does not cover in full. The loss of revenue 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 dry-docking facilities is sometimes limited and not all dry-docking facilities are conveniently located. We may be unable to find space at a suitable dry-docking facility or our vessels may be forced to travel to a dry-docking facility that is not conveniently located to our vessels’ positions. The loss of revenue while these vessels are forced to wait for space or to steam to more distant dry-docking facilities would decrease our earnings. For example, on October 8, 2010, the Grand Rodosi, one of our bulk carriers, which has since been redelivered to Lemissoler, was involved in a collision with a docked fishing vessel at Port Lincoln, Australia. While no personal injuries or environmental damages were incurred, the collision resulted in physical damage to the two vessels. The damage was fully covered by our insurance. The total loss or damage of any of our vessels or cargoes could harm our reputation as a safe and reliable vessel owner and operator. If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs, or loss that could negatively impact our business, financial condition, results of operations, cash flows and ability to reinstate the payment of dividends.

Our insurance may not be adequate to cover our losses that may result from our operations, which are subject 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 all of our operational risks, which could have a material adverse effect on us. Even if our insurance coverage is adequate to cover our losses, we may not be able to obtain a timely replacement, which may result in the loss of revenue. 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. 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 the related concerns 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, while we carry loss of hire insurance to cover 100% of our fleet, we may not be able to maintain this level of coverage. 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, financial condition and our ability to pay dividends, if reinstated to our shareholders in the future.

Because we obtain some of our insurance through protection and indemnity associations, we may also be subject to calls in amounts based not only on our own claim records, but also on the claim records of other members of the protection and indemnity associations.

We may be subject to calls in amounts based not only on our claim records but also on 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. 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 and financial condition. As of the date of the report, we did not have any recent calls.

In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel that 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 vessels.

The risks and costs associated with vessels increase as the vessels age.

The costs to operate and maintain a vessel in operation increase with the age of the vessel. The average age of our dry bulk fleet is 9.2 years and the average age of our oil tanker/asphalt carriers fleet is 6.2 years. Most dry bulk and tanker vessels have an expected life ranging between 25 to 30 years, subject to market conditions and employment status of the vessels. In some instances, charterers prefer newer vessels that are more fuel efficient than older vessels. Cargo insurance rates also increase with the age of a vessel, making older vessels less desirable to charterers as well. In addition, older vessels could have loan obligations in excess of their scrap value. Governmental regulations, safety or other equipment standards related to the age of the vessels may require expenditures for alterations or the addition of new equipment to vessels and may restrict the type of activities in which these vessels may engage. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives. If we sell vessels, we may have to sell them at a loss, and if charterers no longer charter-out vessels due to their age, our earnings could be materially adversely affected.

A failure to pass inspection by classification societies could result in one or more vessels being unemployable unless and until they pass inspection, resulting in a loss of revenues from such vessels for that period and a corresponding decrease in operating cash flows.

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 with International Convention for the Safety of Life at Sea, or SOLAS. Our fleet is currently enrolled with Bureau Veritas and Registro Italiano Navale (“RINA”).

A vessel must undergo an annual survey, an intermediate survey and a special survey. In lieu of a special survey, a vessel’s machinery may be 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 may be also required to be dry-docked every two to three years for inspection of the underwater parts of such vessel.

If any vessel fails any annual survey, intermediate survey or special survey, the vessel may be unable to trade between ports and, therefore, would be unemployable, potentially causing a negative impact on our revenues due to the loss of revenues from such vessel until she is able to trade again.

Labor interruptions could disrupt our business.

Our vessels are manned by masters, officers and crews that are employed by third parties. 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 as we expect 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.

Maritime claimants could arrest our vessels through foreclosure proceedings, 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 a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our business or require us to pay large sums of money 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. As a result, claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another vessel in our fleet.

Governments could requisition our vessels during a period of war or emergency without adequate compensation.

A government could requisition or seize our vessels. Under requisition for title, a government takes control of a vessel and becomes its owner. Under requisition for hire, a government takes control of a vessel and effectively becomes its charterer at dictated charter rates. Generally, requisitions occur during periods of war or emergency. Although we would be entitled to compensation in the event of a requisition, the amount and timing of payment would be uncertain. Government requisition of one or more of our vessels may negatively impact our business, financial condition and results of operations.

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

The international shipping industry is an inherently risky business involving global operations. Our vessels are at risk of damage or loss because of events such as mechanical failure, collision, human error, war, terrorism, piracy, cargo loss, natural disasters 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 that may reduce our revenue or increase our expenses.

Terrorist attacks, international hostilities and political instability can affect the seaborne transportation industry, which could adversely affect our business and results of operations.

We conduct our operations worldwide, and our business, results of operations, cash flows and financial condition 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, in London on July 7, 2005 and in Mumbai on November 26, 2008 and the continuing response of the United States and others to these attacks, as well as the threat of future terrorist attacks in the United States or elsewhere, continue to cause uncertainty in the world financial markets and may affect our business, operating results and financial condition. The continuing presence of the United States and other armed forces in Iraq and Afghanistan may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. In addition, continuing conflicts and recent developments in North Africa and the Middle East and future hostilities or other political instability in regions where our vessels trade could affect our trade patterns and adversely affect our operations by causing delays in shipping on certain routes or making shipping impossible on such routes, thereby causing a decrease in revenues. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.

Terrorist attacks on vessels, such as the September 1, 2013 attack on M/V Cosco Asia, a container carrier not related to us, may in the future also negatively affect our operations and financial condition and directly impact our vessels or our customers. Future terrorist attacks could result in increased volatility and turmoil in the financial markets in the United States and globally. Any of these occurrences could have a material adverse impact on our revenues and costs.

We are subject to vessel security regulations and will incur costs to comply with recently adopted regulations and may be subject to costs to comply with similar regulations which may be adopted in the future in response to terrorism.

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 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 went into effect in July 2004, and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the newly created ISPS Code. Among the various requirements are:

Furthermore, additional security measures could be required in the future which could have a significant financial impact on us. The U.S. Coast Guard regulations, intended to be aligned with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels had on board, by July 1, 2004, a valid International Ship Security Certificate, or ISSC, that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. We have implemented and will continue implement the various security measures addressed by the MTSA, SOLAS and the ISPS Code and take measures for the vessels to attain compliance with all applicable security requirements within the prescribed time periods. Although management does not believe these additional requirements will have a material financial impact on our operations, there can be no assurance that there will not be an interruption in operations to bring vessels into compliance with the applicable requirements and any such interruption could cause a decrease in charter revenues. The cost of vessel security measures has also been affected by the dramatic escalation in recent years in the frequency and seriousness of acts of piracy against ships, notably off the coast of Somalia, including the Gulf of Aden and Arabian Sea area, which could have a significant financial impact on us. Attacks of this kind have commonly resulted in vessels and their crews being detained for several months, and being released only on payment of large ransoms. Substantial loss of revenue and other costs may be incurred as a result of such detention. We insure against these losses to the extent practicable, but the risk remains that uninsured losses could significantly affect our business. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy. A number of flag states have signed the 2009 New York Declaration, which expresses commitment to Best Management Practices in relation to piracy and calls for compliance with them as an essential part of compliance with the ISPS Code.

Economic sanctions and other international trade restrictions imposed by the United States, the European Union, and other jurisdictions could increase the legal compliance risks and costs associated with our international activities.

Economic sanctions and/or other trade restrictions imposed by the United States or other governments or organizations, including the United Nations, the European Union (“EU”) and its member states, could increase the legal costs of, and risks associated with, our international operations. Our compliance with the prohibitions of economic sanctions and foregoing business with countries subject to sanctions could also lead to loss of revenue.

Under economic sanctions and related trade laws, governments may impose requirements and restrictions that necessitate modifications to business activities and practices and modifications to compliance programs, which may increase compliance costs. These government-imposed requirements and restrictions may also increase the risk of violations of law, and, in the event of a violation of such laws, may subject us to fines and other penalties. Engaging in sanctions-triggering activity, such as that outlined under the Iran Sanctions Act (“ISA”) of 1996 and the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (“CISADA”), could also result in the imposition of sanctions against us.

Recently, the scope of sanctions imposed against Iran and persons engaging in certain activities or doing certain business with or involving Iran has been expanded by a number of jurisdictions, including the United States, the EU, and Canada. The EU has strengthened sanctions against Iran by prohibiting a wider universe of transactions and activities involving Iran. The EU sanctions against Iran now prohibit the transportation of crude oil and petroleum as well as petrochemical products from Iran. CISADA, enacted by the United States, also strengthens existing U.S. sanctions against Iran, and, inter alia, provides for the imposition of sanctions against foreign (non-U.S.) entities that transport or otherwise supply refined petroleum products (“RPP”) to Iran. U.S. Executive Order 13590 (November 19, 2011) expands and adds to the universe of activity triggering sanctions under ISA and CISADA by expanding sanctions and presenting risks to non-US persons conducting certain business with Iran’s petroleum and petrochemical industry.

In addition, on May 1, 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with the United States, including conducting business in U.S. dollars. Also in August 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRSHRA”), or the Iran Threat Reduction Act, which created new sanctions and strengthened existing sanctions. Among other things, the ITRSHRA intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran’s petroleum or petrochemical sector and potentially exposes U.S. companies to liability for the actions of their non-U.S. subsidiaries. The ITRSHRA also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person’s vessels from U.S. ports for up to two years.

In January 2014, the “P5+1” countries (the United States, United Kingdom, Germany, France, Russia and China) agreed on a Joint Plan of Action (JPOA) with Iran in an effort to stop the advance of Iran’s nuclear program and roll back certain aspects of the program. Under this program, the United States has for a period commencing January 20, 2014 and ending on June 30, 2015 (JPOA Relief Period) suspended certain sanctions against Iran (including the export from Iran of petrochemical products and crude oil). The relief afforded under the suspension is limited, temporary and reversible. Despite the suspension, and subject to a very small number of exceptions, all other U.S. sanctions concerning Iran remain in effect. U.S. persons and U.S.-owned or -controlled foreign entities remain generally prohibited from entering into transactions with Iran unless specifically authorized by the U.S. Government, including transactions permitted by the JPOA.

We are monitoring developments in the United States, the EU and other jurisdictions that maintain sanctions programs, including developments in implementation and enforcement of such sanctions programs. Expansion of sanctions programs, embargoes and other restrictions in the future (including additional designations of countries or entities subject to sanctions), or modifications in how existing sanctions are interpreted or enforced, could prevent vessels from calling on ports in sanctioned countries or could limit their cargoes and could also expose us to sanctions based on the activities of the vessels while the vessels are chartered out to third parties, even though we do not control such third parties.

We constantly keep abreast of legal developments in the economic sanctions and trade restrictions area, and we adjust our compliance programs and internal policies accordingly. We believe that we are and have been in compliance with all applicable laws, including all laws impacting the trade of our vessels with Iran and other countries identified by the United States as state sponsors of terrorism or as engaging in activities related to nuclear proliferation, and we intend to maintain such compliance. Our vessels are not authorized to engage in unlawful trade, or, save for vessels acquired while already on charter, any sanctions-triggering activity. Moreover, our vessels’ trade with the foregoing countries is infrequent, and the revenue we derive from such activity is de minimis. Additionally, our vessels are not chartered to entities that have been designated as sanctions targets by the United States or the European Union. The Company has not been involved in business to and from Cuba and Syria during the period of January 1 through December 31, 2014.

In an affirmative step to guard against violations and to prevent our vessels from engaging in any sanctions-triggering trade, we now include provisions in all of our new charters designed to prevent our charter parties from violating applicable laws relating to existing sanctions and from engaging in sanctions-triggering activity.

As it relates to Iran, the provisions in the charter parties/contracts for our vessels contain exclusions that prohibit the use of our vessels in unlawful and/or sanctions-triggering trade with Iran, or such trading is subject to requesting our prior consent, which is not to be unreasonably withheld. Therefore, should any vessel be instructed by her time charterers to call in Iran and our confirmation is required, we ask our charterers to provide clear evidence that neither the transportation, loading nor discharge of the cargo, nor the parties involved, will result in or be subject to any sanctions, respectively. Furthermore, we provide this information to the vessel’s Protection & Indemnity Association (“P&I Association”), a third party liability insurer, asking for legal and/or expert advice.

