Edgar Filing: Quintana Maritime LTD

e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


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

		For the quarterly period ended September 30, 2006

		OR

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

		For the transition period from to

Commission file number 000-51412

Quintana Maritime Limited

(Exact name of registrant as specified in its charter)


Republic of the Marshall Islands (State or other jurisdiction of incorporation or organization)		98-0453513 (I.R.S. Employer Identification No.)

c/o Quintana Management LLC
Attention: Stamatis Molaris
Pandoras 13 & Kyprou Street
166 74 Glyfada
Greece
(address of principal executive offices)

011-30-210-898-6820
(Registrant’s telephone number, including area code)

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 þ No o

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.


		Large Accelerated Filer o		Accelerated Filer þ		Non-accelerated Filer o

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

The number of shares of the Company’s common stock, $0.01 par value, outstanding at October 31, 2006 was 50,166,690.

TABLE OF CONTENTS

FORM 10-Q


PART I. FINANCIAL INFORMATION			3

Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures about Market Risks			26
Item 4. Controls and Procedures			27

PART II. OTHER INFORMATION			28

Item 1. Legal Proceedings			28
Item 1A. Risk Factors			28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 4. Submission of Matters for a Vote of Security Holders			32
Item 6. Exhibits			32

SIGNATURES			34

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER			36

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Quintana Maritime Limited
Unaudited Consolidated Balance Sheets
(All amounts expressed in U.S. Dollars)


	September 30, 2006			December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	14,814,725		$	4,258,809
Inventories		1,312,038			378,488
Due from charterers, net		2,535,067			1,244,123
Other receivables		792,578			479,735
Prepaid expenses and other current assets		976,899			866,562

Total current assets		20,431,307			7,227,717

Property and equipment:
Vessels, net of accumulated depreciation of $30,361,202 and $11,309,344		825,569,976			446,474,869
Advances for acquisition of vessels		34,000,000			—

Other fixed assets, net of accumulated depreciation of $204,030 and $58,739		421,682			384,247

Total property and equipment		859,991,658			446,859,116

Deferred financing costs, net of accumulated amortization of $2,135,859 and $63,194		4,670,682			1,959,041
Deferred time charter premium, net of accumulated amortization of $2,023,149 and $439,815		7,476,851			9,060,185
Deferred dry docking costs, net of accumulated amortization of $682,736 and $279,865		1,575,722			919,556

Total assets	$	894,146,220		$	466,025,615


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,991,367		$	1,473,592
Sundry liabilities and accruals		2,407,179			3,412,759
Deferred income		2,815,951			1,715,910
Current portion of long term loan		45,250,000			—

Total current liabilities		53,464,497			6,602,261

Long-term debt		414,250,000			210,000,000
Unrealized swap loss		11,891,970			—

Total liabilities	$	479,606,467		$	216,602,261


Shareholders’ equity:
Common stock at $0.01 par value — 100,000,000 shares authorized, 49,713,354 and 23,846,742 shares issued and outstanding		497,134			238,468
Additional paid-in capital		440,125,224			254,732,530
Deferred stock-based compensation		(5,946,513	)		(5,187,200	)
Accumulated deficit		(20,136,092	)		(360,444	)

Total shareholders’ equity		414,539,753			249,423,354

Total liabilities and shareholders’ equity	$	894,146,220		$	466,025,615

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

Quintana Maritime Limited
Unaudited Consolidated Income Statements
(All amounts expressed in U.S. Dollars)


	Three Months Ended September 30,						Nine Months			Period From
							Ended			January 13, 2005 to
	2006			2005			September 30, 2006			September 30, 2005
Revenues:
Time charter voyage revenue	$	24,965,412		$	13,542,694		$	64,857,444		$	20,805,604
Revenue from charter operation		1,243,325			—			4,473,668			—
Commissions		(1,175,269	)		(549,492	)		(3,014,781	)		(834,861	)

Net revenue		25,033,468			12,993,202			66,316,331			19,970,743

Expenses:
Vessel operating expenses		4,056,716			2,809,950			11,379,790			4,213,290
Voyage expenses		1,447,802			—			4,068,427			—
General and administrative expenses (including restricted stock amortization of $597,873, $315,130, $1,626,316, and $315,130)		2,705,715			1,555,332			7,197,379			2,704,246
Depreciation and amortization		7,411,731			4,030,574			19,600,020			5,928,926

Total expenses		15,621,964			8,395,856			42,245,616			12,846,462

Operating income		9,411,504			4,597,346			24,070,715			7,124,281

Other (expenses) / income:
Interest expense		(3,385,659	)		(1,281,405	)		(8,349,992	)		(2,903,044	)
Interest income		440,951			132,702			570,163			159,970
Finance costs		(1,946,275	)		(3,266,090	)		(2,072,665	)		(3,586,453	)
Unrealized swap loss.		(11,891,970	)		—			(11,891,970	)		—
Foreign exchange losses and other, net		(217,284	)		21,172			(372,969	)		(3,700	)

Total other expenses		(17,000,237	)		(4,393,621	)		(22,117,433	)		(6,333,227	)

Net (loss) / income	$	(7,588,733	)	$	203,725		$	1,953,282		$	791,054


(Loss) / earnings per common share:
Basic	$	(0.20	)	$	0.01		$	0.07		$	0.07

Diluted	$	(0.19	)	$	0.01		$	0.07		$	0.07


Weighted average shares outstanding:
Basic		37,569,368			19,517,470			28,153,771			10,971,653

Diluted		38,922,043			19,627,598			28,928,204			11,010,472

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

Quintana Maritime Limited
Unaudited Consolidated Statements of Cash Flows
(All amounts expressed in U.S. Dollars)


				Period from
	Nine Months Ended			January 13, 2005 to
	September 