During 2014 and up to February 2015, the Newlead Victoria, which is chartered on a long-term charter signed in 2012, was instructed by her time charterers, who are disponent owners, to call at a port in Iran twice. In all cases, based on the information provided by the charterers, we conducted the relevant due diligence in cooperation with the vessel’s War Risk Association in order to confirm that the loading, discharge and transportation of the cargo and the parties involved would not result in, or would not be subject to, any sanctions, respectively. Following this review and after the vessel was insured by the War Association, on October 27, 2014 the Newlead Victoria arrived at Iran’s Bandar Imam Khomeini (BIK) port to discharge a cargo of about 66,000 MT of wheat in bulk which was loaded from Kavkaz, and departed on November 16, 2014. Neither the loading, discharge nor transportation of the cargo, nor the parties involved, were subject to any sanctions while the revenue was $12,000 per day gross or $11,700 per day net for 20 days that the discharge operations took place. Furthermore, on January 25, 2015, this same vessel called Bandar Imam Khomeini (BIK) to discharge a cargo of about 62,100 MT of wheat which had been loaded at the port of Paranagua, Brazil and she departed on February 12, 2015. Neither the loading, discharge nor transportation of the cargo, nor the parties involved, were subject to any sanctions. The vessel’s revenues from this operation were $13,050 gross or $12,723.75 per day net for 18 days. During 2013 also, Newlead Markela was instructed by her time charterers to call Iran twice and Sudan once. In all cases, after the time charterers instructed the vessel to call Iran and Sudan, we asked them to provide us with all necessary information regarding the ports of call, cargo and parties involved, in order to conduct the relevant due diligence. Furthermore, we presented all relevant information to our War Risks Association (in the form of a standard questionnaire), who, after reviewing the facts, insured the vessel for the proposed voyages. Furthermore, In the future our charterers may instruct the vessel to call Iran, or another country which is subject to sanctions, however in any case subject to our prior due diligence and approval.

Despite the fact that we avoid any sanctioned activity with Iran and all other countries which are subject to sanctions, there is nevertheless some risk that the charter parties may engage in activity that could (indirectly) cause us to violate applicable law, expose us to sanctions under ISA, CISADA, ITRSHRA and any similar laws, and, as a consequence, cause reputational and other damage that could have a material adverse impact on our business and operations. Any such violation could result in fines, penalties, or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not invest in us. Additionally, some investors may decide not to invest in our company simply because we do business with companies that do business in sanctioned countries. The determination by these investors not to invest in, or to divest from, our common shares may adversely affect the price at which our common shares trade. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of our common stock may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.

Where trade exclusions with respect to Iran do not exist in our charter parties, we affirmatively notify charterers of our vessels that they themselves could face sanctions if they use our vessels in sanctions triggering trade with Iran.

Risks Relating to Our Coal Business

During 2012, we entered into a variety of transactions in order to develop a commodities sector of our business. We have entered into a joint venture arrangement and we have established a new entity with J Mining & Energy Group for the purchase and trading of coal. As of May 12, 2015, these coal operations have not yet developed.

Pursuant to a series of agreements our current limited coal operations consist of a coal preparation plant located in Pike County, Kentucky, USA which was acquired in December 2013 In 2012 we entered into an agreement to acquire certain mine-related assets (including mineral rights, surface rights and mining permits) and the title of land ownership of the Five Mile mine including the Andy Terminal Railroad (the “Five Mile Assets”) in Breathitt County, Kentucky, USA. The payment of the $11 million purchase price was paid during 2013 and 2014 through December Settlement Agreement between NewLead Holdings Ltd. and Hanover. As of the date of this annual report, although the purchase price for the Five Mile Assets has been fully paid, the transfer of the Five Mile Assets has yet to occur. Further, according to the Kentucky State mining regulators, upon the successful transfer of the Five Mile Assets, it is a precondition to the transfer of the permits for the replacement of the reclamation bonds for the transfer of the Five Mile Assets. We are currently analyzing our next steps towards the completion of the acquisition of Five Mile Assets. 

As of December 31, 2014 and May 12, 2015, our coal business, consists of our coal preparation plant, which has entered into various coal processing agreements. However, there can be no assurance that we will be able to effectively manage those operations or expand those limited operations in the future.

We may be not able to obtain the necessary financing to satisfy our payment obligations under existing agreements, and there is no assurance that we will be able to do so in the future.

In relation to the Five Mile mine, although the purchase price has been fully paid, there is still obligation under the purchase agreements that must be fulfilled. Specifically, the transfer of the Five Mile Assets has yet to occur. Further, according to the Kentucky State mining regulators, upon the successful transfer of the Five Mile Assets, it is a precondition to the transfer of the permits for the replacement of the reclamation bonds for the transfer of the Five Mile Assets.

Our failure to fulfill our obligations under the obligations above may also impact our ability to negotiate future purchase agreements with third parties and to grow our business through acquisitions, which could adversely impact our results of operations.

Coal prices are subject to change and a substantial or extended decline in prices, which are currently depressed, could materially and adversely affect our business, results of operations and financial position.

Our profitability depends upon the prices we receive for the coal we process and blend and the prices we pay for the coal we purchase. The contract prices for our processing and blending coal depend upon factors beyond our control, including the following:

Coal prices are currently depressed based on a number of factors outside our control. If coal prices remain depressed, or if there is a substantial or extended decline in the prices we receive for our future coal processing contracts, it could materially and adversely affect our business, results of operations and financial position.

Trends within the coal industry could put downward pressure on coal prices and, as a result, materially and adversely affect our future revenues and profitability.

There are a number of coal producers in the United States for domestic sales. International demand for U.S. coal also affects the U.S. coal industry. The demand for U.S. coal exports depends upon a number of factors outside our control, including the overall demand for electricity in foreign markets, currency exchange rates, ocean freight rates, port and shipping capacity, the demand for foreign-priced steel, both in foreign markets and in the U.S. market, general economic conditions in foreign countries, technological developments and environmental and other governmental regulations. Foreign demand for U.S. coal has increased in recent periods. This decline has cause competition among coal producers for the sale of coal in the United States to intensify, resulting in significant downward pressure on domestic coal prices.

In addition, during the mid-1970s and early 1980s, increased demand for coal attracted new investors to the coal industry, spurred the development of new mines and resulted in additional production capacity throughout the industry, all of which led to increased competition and lower coal prices. Historically, increases in coal prices over the past several years had encouraged the development of expanded capacity by coal producers. Any resulting overcapacity and increased production could materially reduce coal prices and therefore materially reduce our future revenues and profitability.

Because the demand and pricing for coal is greatly influenced by consumption patterns of the electricity generation industry in U.S. and the worldwide steel industry, a reduction in the demand for coal by these industries would likely cause our revenues and profitability to decline significantly.

Demand for our processed coal and the prices that we will be able to obtain primarily will depend upon coal consumption patterns of the electric utility industry and the worldwide steel industry. Consumption by the utility industry is affected by the demand for electricity, environmental and other governmental regulations, technological developments and the price of competing coal and alternative fuel supplies including nuclear, natural gas, oil and renewable energy sources, including hydroelectric power. Demand by the electricity industry is impacted by weather patterns, overall economic activity and the associated demand for power by industrial users. Demand by the steel industry is primarily affected by economic growth and the demand for steel used in construction as well as appliances and automobiles. Any downward pressure on coal prices could have a negative impact on our business, results of operation and financial condition.

Electric utility deregulation is expected to provide incentives to generators of electricity to minimize their fuel costs and is believed to have caused electric generators to be more aggressive in negotiating prices with coal suppliers. To the extent utility deregulation causes our customers to be more cost-sensitive, deregulation may have a negative effect on our profitability.

The mining business is capital intensive and we may not be able to successfully manage our future operations or have access to the capital required to develop coal operations and reach full productive capacity at our current mines and we may not be able to acquire any additional mines.

Our mining operations are currently limited or non-existent. However, even any limited operations are capital intensive due to construction of new infrastructure and maintenance of existing operations. Specifically, the exploration, permitting and development of coal reserves, mining costs, the maintenance of machinery and equipment and compliance with applicable laws and regulations requires substantial capital expenditures. We cannot assure you that we will be able to successfully manage our limited operations or that we will be able to generate sufficient production levels or generate sufficient cash flow to fund future mining operations. We do not currently have access to sufficient financing to fully fund our proposed production, exploration, permitting and development activities and we may be required to defer all or a portion of our future capital expenditures.

Changes in the export and import markets for coal products could affect the demand for our processed coal, our pricing and our profitability.

We compete in a worldwide market. The pricing and demand for our processed coal is affected by a number of factors beyond our control. These factors include:

Any decrease in the amount of coal exported from the United States, or any increase in the amount of coal imported into the United States, could have a material adverse impact on the demand for our processed coal, our pricing and our profitability.

The availability and reliability of transportation facilities and fluctuations in transportation costs could affect the demand for our processed coal or impair our ability to supply processed coal to our customers.

We depend upon truck and belt transportation systems to receive raw coal and to deliver processed coal to our customers. Disruptions in transportation services due to weather-related problems, mechanical difficulties, strikes, lockouts, bottlenecks, and other events could impair our ability to receive raw or deliver processed coal to our customers. Increases in transportation costs, including the price of gasoline and diesel fuel, could make coal a less competitive source of energy when compared to alternative fuels or could make coal produced in one region of the United States less competitive than coal produced in other regions of the United States or abroad. If we experience disruptions in the transportation services or if transportation costs increase significantly and our customers may be unable to find alternative transportation providers, our raw coal supply and processed coal delivery may be disrupted, and our profitability could decrease significantly.

Our profitability in part depends upon the existence of coal processing agreements.

We process and blend coal under coal processing agreements with terms greater than one year. We anticipate that such agreements may include terms that fix the prices of coal processed during the initial year with adjustment provisions for the prices for later years. As a result, at any given time the market prices may exceed the prices under these arrangements. If we enter into such arrangements, changes in the coal industry may cause some of our customers not to renew or extend such long-term agreements or enter into new long-term coal processing agreements with us or to enter into agreements to process fewer tons of coal than in the past or on different terms or prices. 

 Unexpected decreases in availability of supplies, such as equipment or raw materials, or increases in the costs thereof, could significantly impair our operating results.

Our operations are dependent on reliable supplies of various equipment. If the cost of these equipment or key supplies increases significantly, or if they should become unavailable due to higher industry-wide demand or less production by suppliers, there could be an adverse impact on our cash flows, results of operations or financial condition.

Coal processing is subject to inherent risks and our operations may be affected by conditions or events beyond our control, which could cause our quarterly or annual results to deteriorate.

Our coal processing operations are subject to conditions or events beyond our control that could disrupt operations, affect production and the cost of processing for varying lengths of time and have a significant impact on our operating results. These conditions or events include:

A shutdown of the preparation plant we acquired or prolonged disruption of intended services or transportation of our customers would result in a decrease in our revenues and profitability, which could be material. Our insurance does not cover every potential risk associated with our operations. Adequate coverage at reasonable rates is not always obtainable. In addition, our insurance may not fully cover our liability or the consequences of any business interruptions such as equipment failure or labor disputes. The occurrence of a significant event not fully covered by insurance could have an adverse effect on our business, results of operations, financial condition and prospects.

We face numerous uncertainties in estimating our future economically recoverable coal reserves and inaccuracies in our estimates could result in lower than expected revenues, higher than expected costs and decreased profitability.

Forecasts of our future performance are based on, among other things, estimates of our future recoverable coal reserves, in relation to the Viking Acquisition Group and the Five Mile Assets. Reserve information is typically based upon on engineering, economic and geological data assembled and analyzed by third parties. Reserve estimates as to both quantity and quality are generally updated from time to time to reflect production of coal from the reserves and new drilling or other data received. There are numerous uncertainties inherent in estimating quantities and qualities of coal and costs to mine recoverable reserves, including many factors beyond our control. Estimates of economically recoverable coal reserves necessarily depend upon a number of variable factors and assumptions, any one of which may, if incorrect, result in an estimate that varies considerably from actual results. These factors and assumptions include:

As a result, future actual coal tonnage recovered from identified reserve areas or properties and revenues and expenditures with respect to our reserves may vary materially from estimates. These estimates thus may not accurately reflect our future actual reserves. Any material inaccuracy in our estimates related to our reserves could result in lower than expected revenues, higher than expected costs or decreased profitability which could materially adversely affect our ability to pay distributions to our shareholders.

The success of our future operations depends upon our ability to obtain necessary permits to mine all of our coal reserves.

The permits are issued by various federal, state and local agencies and regulatory bodies. The permitting rules, and the interpretations of these rules, are complex, change frequently, and are often subject to discretionary interpretations by the regulators, all of which may make compliance more difficult or impractical, and may possibly preclude the continuance of ongoing mine development or operations or the development of future mining operations. The public, including non-governmental organizations, anti-mining groups and individuals, have certain statutory rights to comment upon and submit objections to requested permits and environmental impact statements prepared in connection with applicable regulatory processes, and otherwise engage in the permitting process, including bringing citizens’ claims to challenge the issuance or renewal of permits, the validity of environmental impact statements or performance of mining activities. Accordingly, required permits may not be issued in a timely fashion or renewed at all, or permits issued or renewed may not be maintained, may be challenged or may be conditioned in a manner that may restrict our ability to efficiently and economically conduct future mining activities, any of which would have a material adverse effect on our results of operations, business and financial position.

Our future operations could be adversely affected if we are unable to obtain required surety bonds.

Federal and state laws require obtaining surety bonds to secure performance or payment of certain long-term obligations, such as reclamation costs for lands used for mining, federal and state workers’ compensation costs and satisfaction of other miscellaneous obligations. Certain insurance companies, along with other participants in the coal industry, no longer provide surety bonds for workers’ compensation and other post-employment benefits without collateral. We may have difficulty procuring or maintaining our future surety bonds. Our potential bond issuers may demand higher fees, additional collateral, including letters of credit or other terms less favorable to us upon issuance or renewal of bonds. Because we are required by state and federal law to have these bonds in place before mining can commence or continue, our failure to maintain surety bonds, letters of credit or other guarantees or security arrangements would materially and adversely affect our ability to mine or lease coal. That failure could result from a variety of factors, including lack of availability, higher expense or unfavorable market terms, the exercise by third party surety bond issuers of their right to refuse to renew the surety and restrictions on availability of collateral for current and future third party surety bond issuers under the terms of our financing arrangements.

Extensive environmental regulations, including existing and potential future regulatory requirements relating to air emissions, affect our customers and could reduce the demand for coal as a fuel source and cause coal prices and our coal services to materially decline.

Coal contains impurities, including but not limited to sulfur, mercury, chlorine, carbon and other elements or compounds, many of which are released into the air when coal is burned. The operations of our customers are subject to extensive environmental regulation particularly with respect to air emissions. For example, the federal Clean Air Act and similar state and local laws extensively regulate the amount of sulfur dioxide, particulate matter, nitrogen oxides, and other compounds emitted into the air from electric power plants. A series of more stringent requirements relating to particulate matter, ozone, haze, mercury, sulfur dioxide, nitrogen oxide and other air pollutants are expected to be proposed or become effective in coming years. In addition, concerted conservation efforts that result in reduced electricity consumption could cause coal prices and our coal services to materially decline.

Considerable uncertainty is associated with these air emissions initiatives. The content of regulatory requirements in the United States is in the process of being developed, and many new regulatory initiatives remain subject to review by federal or state agencies or the courts. Stringent air emissions limitations are either in place or are likely to be imposed in the short to medium term, and these limitations will likely require significant emissions control expenditures for many coal-fueled power plants and other traditional users of coal. As a result, these power plants and other users of coal may switch to other fuels that generate fewer of these emissions or may install more effective pollution control equipment that reduces the need for low sulfur coal, possibly reducing future demand for coal and a reduced need to construct new coal-fueled power plants and other facilities that use coal. The EIA’s expectations for the coal industry assume there will be a significant number of as yet unplanned coal-fired plants built in the future which may not occur. Any switching of fuel sources away from coal, closure of existing coal-fired plants, or reduced construction of new plants could have a material adverse effect on demand for and prices received for our coal.

Alternatively, less stringent air emissions limitations, particularly related to sulfur, to the extent enacted could make low sulfur coal less attractive, which could also have a material adverse effect on the demand for and prices received for our coal services.

Increased regulation relating to environmental protection, health and safety and other matters may impose significant costs on us, and future requirements could limit our ability to produce coal at a competitive price.

Our coal processing operations are subject to extensive federal, state and local regulations with respect to matters such as:

Our processing operations and future mining operations may adversely impact the environment, which could result in material liabilities to us.

The processes required to mine and process coal may cause certain impacts or generate certain materials that might adversely affect the environment from time to time. Certain of our processing operations and future mining operations may use hazardous and other regulated materials and may generate hazardous wastes. We may be subject to claims under federal and state statutes and/or common law doctrines for penalties, toxic torts and other damages, as well as for natural resource damages and for the investigation and remediation of soil, surface water, groundwater, and other media under laws such as the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), commonly known as Superfund, or the Clean Water Act.

Liability may be strict, joint and several, so that we, regardless of whether we caused contamination, may be held responsible for more than our share of the contamination or other damages, or even for the entire share. These and other similar unforeseen impacts that our operations may have on the environment, as well as exposures to regulated materials or wastes associated with our operations, could result in costs and liabilities that could adversely affect us.

Because our management team has limited experience in the coal industry, there is a risk that our coal business may fail.

The members of our management team have limited experience operating a mining company and do not have formal training as geologists, engineers or in the technical aspects of management of a coal company. As a result, our management’s decisions and choices may not take into account standard engineering or managerial approaches that mining companies commonly use. In addition, we have to rely on the technical services of others with expertise in mining in order for us to exploit our properties. If we are unable to contract for the services of such individuals, it will make it difficult and maybe impossible to pursue our business plan. Consequently, our operations, earnings and ultimate financial success could suffer irreparable harm due to management’s lack of experience in this industry.

Our ability to collect payments from our customers could be impaired if their creditworthiness deteriorates.

Our ability to receive payment for coal processed and delivered depends on the continued creditworthiness of our customers. If we determine that a customer is not creditworthy, we may be able to withhold delivery under the customer's coal processing agreement. Furthermore, the bankruptcy of any of our customers could materially and adversely affect our financial position. Many utilities have sold their power plants to non-regulated affiliates or third parties that may be less creditworthy, thereby increasing the risk we bear on payment default. These new power plant owners may have credit ratings that are below investment grade. In addition, some of our customers may be affected by the current economic downturn, which may impact their ability to fulfill their contractual obligations. Competition with other service providers could force us to extend credit to customers and on terms that could increase the risk we bear on payment default. We may also enter into contracts to supply coal to energy trading and brokering companies under which those companies sell coal to end users. If the creditworthiness of the energy trading and brokering companies declines, this would increase the risk that we may not be able to collect payment for all coal sold and delivered to or on behalf of these energy trading and brokering companies. An inability to collect payment from these counterparties may materially adversely affect our results of operations, business and financial condition.

We operate our coal preparation plant with a limited work force. Our ability to operate a coal preparation plant efficiently and profitably could be impaired if we lose key personnel or fail to continue to attract qualified personnel.

We manage our coal business with a number of key personnel. In addition, to the extent that our business develops and expands, we believe that our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel. We cannot be certain that we will be able to attract and retain qualified personnel and contractors in the future. Failure to retain or attract key personnel could have a material adverse effect on our results of operations, business and financial condition.

A shortage of skilled mining labor in the United States could decrease our future labor productivity and increase labor costs, which would adversely affect our future profitability.

Efficient coal processing equipment requires skilled laborers, preferably with at least one year of experience, and proficiency in multiple mining tasks, including coal processing and equipment maintenance. Any shortage of skilled mining labor reduces the productivity of experienced employees who must assist in training unskilled employees. If a shortage of experienced labor occurs, it could have an adverse impact on our labor productivity and costs and our ability to expand coal operations in the event there is an increase in the demand for coal processing, which could adversely affect our results of operations, business and financial condition.

Competition within the coal industry may adversely affect our ability to process coal.

The coal industry has experienced consolidation in recent years, including consolidation among some of our major competitors. We cannot assure you that the result of current or further consolidation in the industry will not adversely affect us. In addition, potential changes to international trade agreements, trade concessions or other political and economic arrangements may benefit coal industry operating in countries other than the United States. We cannot assure you that we will be able to compete on the basis of price or other factors with companies that in the future may benefit from favorable various arrangements. As a result, our results of operations, business and financial condition may be materially adversely affected.

Risks Relating to Our Common Shares

Our common shares were delisted from the NASDAQ Global Select Market, which could negatively impact the price of our common shares and our ability to access the capital markets.

Our common shares were, until July 22, 2014, listed on the NASDAQ Global Select Market, or NASDAQ. Our ability to retain our listing was contingent upon compliance with NASDAQ continued listing standards. The listing standards of NASDAQ provide, among others, that a company may be delisted if the bid price of its stock is below $1.00 for a period of 30 consecutive trading days (“minimum bid price requirement”) and the company is unable to regain compliance with the minimum bid price requirement within the 180 calendar days grace period provided by NASDAQ.

As previously announced by us, on April 4, 2013, we received a letter from the NASDAQ Listing Qualifications Department (the “NASDAQ Staff”) notifying us that the minimum bid price of our common stock fell below $1.00 for a period of 30 consecutive trading days and therefore we did not meet the minimum bid price requirement set forth in NASDAQ Listing Rule 5450(a)(1). We were provided 180 calendar days, or until October 1, 2013, to regain compliance with the minimum bid price requirement. On October 1, 2013 we received a letter from the NASDAQ Staff notifying us that we had not regained compliance, with the minimum bid price requirement. We timely requested a hearing before the NASDAQ Hearing Panel (“the Panel”) and prior to any such hearing, we regained compliance through the implementation of the 1 for 15 reverse split of our common shares that was effective upon the commencement of trading on October 17, 2013. On January 3, 2014, we received a written notification from NASDAQ indicating that we regained compliance with the minimum bid price requirement of $1.00. Under NASDAQ Listing Rule 5815(d)(4)(a), the Panel monitored us for a six month period ending June 30, 2014, to see if we experience a closing bid price under $1.00 for a period of 30 consecutive trading days. Since receipt of the January 3, 2014 notification, we undertook a consolidation of our common shares, on March 6, 2014, at a 1 for 10 ratio in order to avoid our common shares falling below the $1.00 minimum bid price for a period of 30 consecutive trading days. As a result, on March 6, 2014, the stock started trading at $4.13 per share. Nevertheless, 23 trading days following this consolidation of share capital, our stock price dropped again below the minimum bid price requirement, and for the following 29 consecutive trading days continued to trade below $1.00, leading us, on May 15, 2014, to effect the another consolidation of shares, this time at the ratio of 1 for 50. Nonetheless, despite of the efforts to maintain the minimum bid price requirement, our stock continued to trade below $1.00, achieving the $1.00 minimum bid price for just nine trading days (from May 19, 2014 to May 30, 2014), and trading as low as $0.34 per share on June 17, 2014.

Our common shares traded as low as $0.49 before their trading was halted on June 18, 2014. The trading of our common shares was resumed on June 27, 2014, However, on July 15, 2014, in attempt to meet the minimum bid price requirement of $1.00, we effected another consolidation of shares at a ratio of 1for 50. On July 17, 2014, our common shares were halted from trading as a result of a NASDAQ inquiry regarding our intentions to change transfer agents. On September 22, 2014, our stock was officially delisted from the NASDAQ Stock Market according to the NASDAQ’s relevant SEC filing.

From October 17, 2013 until July 15, 2014 we completed five alterations in our share capitals (1:15, 1:3, 1:10, 1:50 and 1:50) that, in the aggregate, represent a ratio of 1:1,125,000. Thus, for every 1,125,000 shares a holder owned on or before October 2013, the holder now owns one share. All five alterations of share capital failed to maintain the stock price above $1.00 for a period of thirty (30) consecutive days. 

Accordingly, the NASDAQ Staff notified the Company that it had determined pursuant to its discretionary authority set forth in Listing Rule 5101 to delist the Company's securities based on public interest concerns raised by certain false and misleading public disclosures made by the Company and the fact that the Company had not demonstrated an ability to sustain compliance with the $1.00 minimum bid price requirement and the $50 million in market value of listed securities requirement for continued listing on NASDAQ.

Although the Company initially appealed this determination and continued to remain listed, since NASDAQ had notified the Company that it determined pursuant to its discretionary authority set forth in Listing Rule 5101 to delist the Company's securities based on (i) public interest concerns raised by certain alleged false and misleading public disclosures made by the Company in a few of its historical press releases, which were all subsequently re-issued and clarified in conjunction with discussions with NASDAQ, and (ii) the fact that the Company had not demonstrated an ability to sustain compliance with the $1.00 minimum bid price requirement and the $50 million in market value of listed securities requirement for continued listing on NASDAQ.  Although the Company initially appealed the NASDAQ determination, it was ultimately determined after discussion with NASDAQ that the success of appealing such NASDAQ determination was unlikely and the trading of our common shares on NASDAQ was suspended at the open of business on July 22, 2014, following the voluntary withdrawal of the request to go to an appeal hearing.

Following the above described delisting from NASDAQ, our common shares are being quoted on the OTC Markets (the “OTC”) under the trading symbol “NEWL”. Such quotation is likely to result in being more difficult for us to raise additional capital through the public or private sale of equity securities and for investors to dispose of, or obtain accurate quotations as to the market value of, our common stock. In addition, there can be no assurance that our common stock would be eligible for trading on any such alternative exchange or markets. We have filed a form 15c-211, though a market maker, with FINRA and we expect feedback from FINRA with respect to such filing in due course.

Our restructuring and development efforts to strengthen our financial position and reduce our debt may adversely affect our common shareholders through dilution or complete loss in value.

We may continue to effect various transactions to restructure our capital structure and reduce our debt service obligations, which may include additional issuances of equity securities in exchange for our indebtedness or the issuance of securities convertible into common shares, such as our preference shares. In addition, as part of the restructuring, certain of our indebtedness continues to remain outstanding, and the agreements relating to such indebtedness contain various restrictive covenants. Any debt that remains outstanding or we may incur as part of the continued restructuring will remain senior in right of payment over our common shares.

At our option or not, subject to certain conditions, certain interest and principal payments of our indebtedness may be satisfied by issuing additional common shares of the Company (rather than in cash). Refer to “Item 5.-Operating and Financial Review and Prospects-Liquidity and Capital Resources” for a discussion of our indebtedness. The issuance of additional common shares may be dilutive to our stockholders, including holders who received common shares in any restructuring. We cannot predict the extent to which this dilution and the possibility of additional issuances and sales of our common shares will negatively affect the trading price or the liquidity of our common shares.

There may not be an active market for our common shares, which may cause our common shares to trade at a discount and make it difficult to sell once you purchased.

We cannot assure you that an active trading market for our common shares will be sustained. We cannot assure you of the price at which our common shares will trade in the public market in the future or that the price of our shares in the public market will reflect our actual financial performance. You may not be able to resell your common shares at or above their current market price. Additionally, a lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of our common shares and limit the number of investors who are able to buy the common shares. The oil tanker/asphalt carriers and dry bulk markets have been highly unpredictable and volatile. The market price of our common shares may be similarly volatile.

 Volatility in the market price of our common stock may prevent investors from being able to sell their common stock at or above the price an investor pays for our common stock in an offering. In the past, class action litigation has often been brought against companies following periods of volatility in the market price of those companies’ common stock. We may become involved in this type of litigation in the future. Litigation is often expensive and diverts management’s attention and company resources and could have a material effect on our business, financial condition and operating results.

Anti-takeover provisions in our constitutional documents and in our loan/financing agreements could have the effect of discouraging, delaying or preventing a recapitalization, amalgamation, merger or acquisition or other business combination, which could adversely affect the market price of our common shares.

Several provisions of our bye-laws and/or the loan/financing agreements to which we are party could discourage, delay or prevent a recapitalization or acquisition that shareholders may consider favorable. These include provisions:

Despite our efforts to restructure our credit facility with Piraeus Bank (CPB loan), we have not been able to do so successfully. As a result, the resignation of Nicholas Fistes, among other actions, has caused us to default under certain of the provisions under this credit facility, as described above. While we continue to use our best efforts to complete our restructuring with Piraeus Bank (CPB loan), there can be no assurance that a successful resolution can be reached with Piraeus Bank (CPB loan). Further, there is no assurance that the Company will obtain releases or waivers from defaults, or incur additional defaults, under certain of its other indebtedness, and the failure to obtain such releases or waivers could materially and adversely affect our business and results of operations. These provisions could have the effect of discouraging, delaying or preventing a recapitalization, amalgamation, merger or acquisition, which could adversely affect the market price of our common shares.

A. History and Development of the Company

The legal and commercial name of the Company is NewLead Holdings Ltd., a company incorporated under the BCA on January 12, 2005. NewLead’s principal place of business is 83 Akti Miaouli & Flessa Street, 185 38, Piraeus Greece and its telephone number is (+30) 213-014-8000.

NewLead has historically been an international shipping company and is now an international, vertically integrated shipping and coal processing company. As of December 31, 2014, our fleet consists of five dry bulk vessels and five oil tanker / asphalt carriers. In addition, under a specific management agreement, we perform part of the commercial, technical and operational management of one oil tanker vessel owned by a third party. NewLead’s principal activity is the operation of dry bulk vessels either controlled or managed, which transport a variety of refined petroleum products and a wide array of unpackaged cargo world-wide.

Our current limited coal operations include a coal preparation plant located in Pike County, Kentucky, USA which was acquired in December 2013. In 2012 we entered into an agreement to acquire certain mine-related assets (including mineral rights, surface rights and mining permits) and the title of land ownership of the Five Mile mine including the Andy Terminal Railroad (the “Five Mile Assets”) in Breathitt County, Kentucky, USA. The payment of the $11 million purchase price was paid during 2013 and 2014 through the December Settlement Agreement between NewLead Holdings Ltd. and Hanover. As of the date of this annual report, although the purchase price for the Five Mile Assets has been fully paid, the transfer of the Five Mile Assets has yet to occur. Further, according to the Kentucky State mining regulators, upon the successful transfer of the Five Mile Assets, it is a precondition to the transfer of the permits for the replacement of the reclamation bonds for the transfer of the Five Mile Assets. We are currently analyzing our next steps towards the completion of the acquisition of Five Mile Assets. 

On May 19, 2014 and July 25, 2014, we completed the acquisition of two 2012 built dry bulk vessels through sale and leaseback agreements. On September 16, 2014, we acquired one 2013 built dry bulk vessel and on each of October 23, 2014 and November 13, 2014, we entered into two bareboat charter agreements for two respective oil tanker/asphalt carriers, under which NewLead has the obligation to purchase the vessels in 2019, upon the expiration of the bareboat agreements. On October 16, 2014, we entered into a Share Sale and Purchase Agreement (the “SPA”) with Thalassa Holdings S.A. to acquire 100% of the share capital of the three companies Nepheli Marine Company, Aeolus Compania Naviera S.A. and Kastro Compania Naviera S.A., which shares were transferred to NewLead on November 24, 2014 upon satisfaction of the SPA’s conditions. As a result, we acquired three oil tanker/asphalt carriers.

2009 Recapitalization

On October 13, 2009, we completed an approximately $400.0 million recapitalization, which resulted in Grandunion Inc acquiring control of the Company. Pursuant to the Stock Purchase Agreement entered into on September 16, 2009, Grandunion Inc, a company controlled by Michail Zolotas, acquired 2 newly issued common shares of the Company in exchange for three dry bulk carriers. Of such shares, 1 was transferred to Rocket Marine, a company controlled by two former directors, in exchange for Rocket Marine and its affiliates entering into a voting agreement with Grandunion Inc.

The voting agreement between Rocket Marine Inc. and Grandunion Inc expired on February 29, 2012. As a result, these shares of Rocket Marine Inc. are no longer included in the beneficial ownership of Michail Zolotas or Grandunion Inc. In connection with the recapitalization, the Company issued $145.0 million in aggregate principal amount of 7% Notes. The 7% Notes were convertible into common shares at a conversion price of $10,125,000 per share, subject to adjustment for certain events, including certain distributions by the Company of cash, debt and other assets, spin offs and other events. In November 2009, Focus Maritime Corp., a company controlled by Michail Zolotas, the Company’s Chairman, Chief Executive Officer and member of our Board of Directors, converted $20.0 million of the 7% Notes into approximately 2 new common shares. On July 2, 2012, we entered into an agreement with Focus Maritime Corp. for the conversion of its remaining $124.9 million of the 7% Notes, together with interest accrued thereon and future interest payments of approximately $199.8 million in the aggregate, and an additional fee of $17.5 million payable to Focus Maritime Corp. as an inducement for the conversion, into approximately 236 common shares of the Company. The shares were issued on July 16, 2012. As a result, in the aggregate, $0.1 million of the 7% Notes held by Investment Bank of Greece remain outstanding. Upon the successful completion of the recapitalization and the appointment of new management, we subsequently changed our name to NewLead Holdings Ltd.

Name Change and Amended Bye-Laws

NewLead Holdings Ltd. was incorporated on January 12, 2005 under the name “Aries Maritime Transport Limited” and, on December 21, 2009, upon the receipt of shareholder approval, the Company changed its name to NewLead Holdings Ltd. In addition, upon the receipt of shareholder approval at the same special general meeting, the Company adopted a change to its bye-laws to permit written resolutions to be approved by a majority of the shareholders rather than unanimously.

B. Business Overview

Fleet

Our management’s assessment of a charterer’s financial condition and reliability is an important factor in negotiating employment of our vessels. The Company has established stringent requirements for selecting qualified charterers that are being practiced and adhered to.

As of May 12, 2015, our fleet consisted of five dry bulk, three Handysize and two Panamax vessels, of a total of 0.25 million dwt with an average age of 9.2 years and a fleet of five oil tanker/asphalt carriers of a total of 0.02 million dwt with an average age of 6.2 years.

Through our wholly-owned subsidiary Newlead Shipping S.A. (“Newlead Shipping”), we provide part of commercial, technical and operational management services to one oil tanker owned by third parties for a fee of approximately $500 per day.

As of December 31, 2014, we had contracted a minimum of 17% for 2015, 10% for 2016, 11% for 2017 and 4% for 2018 of our available days on a charter-out-basis, since we have mainly spot agreements and not time charter parties. As a result, as of such date, we had a minimum of $17.5 million of total contracted revenue through 2018. The employment profile of the fleet as of May 12, 2015 is reflected in the table below:

THE SHIPPING INDUSTRY

Fleet Management

Newlead Shipping S.A. (“Newlead Shipping”), a subsidiary of NewLead, and certain of its subsidiaries provide technical and commercial management services to oil tanker/asphalt carriers. Newlead Bulkers S.A. (“Newlead Bulkers”), which is a subsidiary of Newlead Shipping, provides technical and commercial management services to our dry bulk vessels. As of December 31, 2014 and May 12, 2015, the commercial and technical management services of all of our owned vessels are managed in-house. In addition, under a management agreement, we provide part of commercial, technical and operational management services to one oil tanker owned by third parties for a fee of approximately $500 per day.

Crewing and Employees

As of December 31, 2014, with respect to shore-side employees (except for Michail Zolotas, our Chairman, Chief Executive Officer and member of our Board of Directors who is employed by NewLead Holdings Ltd.) our wholly-owned subsidiaries, Newlead Shipping S.A. and Newlead Bulkers S.A., employed 19 and 18 persons, respectively. We employ an average of 20 crew members per dry bulk vessel and 15 crew members per oil tanker/asphalt carrier. As of December 31, 2014, the coal preparation plant employs on average of 15 persons.

Our technical managers ensure that all seamen have the qualifications and licenses required to comply with international regulations and shipping conventions and that our vessels employ experienced and competent personnel. All of the employees of our managers are subject to a general collective bargaining agreement. These agreements set industry-wide minimum standards.

Inspection by a Classification Society

Our vessels have been certified as being “in class” by Bureau Veritas and RINA, each of which is a member of the International Association of Classification Societies. Every vessel’s hull and machinery is evaluated by a classification society authorized by its country of registry. The classification society certifies 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. Each vessel is inspected by a surveyor of the classification society in three surveys of varying frequency and thoroughness: every year for the annual survey, every two to three years for intermediate surveys and every four to five years for special surveys. Should any defects be found, the classification surveyor will issue a “recommendation” for appropriate repairs, which have to be made by the shipowner within the time limit prescribed. Vessels may be required, as part of the annual and intermediate survey process, to be dry-docked for inspection of the underwater portions of the vessel and for necessary repair stemming from the inspection. Special surveys always require dry-docking. Our fleet is currently enrolled with Bureau Veritas and RINA.

Competition

We operate in shipping markets that are diversified, highly competitive and highly fragmented. Our business fluctuates in line with the main patterns of trade of the commodities we are carrying and varies according to changes in the supply and demand for these items. We compete for charters on the basis of vessel location, size, age and condition of the vessel, as well as on our reputation as an operator. We typically arrange our charters through the use of brokers, and negotiate the terms of the charters based on market conditions. We compete primarily with owners of dry bulk ships and owners of oil tanker/asphalt carriers. To the extent we seek to charter out our vessels, it is likely that we will face substantial competition from a number of experienced companies. Many of these competitors will have significantly greater financial resources than we do. It is also likely that we will face increased numbers of competitors entering into our transportation sectors, including in the dry bulk sector. Many of these competitors have strong reputations and extensive resources and experience. Increased competition may result to charter rate reduction, especially for long term charters.

Environmental and Other Regulations

Government regulation significantly affects the ownership and operation of our fleet. 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 can entail significant expense, including vessel modification and implementation of certain operating procedures. Noncompliance with such regulations and requirements could result in the imposition of substantial penalties or require us to incur substantial costs or temporarily suspend operations of one or more of the vessels in our fleet.

A variety of governmental and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable national authorities, such as the U.S. Coast Guard and harbor masters), classification societies, flag state administration (country of registry) and charterers, particularly terminal operators, and oil companies. Some of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our fleet. Our failure to maintain necessary permits or approvals could result in imposition of substantial penalties or require us to incur substantial costs or temporarily suspend operation of one or more of the vessels in our fleet.

Heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels emphasizing 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 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 changing 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 business, results of operations and financial condition.

International Maritime Organization

The International Maritime Organization (the “IMO”) has negotiated a number of international conventions concerned with preventing, reducing or controlling pollution from ships. These fall into two main categories, consisting firstly of those concerned generally with ship safety standards, and secondly of those specifically concerned with measures to prevent pollution. The primary IMO regulations are discussed below.

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

Vessel Construction and Safety Requirements

The IMO has adopted MARPOL, which implements standards for the control, minimization or elimination of accidental, deliberate, or negligent discharge of oil, garbage, noxious liquids, harmful substances in packaged forms, sewage and air emissions. MARPOL contains regulations for the prevention of pollution by oil (Annex I), by noxious liquid substances in bulk (Annex II), by harmful substances in packaged forms within the scope of the International Maritime Dangerous Goods Code (Annex III), by sewage (Annex IV), by garbage (Annex V), and by air emissions (Annex VI). These regulations, which have been implemented in many jurisdictions in which our vessels operate, provide, in part, that:

(1) they have wing tanks or double-bottom spaces not used for the carriage of oil which cover at least 30% of the length of the cargo tank section of the hull or bottom; or

(2) they are capable of hydrostatically balanced loading (loading less cargo into a tanker so that in the event of a breach of the hull, water flows into the tanker, displacing oil upwards instead of into the sea);

Also, under IMO regulations, a newbuild tanker of 5,000 dwt and above must be of double-hull construction or a mid-deck design with double-sided construction or be of another approved design ensuring the same level of protection against oil pollution if the tanker:

Effective September 2002, the IMO accelerated its existing timetable for the phase-out of single-hull oil tankers. At the time, these regulations required the phase-out of most single-hull oil tankers by 2015 or earlier, depending on the age of the tanker and whether it has segregated ballast tanks. Under the regulations, the flag state may allow for some newer single-hull ships registered in its country that conform to certain technical specifications to continue operating until the 25th anniversary of their delivery. Any port state, however, may deny entry of those single-hull tankers that are allowed to operate until their 25th anniversary to ports or offshore terminals.

However, as a result of the oil spill in November 2002 relating to the loss of the MT Prestige, which was owned by a company not affiliated with us, in December 2003, the Marine Environmental Protection Committee of the IMO, or MEPC, adopted an amendment to the MARPOL Convention, which became effective in April 2005. The amendment revised an existing Regulation 13G accelerating the phase-out of single-hull oil tankers and adopted a new Regulation 13H on the prevention of oil pollution from oil tankers when carrying heavy grade oil.

Under the revised regulations, a flag state may permit continued operation of certain Category 2 or 3 tankers beyond their phase-out date in accordance with the above schedule. Under Regulation 13G, the flag state may allow for some newer single-hull oil tankers registered in its country that conform to certain technical specifications to continue operating until the earlier of the anniversary of the date of delivery of the vessel in 2015 or the 25th anniversary of their delivery. Under Regulations 13G and 13H, as described below, certain Category 2 and 3 tankers fitted only with double bottoms or double sides may be allowed by the flag state to continue operations until their 25th anniversary of delivery. Any port state, however, may deny entry of those single-hull oil tankers that are allowed to operate under any of the flag state exemptions.

In October 2004, the MEPC adopted a unified interpretation of Regulation 13G that clarified the delivery date for converted tankers. Under the interpretation, where an oil tanker has undergone a major conversion that has resulted in the replacement of the fore-body, including the entire cargo carrying section, the major conversion completion date shall be deemed to be the date of delivery of the ship, provided that:

In December 2003, the MEPC adopted a new Regulation 13H on the prevention of oil pollution from oil tankers when carrying heavy grade oil, or HGO, which includes most grades of marine fuel. The new regulation bans the carriage of HGO in single-hull oil tankers of 5,000 dwt and above after April 5, 2005, and in single-hull oil tankers of 600 dwt and above but less than 5,000 dwt, no later than the anniversary of their delivery in 2008.

Under Regulation 13H, HGO means any of the following:

Under Regulation 13H, the flag state may allow continued operation of oil tankers of 5,000 dwt and above, carrying crude oil with a density at 15˚C higher than 900 kg/m3 but lower than 945 kg/m3, that conform to certain technical specifications and if, in the opinion of the flag state, the ship is fit to continue such operation, having regard to the size, age, operational area and structural conditions of the ship, provided that the continued operation shall not go beyond the date that is 25 years after the date of its delivery. The flag state may also allow continued operation of a single-hull oil tanker of 600 dwt and above but less than 5,000 dwt, carrying HGO as cargo, if, in the opinion of the flag state, the ship is fit to continue such operation, having regard to the size, age, operational area and structural conditions of the ship, provided that the operation shall not go beyond the date that is 25 years after the date of its delivery.

The flag state may also exempt an oil tanker of 600 dwt and above carrying HGO as cargo if the ship is either engaged in voyages exclusively within an area under its jurisdiction, or is engaged in voyages exclusively within an area under the jurisdiction of another party, provided the party within whose jurisdiction the ship will be operating agrees. The same applies to vessels operating as floating storage units of HGO.

Any port state, however, can deny entry of single-hull tankers carrying HGO that have been allowed to continue operation under the exemptions mentioned above, into the ports or offshore terminals under its jurisdiction, or deny ship-to-ship transfer of HGO in areas under its jurisdiction except when this is necessary for the purpose of securing the safety of a ship or saving life at sea.

Revised Annex I to the MARPOL Convention entered into force in January 2007. Revised Annex I incorporates various amendments adopted since the MARPOL Convention entered into force in 1983, including the amendments to Regulation 13G (Regulation 20 in the revised Annex I) and Regulation 13H (regulation 21 in the revised Annex I). Revised Annex I also imposes construction requirements for oil tankers delivered on or after January 1, 2010. A further amendment to revised Annex I includes an amendment to the definition of HGO that will broaden the scope of Regulation 21. On August 1, 2007, regulation 12A (an amendment to Annex I) came into force requiring oil fuel tanks to be located inside the double hull in all ships with an aggregate oil fuel capacity of 600 m 3 and above, which are delivered on or after August 1, 2010, including ships for which the building contract is entered into on or after August 1, 2007 or, in the absence of a contract, for which the keel is laid on or after February 1, 2008.

The phasing out of single-hull tankers in accordance with the MARPOL Convention and its amendments is expected to decrease tanker supply, which may help to prevent further decline in charter rates in the tanker market.

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. To date, there has not been sufficient adoption of this standard by governments that are members of the convention for it to take force. As of April 2014, the Convention has been ratified by 38 states representing 30.38% of the global merchant shipping fleet’s tonnage, and its entry into force with attendant compliance costs may therefore be anticipated in the foreseeable future.

According to IMO Resolution MEPC 207(62), 2011 Guidelines for the Control and Management of Ship’s Biofouling to Minimize the Transfer of Invasive Aquatic Species adopted on July 15, 2011, Member States of the IMO made a clear commitment to minimizing the transfer of invasive aquatic species through shipping. Studies have shown that biofouling can also be a significant vector for the transfer of invasive aquatic species. Biofouling on ships entering the waters of Member States may result in the establishment of invasive aquatic species which may pose threats to human, animal and plant life, economic and cultural activities and the aquatic environment.

Air Emissions

In September 1997, the IMO adopted Annex VI to the MARPOL Convention to address air pollution from ships. Effective in 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 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. We believe that all our vessels are currently compliant in all material respects with these existing regulations. Additional or new conventions, laws and regulations may be also adopted that could require the installation of expensive emission control systems. Such future emission control requirements could adversely affect our business, cash flows, results of operations and financial condition.

In October 2008, the IMO adopted amendments to Annex VI regarding particulate matter, nitrogen oxide and sulfur oxide emission standards that entered into force on July 1, 2010. The amended Annex VI aims to reduce air pollution from vessels by, among other things, (i) implementing a progressive reduction of sulfur oxide emissions from ships, with the global sulfur cap reduced initially to 3.5% (from the current cap of 4.5%), effective from January 1, 2012, then progressively reduced 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 marine engines, depending on their date of installation. We incurred significant costs to comply with these revised standards.

The revised Annex VI also allows for designation, in response to proposals from member parties, of Emission Control Areas (ECAs) that impose accelerated and/or more stringent requirements for control of sulfur oxide, particulate matter, and nitrogen oxide emissions. Such ECAs have been formally adopted for the Baltic Sea and the North Sea including the English Channel. The North American coast has also been established as an ECA, where NOx, SOx and particulate matter emissions are regulated, from August 1, 2012, and the United States Caribbean Sea ECA came into force on January 1, 2013, with an effective date of January 1, 2014. For the currently-designated ECAs, much lower sulfur limits on fuel oil content are being phased in (1% in July 2010 for the Baltic and North Sea ECAs and beginning in 2012 for the North American ECA; and 0.1% in these ECAs beginning in 2015), as well as nitrogen oxide after treatment requirements that will become applicable in 2016. These more stringent fuel standards, when fully in effect, are expected to require measures such as fuel switching, vessel modification adding distillate fuel storage capacity, or addition of exhaust gas cleaning scrubbers, to achieve compliance, and may require installation and operation of further control equipment at significant increased cost.

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, the party with operational control of a vessel is required 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. In 1998, the ISM Code became mandatory with the adoption of Chapter IX of SOLAS. We intend to rely upon the safety management systems that our ship management companies, Newlead Shipping and Newlead Bulkers, have developed.

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 ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its operator has been awarded a document of compliance, issued by each flag state, under the ISM Code. Our ship management companies, Newlead Shipping and Newlead Bulkers, have obtained documents of compliance for their offices and safety management certificates for the vessels in our fleet for which such certificates are required by the IMO. These documents of compliance and safety management certificates are renewed as required.

Non-compliance with the ISM Code and other IMO regulations, such as the mandatory ship energy efficiency management plan (“SEEMP”) which is akin to a safety management plan and was effected on January 1, 2013, may subject the shipowner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. For example, the U.S. Coast Guard and European Union (EU) authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S. and EU ports.

Another amendment of SOLAS, made after the terrorist attacks in the United States on September 11, 2001, introduced special measures to enhance maritime security, including the International Ship and Port Facilities Security Code, or ISPS Code. Our fleet maintains ISM and ISPS certifications for safety and security of operations.

Oil Pollution Liability

With respect to oil pollution liability, 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 of 1969, as amended in 2000, or the CLC. Under this convention and depending on whether the country in which the damage results is a party to the CLC, a vessel’s registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses. The limits on liability outlined in the IMO Protocol of 1992, or 1992 Protocol, use the International Monetary Fund currency unit of Special Drawing Rights, or SDR. Under an amendment to the 1992 Protocol that became effective on November 1, 2003 for vessels of 5,000 to 140,000 gross tons (a unit of measurement for the total enclosed spaces within a vessel), liability will be limited to approximately 4.51 million SDR, or $6.999 million, plus 631 SDR, or $979, for each additional gross ton over 5,000. For vessels over 140,000 gross tons, liability will be limited to 89.77 million SDR, or $139.329 million. The exchange rate between SDRs and U.S. dollars was 0.711954 SDR per U.S. dollar on May 11, 2015. The right to limit liability is forfeited under the CLC where the spill is caused by the owner’s actual fault and under the 1992 Protocol where the spill is caused by the owner’s intentional or reckless conduct. Vessels trading to states that are parties to these conventions must provide evidence of insurance covering the liability of the owner. The CLC applies in over 100 states around the world, but it does not apply in the United States of America, where the corresponding liability laws such as the OPA are particularly stringent. 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 insurance will cover the liability under the plan adopted by the IMO.

The most widely applicable international regime limiting maritime pollution liability is the 1976 Convention. Rights to limit liability under the 1976 Convention are forfeited where a spill is caused by a shipowner’s intentional or reckless conduct. Some jurisdictions have ratified the 1996 LLMC Protocol to the 1976 Convention, which provides for liability limits substantially higher than those set forth in the 1976 Convention to apply in such states. Finally, some jurisdictions are not a party to the CLC, the 1976 Convention or the 1996 LLMC Protocol, and, therefore, shipowners’ rights to limit liability for maritime pollution in such jurisdictions may be uncertain.

International laws governing Bunker Oil Pollution

In 2001, the IMO adopted the Bunker Convention, which imposes strict liability on ship owners for pollution damage in jurisdictional waters of ratifying states caused by discharges of “bunker oil.” The Bunker Convention defines “bunker oil” as “any hydrocarbon mineral oil, including lubricating oil, used or intended to be used for the operation or propulsion of the ship, and any residues of such oil.” The Bunker Convention also requires registered owners of ships over a certain size to maintain insurance 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 1976 Convention, discussed above). The Bunker Convention entered into force on November 21, 2008, and as of April 7, 2014 it was in effect in 76 states. In other jurisdictions liability for spills or releases of oil from ships’ bunkers continues to be determined by the national or other domestic laws in the jurisdiction where the events or damages occur. Outside the United States, national laws generally provide for the owner to bear strict liability for pollution, subject to a right to limit liability under applicable national or international regimes for limitation of liability.

At its 86th session from May 26 to June 5, 2009, the IMO’s Maritime Safety Committee approved new regulations for the mandatory carriage requirements of ECDIS. All ships irrespective of size shall have Nautical charts and nautical publications to plan and display the ship’s route for the intended voyage and to plot and monitor positions throughout the voyage; an Electronic Chart Display and Information System (ECDIS) may be accepted as meeting the chart carriage requirements of this subparagraph; Back-up arrangements to meet specific functional requirements, if this function is partly or fully fulfilled by electronic means. The amendment to SOLAS Chapter V regulation 19.2 will require ships engaged on international voyages to be fitted with ECDIS according to a specific timetable From July 2012 to July 2018.

An amendment to the existing Chapter V regulation 19.2.1.4 was also made to reflect that ECDIS is an acceptable alternative to nautical charts and nautical publications. However, it stipulates that it is appropriate to use only nautical charts and publications in a number of cases – for example ships not on international voyages, ships exempt from the carriage requirements because they were to be permanently taken out of service and cargo ships on international voyages but below the agreed tonnage limit.

The Oil Companies International Marine Forum (the “OCIMF”) was formed in April 1970 in response to the growing public concern about marine pollution, particularly by oil, after the Torrey Canyon incident in 1967. In the early 1970s, a variety of anti-pollution initiatives were starting to emerge nationally, regionally and internationally, but with little coordination. Through OCIMF, the oil industry was able to play a stronger, coordinating role in response to these initiatives, making its professional expertise widely available through cooperation with governments and intergovernmental bodies.

OCIMF was granted consultative status at the IMO in 1971 and continues to present oil industry views at IMO meetings. Since then, its role has broadened to take account the changing maritime activities of its membership. Its remit now covers tankers, barges, offshore support vessels and terminals and its advice extends to issues like shipping in ice and large-scale piracy, which rarely troubled the oil industry when OCIMF was first created in the 1970s.

The current membership of OCIMF comprises 98 companies worldwide. Today, OCIMF is widely recognized as the voice of the oil industry providing expertise in the safe and environmentally responsible transport and handling of hydrocarbons in ships and terminals and setting standards for continuous improvement. Membership is extensive and includes every oil major in the world along with the majority of National Oil Companies. OCIMF has much to be proud of. Not only has it contributed to a substantial quantity of regulation at the IMO aimed at improving the safety of tankers and protecting the environment, but it has introduced important new guidance on pressing current issues such as piracy and Arctic shipping. With the process of introducing new Internationally-accepted regulation necessarily slow as it crosses many individual countries and jurisdictions, OCIMF is in the unique position of being able to leverage the expertise of its membership to press ahead with much needed guidance on important industry issues. This provides the means to improve practices in the membership and in the wider industry, and serves as a valuable reference for developing regulation.

In addition to its extensive publications library, OCIMF has a rich portfolio of tools including its Ship Inspection Report (the “SIRE”) program and Tanker Management and Self Assessment tool (the “TMSA”), both of which have gained worldwide recognition and acceptance. It continues to develop new tools, with OVID the latest to be launched in January 2010, and a new Terminals inspection tool in development.

One of the most significant safety initiatives introduced by OCIMF is the Ship Inspection Report Program (the “SIRE”). This program was originally launched in 1993 to specifically address concerns about sub-standard shipping. The SIRE Program is a unique tanker risk assessment tool of value to charterers, ship operators, terminal operators and government bodies concerned with ship safety. The SIRE system is a very large database of up-to-date information about tankers and barges. Essentially, SIRE has focused tanker industry awareness on the importance of meeting satisfactory tanker quality and ship safety standards. Since its introduction, the SIRE Program has received industry-wide acceptance and participation by both OCIMF Members, Program recipients and by ship Operators. The expansion of Barges and small vessels into SIRE was inaugurated in late 2004.

Since its introduction, more than 180,000 inspection reports have been submitted to SIRE. Currently there are over 22,500 reports on over 8000 vessels for inspections that have been conducted in the last 12 months. On average Program Recipients access the SIRE database at a rate of more than 8000 reports per month.

The SIRE requires a uniform inspection protocol that is predicated by the following:

These features have been established to make the program more uniform and user friendly and to provide a level of transparency unique in the marine transportation industry. SIRE has established itself as a major source of technical and operational information to prospective charterers and other program users. Its increasing use corresponds with oil industry efforts to better ascertain whether vessels are well managed and maintained. OCIMF is in no doubt that better informed vetting decisions are leading to improvements in the quality of ships, accelerating its continuing drive for safer ships and cleaner seas.

Inspection reports are maintained on the index for a period of 12 months from the date of receipt and are maintained on the database for 2 years. SIRE access is available, at a nominal cost, to OCIMF members, bulk oil terminal operators, port authorities, canal authorities, oil, power, industrial or oil trader companies which charter tankers/barges as a normal part of their business. It is also available, free of charge, to Governmental bodies which supervise safety and/or pollution prevention in respect of oil tankers/barges (e.g. port state control authorities, MOUs, etc.).

United States Requirements

The U.S. Oil Pollution Act of 1990 (the “OPA”) and Comprehensive Environmental Response, Compensation and Liability Act

In 1990, the U.S. Congress enacted the 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 U.S. or its territories or possessions, or whose vessels operate in the waters of the U.S., which include the U.S. territorial sea and the 200 nautical mile exclusive economic zone around the U.S. The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, imposes liability for clean-up and natural resource damage from the release of hazardous substances (other than oil) whether on land or at sea. Both OPA and CERCLA are potentially applicable to our operations in the U.S.

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:

Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability with respect to tanker vessels with a qualifying double hull, to the greater of $2,000 per gross ton or $17.088 million per vessel that is over 3,000 gross tons, and with respect to non-tanker vessels, to the greater of $1,000 per gross ton or $854.4 million per vessel (subject to periodic adjustment for inflation). OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some state environmental laws impose for unlimited liability for discharge of pollutants including oil, within their waters. CERCLA, which applies to owners and operators of vessels, contains a similar liability regime and provides for clean-up, removal and natural resource damages relating to the discharge of hazardous substances (other than oil). Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo or residue and the greater of $300 per gross ton or $0.5 million for any other vessel.

These limits of liability do not apply, however, where the incident is caused by violation of applicable U.S. federal safety, construction or operating regulations, or by the responsible party’s gross negligence or willful misconduct. These limits also do not apply if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the substance removal activities. OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. We currently have no OPA or CERCLA claims pending against us. However, in the event of an oil spill or release of hazardous substances from our vessels, we could be subject to such claims, which could adversely affect our cash flow, profitability and financial position.

Under OPA, an owner or operator of a fleet of vessels is required only to demonstrate evidence of financial responsibility in an amount sufficient to meet its potential liabilities under OPA and CERCLA. Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty. Under the self-insurance provisions, the ship owner or operator must have a net worth and working capital, measured in assets located in the U.S. against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the U.S. Coast Guard regulations by providing a certificate of responsibility from third party entities that are acceptable to the U.S. Coast Guard evidencing sufficient self-insurance. The U.S. Coast Guard’s regulations concerning certificates of financial responsibility provide, in accordance with OPA, that claimants may bring suit directly against an insurer or guarantor that furnishes certificates of financial responsibility. In the event that such insurer or guarantor is sued directly, it is prohibited from asserting any contractual defense that it may have had against the responsible party and is limited to asserting those defenses available to the responsible party and the defense that the incident was caused by the willful misconduct of the responsible party. Certain organizations, which had typically provided certificates of financial responsibility under pre-OPA laws, including the major protection and indemnity organizations, have declined to furnish evidence of insurance for vessel owners and operators if they are subject to direct actions or required to waive insurance policy defenses. This requirement may have the effect of limiting the availability of the type of coverage required by the U.S. Coast Guard and could increase our costs of obtaining this insurance as well as the costs of our competitors that also require such coverage.

We have arranged insurance for our vessels with pollution liability insurance in the maximum commercially available amount of $1.0 billion per incident. The insured risks include penalties and fines as well as civil liabilities and expenses resulting from accidental pollution. However, this insurance coverage is subject to exclusions, deductibles and other terms and conditions. If any liabilities or expenses fall within an exclusion from coverage, or if damages from a catastrophic incident exceed the $1.0 billion limitation of coverage per incident, our cash flow, profitability and financial position would be adversely impacted.

Under OPA, with certain limited exceptions, all newly-built or converted vessels operating in U.S. waters must be built with double hulls, and existing vessels that do not comply with the double-hull requirement will be prohibited from trading in U.S. waters over a 20-year period (1995-2015) based on size, age and place of discharge, unless retrofitted with double hulls. All of the tankers under our management are double-hulled. Owners or operators of tankers operating in the waters of the U.S. 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:

Effective October 30, 2013, U.S. Coast Guard regulations were amended to require owners and operators of non-tank vessels to also prepare and submit response plans with similar requirements to tank vessels. We have obtained vessel response plans approved by the U.S. Coast Guard for our vessels operating in the waters of the U.S. In addition, we conduct regular oil spill response drills in accordance with the guidelines set out in OPA.

In response to the 2010 Deepwater Horizon incident in the Gulf of Mexico, the U.S. Congress proposed, but did not formally adopt legislation that would amend OPA to mandate stronger safety standards and increased liability and financial responsibility for offshore drilling operations. The bill did not seek to change the OPA liability limits applicable to vessels. While Congressional activity on this topic is expected to continue to focus on offshore facilities rather than on vessels generally, it cannot be known with certainty what form any such new legislative initiatives may take.

As discussed above, OPA does not prevent individual states from imposing their own liability regimes with respect to oil pollution incidents occurring within their boundaries, including adjacent coastal waters. In fact, 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 and often are.

Additional U.S. Environmental Requirements

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 U.S. Environmental Protection Agency, or EPA, to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Under the CAA, EPA regulations require vapor control systems (“VCSs”) for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. The CAA also requires states to adopt 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. Also under the CAA, the U.S. Coast Guard has since 1990 regulated the safety of VCSs that are required under EPA and state rules. Our vessels operating in regulated port areas have installed VCSs that are compliant with EPA, state and U.S. Coast Guard requirements. In July 2013, the U.S. Coast Guard issued a final rule which makes its VCS requirements more compatible with new EPA and State regulations, reflect changes in VCS technology, and codifies existing U.S. Coast Guard guidelines. The final rule is unlikely to impose a material increase in costs.

In April 2010, U.S. EPA adopted regulations implementing the provisions of MARPOL Annex VI. Under these regulations, both U.S. and foreign-flagged ships subject to the engine and fuel standards of MARPOL Annex VI must comply with the applicable Annex VI provisions including the stricter North America Emission Control Area (ECA) standards, effective in August 2012 when they enter U.S. ports or operate in most internal U.S. waters, including the Great Lakes. MARPOL Annex VI requirements are discussed in greater detail above under “Air Emissions.”

The Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances into navigable waters and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages. State laws for the control of water pollution also provide varying civil, criminal and administrative penalties in the case of a discharge of petroleum or hazardous materials into state waters.

Effective February 6, 2009, the EPA regulates the discharge of ballast water and 25 other discharges incidental to the normal operation of vessels in U.S. waters using a Vessel General Permit, or VGP, system pursuant to the CWA. Ballast water discharges are a particular focus of the VGP, with the goal of combating the risk of harmful foreign organisms that can travel in ballast water carried from foreign ports. Compliance with the conditions of the VGP is required for commercial vessels 79 feet in length or longer (other than commercial fishing vessels). On March 28, 2013, the EPA issued the 2013 Vessel General Permit (VGP), that became effective on December 19, 2013, and automatically provides coverage until December 19, 2018. This new VGP imposes a numeric standard to control the release of non-indigenous invasive species in ballast water discharges. In addition, through the CWA certification provisions that allow U.S. states to place additional conditions on vessels operating under the VGP within state waters, a number of states have proposed or implemented a variety of stricter ballast water requirements including, in some states, specific treatment standards. Compliance with new U.S. federal and state requirements 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.

Ballast water is also addressed under the U.S. National Invasive Species Act, or NISA. U.S. Coast Guard regulations adopted under NISA impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering U.S. waters.

European Union Restrictions

European regulations in the maritime sector are in general based on international law. However, since the Erika incident in 1999, the European Union has become increasingly active in the field of regulation of maritime safety and protection of the environment. It has been the driving force behind a number of amendments of MARPOL (including, for example, changes to accelerate the timetable for the phase-out of single-hull tankers and to prohibit the carriage in such tankers of heavy grades of oil). If dissatisfied either with the extent of such amendments or with the timetable for their introduction, the European Union has been prepared to legislate on a unilateral basis. In some instances where it has done so, international regulations have subsequently been amended to the same level of stringency as that introduced in Europe. However, European Union regulations may from time to time impose burdens and costs on ship owners and operators that are additional to those involved in complying with international rules and standards. In some areas of regulation, the European Union has introduced new laws without attempting to procure a corresponding amendment of international law. Notably, it adopted in 2005 the 2005/35/EC Directive on ship-source pollution, as amended by 2009/123/EC Directive, imposing criminal sanctions for pollution not only where this is caused by intent or recklessness (which would be an offence under MARPOL), but also where it is caused by “serious negligence”. The concept of “serious negligence” may be interpreted in practice to be little more than ordinary negligence. The directive could therefore result in criminal liability being incurred in circumstances where it would not be incurred under international law. Criminal liability for a pollution incident could not only result in us incurring substantial penalties or fines but may also, in some jurisdictions, facilitate civil liability claims for greater compensation than would otherwise have been payable.

In response to the MT Prestige oil spill in November 2002, the European Union adopted legislation that prohibits all single-hull tankers from entering into its ports or offshore terminals by June 2010 or earlier depending on age. The European Union has also banned all single-hull tankers carrying heavy grades of oil from entering or leaving its ports or offshore terminals or anchoring in areas under its jurisdiction. Certain single-hull tankers above 15 years of age are also restricted from entering or leaving European Union ports or offshore terminals and anchoring in areas under European Union jurisdiction.

The European Union has also adopted legislation that: (1) strengthens regulation against manifestly sub-standard vessels (defined as those over 15 years old that have been detained by port authorities at least twice in a six-month period) from European waters and creates an obligation of port states to inspect vessels posing a high risk to maritime safety or the marine environment and (2) provides the European Union with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies. It is difficult to accurately predict what legislation or additional regulations, if any, may be promulgated by the European Union or any other constituent country or authority in Europe.

Greenhouse Gas Regulation

In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change, 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. In December 2011, UN climate change talks took place in Durban and concluded with an agreement referred to as the Durban Platform for Enhanced Action. In preparation for the Durban Conference, the International Chamber of Shipping (the “ICS”) produced a briefing document, confirming the shipping industry’s commitment to cut shipping emissions by 20% by 2020, with significant further reductions thereafter. The ICS called on the participants in the Durban Conference to give the IMO a clear mandate to deliver emissions reductions through market-based measures, for example a shipping industry environmental compensation fund. Notwithstanding the ICS’ request for global regulation of the shipping industry, the Durban Conference did not result in any proposals specifically addressing the shipping industry’s role in climate change. The European Union announced in April 2007 that it planned to expand the European Union emissions trading scheme by adding vessels, and a proposal from the European Commission was expected if no global regime for reduction of seaborne emissions had been agreed to by the end of 2011. That deadline has now expired and it remains to be seen what position the EU takes in this regard in period ahead. As of April 2014, the Commission stopped short of proposing that emissions from ships be included in the EU’s emissions-trading scheme (the “ETS”). However, in June 2013, the Commission issued a strategy to gradually integrate maritime greenhouse gas emissions into its EU reduction commitment, including implementing a system to monitor, verify and report on greenhouse gas emissions, followed by defining reduction targets for the maritime transport sector, and finally by implementing market based measures to reduce greenhouse gas emissions. In June 2013 the Commission issued a legislative proposal to establish a system to monitor, report and verify emissions from large ships using EU ports. If adopted, this regulation would take effect on July 1, 2015, with the first reporting period to begin on January 1, 2018. In the United States, the California Attorney General and a coalition of environmental groups petitioned the U.S. Environmental Protection Agency (“EPA”) in October 2007 to regulate greenhouse gas emissions from ocean-going ships under the Clean Air Act, and in 2010 another coalition of environmental groups filed suit to require the EPA to do the same. Any passage of climate control legislation or other regulatory initiatives by the IMO, European Union, or individual countries where we operate, including the U.S. that restrict emissions of greenhouse gases from vessels could require us to make significant financial expenditures 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 U.S. 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 objective of the ISPS Code is to establish the framework that allows detection of security threats and implementation of preventive measures against security incidents that can affect ships or port facilities used in international trade. To trade internationally, a vessel must attain an International Ship Security Certificate, or ISSC, from a recognized security organization approved by the vessel’s flag state. Among the various requirements are:

The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt from MTSA vessel security measures for 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.

Exchange Act Section 13(r) Activities

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 were added Section 13(r) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with certain natural persons or entities designated by the U.S. Treasury Department. Disclosure is required even where the activities, transactions or dealings are conducted outside the United States by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.

Risk of Loss and Insurance

The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, 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 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 U.S. market. While we believe that our present insurance coverage is adequate, not all risks can be insured against, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.

We have obtained marine hull and machinery and war risk insurance, which include the risk of actual or constructive total loss, for all our vessels. The vessels are each covered up to at least fair market value.

We also arranged increased value insurance for most of our vessels. Under the increased value insurance, in case of total loss of the vessel, we will be able to recover the sum insured under the policy in addition to the sum insured under our 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, which covers our third-party liabilities in connection with our shipping activities, is provided by mutual protection and indemnity associations, or P&I Associations. This insurance covers 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”. Our coverage, except for pollution, is unlimited.

As a member of a P&I Association that is a member of the International Group, we are subject to an insurance cover for pollution up to $1.08 billion per vessel per incident. Furthermore, an additional cover of US$1 billion (total US$2.08 billion) is in place for non-oil pollution claims and another US$1 billion (total US$3.08 billion) as overspill protection. Like all members of P&I Associations within the International Group, we are subject to calls payable to the associations based on our claim records as well as the claim records of all other members of the individual associations and members of the International Group.

The oil tanker/asphalt carriers and Bulker Shipping Industry

 Liquid cargoes include crude oil, refined products, liquefied natural gas, liquefied petroleum gas, bitumen, molasses and chemicals. Specifically, the oil tanker/ asphalt carrier are carried in specialized tankers designed to carry such products. These specialized tankers are designed with “floating tanks” which means that the tanks are allowed to expand due to high temperature of the product they carry. Tanks are sometimes insulated to minimize heat losses. The size of an oil tanker/ asphalt carrier is in the smaller segment (usually less than 10 000 dwt) and more typically between 1,000 – 6,000 dwt.

The paving of roads with asphalt accounts for the highest source of bitumen consumption. Since road construction and repairs are seasonal in most areas of the world, bitumen demand is generally lower in the first and fourth quarters of the year as compared to the second and third quarters. Seasonality is a main characteristic in the whole oil industry. Demand for heating oil has a seasonal trend to move higher during autumn and winter season that customers make their purchases while demand for gasoline is generally higher during the summer months due to seasonal increases in highway traffic.

The dry bulk shipping market is the primary provider of global commodities transportation since dry bulk cargoes comprise approximately of one third of the seaborne trade. Dry bulk cargoes are divided into two main categories-major bulk cargoes and minor bulk cargoes. Major bulk cargoes consist of iron ore, coal and grains, while minor bulk cargoes include, among others, bauxite/alumina, sugar, fertilizers, steel products, forest products and cement.

The global dry bulk carrier fleet may be divided into the following categories based on a vessel’s carrying capacity:

After two years of significant strength and the all-time high of the Baltic Dry Index (“BDI”) on May 20, 2008 the dry bulk market fell over 90% from May 20, 2008 through December 16, 2008 and almost 75% during the fourth quarter of 2008 through December 16, 2008, reaching a low of 663, or 94% below the May 20, 2008 high point. After this collapse, which mainly resulted from the financial crisis, the BDI recovered during 2009, at a rate higher than 500%, to close the year at 3,401 points. From January 2009 through December 2009, the BDI reached a high of 4,661, or 700% above the December 2008 low point, in November 2009.

The recuperated charter market in 2009 was a good setting for a fundamentally more stable 2010, although significant orderbook influx put pressure on overall fleet utilization which led the market into a new decrease in the period after 2011. The excess orderbook which developed during the huge market growth of 2007-2008 changed substantially all the market dynamics when the delivery of these vessels touched the market. As a consequence of the fleet growth, the BDI experienced a severe pressure and its average for the period between January 2012 to December 2014 stood at 1077 points, which is more than 50% lower compared with the average of the period between January 2009 and December 2011.

Panamax rates, which averaged $75,248 per day in June 2008 fell to approximately $4,100 per day in December 2008, surging thereafter to an average $25,040 for the year 2010, averaged $14,000 per day in 2011, approximately 44% lower than the previous year.

The Panamax rates for the period from 2012 to the end of 2014 are averaged at approximately $8,300 per day only while the same period is characterized by high volatility with the rates ranging from their lowest of about $3,300 per day to their highest of about $16,000 per day. Recently, during the first quarter of 2015, the panamax rates are averaged at approximately $4,800 per day. Handysize rates have also followed a similar path, though at more viable (in regards with their capital and operating expenses) and less volatile levels. The Handysize rates were averaged at approximately $7,800 for the period from 2012 to the end of 2014 ranging between approximately $5,300 (lowest rate) and $11,700 (highest rate) while they have further decreased down to approximately $5,200 on average of first quarter of 2015.

The decline of the dry bulk market has primarily been attributable to vessel oversupply gradually taking its toll on the market. The increased demand for dry bulk commodities has been unable to fully absorb the approximately 215 million of new deadweight tonnage that has entered the market since January 2011 through the end of 2014, despite almost record high scrapping levels of approximately 96 million deadweight tonnage and a high delivery slippage. A positive sign in the Supply/ Demand equation stands on the lower growth in the global dry bulk fleet (in deadweight tonnages) which in 2013 and 2014 was about 5.90% and 4.4% accordingly much lower than the fleet growth during the period from 2009 to 2012 which appeared to be higher that 10%.

While the growth rate of supply is substantially decreasing, we expect the current overcapacity in the shipping market to continue to exert considerable pressure on charter rates, negating any upward trends possibly arising from any favorable price and volume developments in the underlying markets. Furthermore, the lower expected growth of the Chinese economy, which is the major iron ore and coal importer, is likely to affect the growth of the global trade. There can be no assurance as to how long charter rates will remain at low levels or whether they will improve or deteriorate and, if so, when and to what degree.

As a result of the depressed market conditions and the poor prospects as well as an overwhelming order book during 2010 to 2014, vessel values have remained under severe pressure. Indicatively, as of December 2014, the value of a five-year old Panamax vessels with 76,000 deadweight ton carrying capacity has reportedly decreased by about 20% compared to the same value in December 2013 while it further decreased during the first quarter 2015 reaching maybe their lowest point since 2002. Five-year old modern Capesize vessels of 180,000 deadweight ton carrying capacity were valued about 11% less compared to December 2013 while their price has further decreased down to $34 million during the first quarter 2015 which is estimated about 23% lower than the relevant prices in December 2013. On the other hand, the historical low prices are creating new investment opportunities which subsequently might result in increased demand for second hand or newbuilding vessels followed by an improvement in the vessels’ values.

COAL BUSINESS

Currently, our coal business operations are minimal and solely limited to coal processing and blending services. However, even any limited operations are capital intensive due to construction of new infrastructure and maintenance of any existing operations. There can be no assurance that we will be able to effectively manage our limited operations or expand operations in the future.

Business Strategy

Our primary business strategy with respect to our limited coal business is to create sustainable, capital-efficient growth in available cash by:

Coal Characteristics

Coal is generally classified as either metallurgical coal or thermal coal (also known as steam or industrial coal). Sulfur, ash and moisture content as well as coking characteristics are key attributes in grading metallurgical coal while heat value, ash and sulfur content are important variables in rating thermal coal. We intend to mine, process, market and ship coal with the characteristics described below.

Heat Value:  The heating value of coal is supplied by its carbon content and volatile matter and commonly measured in British thermal units (“Btus”). A Btu is the amount of heat needed to raise the temperature of one pound of water by one degree Fahrenheit. Coal deposits are generally classified into four categories-lignite, subbituminous, bituminous and anthracite-reflecting their response to increasing heat and pressure. We intend to mine bituminous and anthracite coal, which is used to make coke for the steel industry or to generate electricity, with a heating value ranging between 10,500 and 15,500 Btus per pound.

Sulfur Content:  Sulfur content can differ from seam to seam. Low sulfur coals have a sulfur content of 1.5% or less. Coal produces undesirable sulfur dioxide when it burns, the amount of which depends on the concentration of sulfur in the coal as well as the chemical composition of the coal itself.

Ash and Moisture Content:  Ash residue is what remains after the combustion of coal. Low ash is desirable because businesses must dispose of ash after the coal is used. High moisture content decreases the heat value of the coal which is undesirable and increases the coal’s weight which is also negative because higher weight increases transportation charges.

Coking Characteristics (metallurgical coal only):  Two important coking characteristics are coke strength and volatility. Measuring the expansion and contraction of coal when heated determines the strength of coke that could be produced from the coal. When coal is heated in the absence of air, the loss in mass less moisture is volatility. Volatility of metallurgical coal is used to determine the percentage of coal that becomes coke. This measure is known as coke yield. A low volatility results in a higher coke yield.

Types of Coal

Metallurgical coal is classified into three major categories: hard coking coal (“HCC”), semi-soft coking coal, and pulverized coal injection coal (“PCI”). Coking coals are the basic ingredients for the manufacture of metallurgical coke. PCI coal is not used in coke making, but is injected directly into the lower region of blast furnaces to supply both energy and carbon for iron reduction, thus replacing some of the metallurgical coke that may otherwise have been used.

Thermal coal is the most abundant form of coal. It has relatively high heat value and has long been used for steam generation in electric power and industrial boiler plants.

Anthracite coal is commonly used as a reduction agent for various applications such as briquetting, charcoal and iron ore pellets. The primary use of our anthracite coal will be as a domestic fuel in either hand fired stoker or automatic stoker furnaces. However, our intent is to sell anthracite coal into the PCI coal market. Anthracite is a crossover coal and has been successfully used in the PCI coal market.

The Coal Industry

Background

Coal is one of the most abundant and important energy sources in the world, providing approximately 30% of the world’s primary energy needs according to the World Coal Association (“WCA”). Per the WCA, the most significant uses for coal are electricity generation, steel production, cement manufacturing and as a liquid fuel. Coal is traded globally and can be transported to demand centers by ship, rail, barge or truck. World coal production reached a record level of 7.8 billion tonnes in 2013 according to The International Energy Agency (IEA) and the WCA. Total hard coal production totaled 7.0 billion tonnes in 2013, while global production of brown coal totaled 840 billion tonnes. Also according to the EIA, the United States is one of the world’s largest producers of coal and has approximately 26% of global coal reserves, representing about 258 years of supply based on current usage rates. According to the U.S. Department of Energy, the energy content of the United States’ demonstrated recoverable coal reserves exceeds the world’s proven oil reserves. Further, according to IEA estimates, China remained the largest producer of coal in the world, producing over 3.5 billion tonnes in 2013. The United States and India follow China with hard coal production of over 900 billion tonnes and 600 million tonnes, respectively, in 2013.  

Cross-border coal trade of hard coal was close to 1.3 billion tonnes in 2013 according to IEA. China remained the largest importer of globally traded coal in 2013, taking over 327 million tonnes of hard coal. Japan imported more than 195 million tonnes in 2013, followed by India with nearly 180 million tonnes. OECD Europe imported 253 million tonnes in 2013.

Among the nations principally supplying coal to the global power and steel markets are Australia, historically the world’s largest coal exporter, as well as Indonesia, Russia, the United States, Columbia and South Africa. Australia has significant reserves, however growing environmental constraints, higher labor and capital costs, and the development of reserves farther from export facilities are increasing development and production costs. Indonesia continues to exhibit substantial growth in its coal exports; however its growing domestic energy demand, together with regulatory requirements, may result in a decrease in exports as it moves toward greater self-sufficiency. Increasing calls to bolster domestic power supply, together with pressure to improve wages for miners, may also limit South African exports in the future. 

Properties and Uses of Coal

Coal is a combustible, sedimentary, organic rock composed mainly of carbon, hydrogen and oxygen. Coal seams are formed from vegetation that has been consolidated between rock strata and altered by the effects of pressure and heat over millions of years. Coal quality varies depending on the pressure, heat and length of time in formation. The higher the carbon content in the coal, the more energy the coal contains. Anthracite is the highest value coal; it contains 86% - 97% carbon and has heat value of over 15,000 Btu per pound. Bituminous coal is the most abundant coal in the world; it contains 45% - 86% carbon and has heat values of 11,000-15,000 Btu per pound. Bituminous coal includes thermal coal used to generate electricity and metallurgical coal used by the steel and iron industries.

Metallurgical coal, also known as coking coal, is processed into coke and used in the production of steel and iron ore. Coke is a fuel with few impurities and high carbon content. The high temperatures produced by the use of coke give steel its strength and flexibility so it can be used in the construction of bridges, and buildings, and the assembly of automobiles. While metallurgical coal is primarily used by steel companies, it is also used by a variety of other industrial users to heat and power foundries, cement plants, paper mills, chemical plants and other manufacturing and processing facilities.

Global Coal Supply and Demand

The supply and demand fundamentals in global coal markets remained challenged in 2014. Europe’s ongoing sovereign debt problems continue to strain the global economy. Within Europe, this economic uncertainty resulted in only modest changes in demand for imported finished goods, which led to reduced steel consumption and therefore lower demand for metallurgical coal. In addition, inflation control measures enacted by China, which restricted lending and investment, combined with strong hydro-electric generation and slower growth in the developed world reduced Chinese exports, which in turn had an impact on thermal and metallurgical coal demand in China. 

Despite the cyclical challenges, there were some positive trends. Coal is expected to remain the dominant fuel for electric power generation worldwide. According to the IEA, coal is projected to fuel over 33% of the world's electric power through 2040. Most of the growth in coal consumption is expected to occur in Asia, with China and India as the largest consumers going forward. Demand for thermal coal imports in Europe grew as coal-powered generation realized substantial cost advantages to natural gas. That, combined with pressure to reduce subsidized domestic coal production in Europe, could indicate a growing demand for imported coal in Europe. It is expected that Asia will be the center for most of the global demand growth for metallurgical coal, while China, India, Japan and South Korea are all expected to increase steel production during the next five years.

U.S. Coal Consumption

In the United States, coal is used primarily by power plants to generate electricity, by steel companies to produce coke for use in blast furnaces and by a variety of industrial users to heat and power foundries, cement plants, paper mills, chemical plants and other manufacturing or processing facilities. Although final data is not yet available, coal consumption in the United States is estimated to be approximately 920 million tons in 2014, according to the Energy Information Administration’s (EIA) Short Term Energy Outlook. Coal consumption decreased in 2014 by 0.7%, or around 5 million tons as compared to 2013, after an increase of 3.5% presented in 2013 compared to the prior year. In 2014, imports accounted for a relatively small percentage of total U.S coal consumption. Approximately 1.2% of total U.S. coal consumption in 2014 was imported.

U.S. Coal Production

The United States is the second-largest coal producer in the world, exceeded only by China. According to the EIA, there is over 200 billion tons of recoverable coal in the United States. The U.S. Department of Energy estimates that current recoverable coal in the United States reserves could supply enough electricity to satisfy demand in the United States for over 150 years.

Coal is mined from coal fields throughout the United States, with the major production centers located in the western United States, the Appalachian region and the Interior. According to the EIA and Mine Safety and Health Administration (“MSHA”), U.S. coal production increased an estimated 12 million tons in 2014, to 997 billion tons.

The EIA subdivides United States coal production into three major areas: Western, Appalachia and Interior. The Western area includes the Powder River Basin and the Western Bituminous region. According to the EIA, coal produced in the western United States increased from an estimated 530 million tons in 2013 to 539 million tons in 2014. The Powder River Basin is located in northeastern Wyoming and southeastern Montana and is the largest producing region in the United States. Coal from this region is sub-bituminous coal with low sulfur content ranging from 0.2% to 0.9% and heating values ranging from 8,000 to 9,500 Btu. The price of Powder River Basin coal is generally less than that of coal produced in other regions because Powder River Basin coal exists in greater abundance and is easier to mine and, thus, has a lower cost of production. The Western Bituminous region includes Colorado, Utah and southern Wyoming. Coal from this region typically has low sulfur content ranging from 0.4% to 0.8% and heating values ranging from 10,000 to 12,200 Btu.

The Appalachia region is further dividend into north, central and southern regions. According to the EIA, coal produced in the Appalachian region remained constant to approximately 270 million tons in 2013 and 2014, primarily as a result of natural gas displacement but also because of the depletion of economically attractive reserves, permitting issues, and increasing costs of production. Central Appalachia includes eastern Kentucky, Tennessee, Virginia and southern West Virginia. Coal mined from this region generally has a high heat value ranging from 11,400 to 13,200 Btu and a low sulfur content ranging from 0.2% to 2.0%. Northern Appalachia includes Maryland, Ohio, Pennsylvania and northern West Virginia. Coal from this region generally has a high heat value ranging from 10,300 to 13,500 Btu and a high sulfur content ranging from 0.8% to 4.0%. Southern Appalachia primarily covers Alabama and generally has a heat content ranging from 11,300 to 12,300 Btu and a sulfur content ranging from 0.7% to 3.0%.

The Interior region includes the Illinois Basin, Gulf Lignite production in Texas and Louisiana, and a small producing area in Kansas, Oklahoma, Missouri and Arkansas. The Illinois Basin is the largest producing region in the Interior and consists of Illinois, Indiana and western Kentucky. According to the EIA, coal produced in the Interior region increased from 183 million tons in 2013 to approximately 187 million tons in 2014. Coal from the Illinois Basin generally has a heat value ranging from 10,100 to 12,600 Btu and has a high sulfur content ranging from 1.0% to 4.3%. Despite its high sulfur content, coal from the Illinois Basin can generally be used by electric power generation facilities that have installed pollution control devices, such as scrubbers, to reduce emissions.

U.S. Coal Exports and Imports

Coal exports declined approximately 20 million tons to 98 million tons in 2014, a record for the United States. A significant factor for this decline was the growing global coal supply along with slowing demand growth resulting in partial displacement of the volume originating in the United States. According to the IEA, this trend is not expected to continue as demand for United States coal grows in the seaborne market. Interest in access to the coal markets overseas by producers in the United States, along with increased international consumer interest in United States coal, has fueled considerable growth in developing new port capacity in the United States. 

Historically, coal imported outside of the United States has represented a relatively small share of total coal consumption in the United States, and this remained the case in 2014. Imports reached close to 36 million tons in 2007, but have fallen since then. According to the EIA, coal imports declined to 11.3 million tons in 2014. The decline is mostly attributable to more competitive pricing for United States coal and stronger demand from international markets for seaborne coal. The majority of the coal imported into the United States originates from Columbia.

Coal Pricing Trends, Uncertainties and Outlook

Near-term, the global economic slowdown has lowered demand for thermal coal which has resulted in a general decline in coal prices.  Looking forward, several factors are exerting challenging pressure on thermal coal prices, including the pace of economic growth, possible lower demand for coal to generate electricity, the price of lower natural gas prices, ongoing regulatory pressures on the U.S. coal fired utility fleet and concerns about the effects of recent and proposed U.S. Environmental Protection Agency (EPA) rules such at the Cross-State Air Pollution Rule and the Mercury and Air Toxics Standards rule.

Our results of operations will be dependent upon the prices we will obtain for our coal as well as our ability to improve productivity and control costs. Principal goods and services we intend to use in our operations include maintenance and repair parts and services, electricity, fuel, roof control and support items, explosives, tires, conveyance structures, ventilation supplies, and lubricants.

Our management will strive to aggressively control costs and improve operating performance to mitigate external cost pressures. We may experience volatility in operating costs related to fuel, explosives, steel, tires, contract services, and healthcare, and may take measures to mitigate the increases in these costs at all operations. We intend to promote competition between suppliers and seek to develop relationships with suppliers that focus on lowering our costs. We intend to seek suppliers who identify and concentrate on implementing continuous improvement opportunities within their area of expertise. To the extent upward pressure on costs exceeds our ability to realize sales increases, or if we experience unanticipated operating or transportation difficulties, our operating margins would be negatively impacted. Employee labor costs have historically increased primarily due to the demands associated with attracting and retaining a workforce; however, recent stability in the marketplace has helped ease this situation. We may also experience difficult geologic conditions, delays in obtaining permits, labor shortages, unforeseen equipment problems, and shortages of critical materials such as tires and explosives that may result in adverse cost increases and limit our ability to produce at forecasted levels.

In addition to coal prices and demand, our profitability may be affected by our production costs. We expect these costs to remain relatively high for the next several years, due to a number of factors, including increased governmental regulations, high prices in worldwide commodity markets, and a highly competitive market for a limited supply of skilled mining personnel.

Coal Mining Methods

The geological characteristics of our coal largely determine the coal mining method we intend to employ. We anticipate that our primary future method of mining coal will be surface mining.

Surface Mining

The majority of the coal we intend to produce will come from surface mining operations. Surface mining involves removing the topsoil then drilling and blasting the overburden (earth and rock covering the coal) with explosives. We will then remove the overburden with heavy earth-moving equipment, such as draglines, power shovels, excavators and loaders. Once exposed, we will drill, fracture and systematically remove the coal using haul trucks or conveyors to transport the coal to our preparation plant or to a loadout facility. We will reclaim disturbed areas as part of our normal mining activities. After final coal removal, we will use draglines, power shovels, excavators or loaders to backfill the remaining pits with the overburden removed at the beginning of the process. Once we have replaced the overburden and topsoil, we would reestablish vegetation and plant life into the natural habitat and make other improvements that have local community and environmental benefits.

Coal Preparation and Blending

Typically, no additional preparation is required for a saleable product. Coal extracted from some of the mining operations contains impurities, such as rock, shale and clay in a wide range of particle sizes. The majority of our intended mining operations in the Appalachia region will use a coal preparation plant located near the mine or connected to the mine by a conveyor, or our coal preparation plant. These coal preparation plants will allow us to treat the coal we will extract from those mines to ensure a consistent quality and to enhance its suitability for particular end-users. In addition, depending on coal quality and customer requirements, we may blend coal mined from different locations, including coal produced by third parties, in order to achieve a more suitable product.

The treatments we employ at our preparation plant depend on the size of the raw coal and any impurities contained in the raw coal. For coarse material, the separation process relies on the difference in the density between coal and waste rock where, for the very fine fractions, the separation process relies on the difference in surface chemical properties between coal and the waste minerals. To remove impurities, we first crush the raw coal and classify it into various sizes. For the largest size fractions, we use dense media vessel separation techniques in which we float coal in a tank containing a liquid of a pre-determined specific gravity. Since coal is lighter than its impurities, it floats, and we separate it from rock and shale. We treat intermediate sized particles with dense medium cyclones, in which a liquid is spun at high speeds to separate coal from rock. Fine coal is treated in spirals, in which the differences in density between coal and rock allow them, when suspended in water, to be separated. Ultra fine coal is recovered in column flotation cells utilizing the differences in surface chemistry between coal and rock. By injecting stable air bubbles through a suspension of ultra fine coal and rock, the coal particles adhere to the bubbles and rise to the surface of the column where they are removed. To minimize the moisture content in coal, we process most coal sizes through centrifuges. A centrifuge spins coal very quickly, causing water accompanying the coal to separate.

Viking Acquisition Group

In September 2013, we acquired all of the issued and outstanding membership interests of Viking Acquisition Group, LLC, a Kentucky limited liability company (“VAG”), pursuant to a unit purchase agreement. In connection with the acquisition of VAG, we acquired certain mining permits at the Viking Mine located in Pike, Floyd, and Letcher Counties in Kentucky.

Pursuant to the terms of the unit purchase agreement, we agreed to pay $15.0 million for the membership interests of VAG. The purchase price was to be paid by the issuance of a senior secured promissory note in an aggregate principal amount of $15.0 million. At closing, we paid (i) $0.125 million of principal on the senior secured promissory note in cash and (ii) $5.875 million of principal on the note through the issuance of common shares. Accordingly, immediately following the closing, the remaining balance on the senior secured promissory note was $9.0 million, which amount was to be paid quarterly commencing on September 30, 2013, with each quarterly payment to be a principal amount of $1.5 million plus accrued but unpaid interest thereon.

The senior secured promissory note bore interest at a rate of 8.0% per annum. The senior secured promissory note was secured by a pledge of all of the issued and outstanding membership interests of VAG under a Pledge Agreement (the “Pledge Agreement”).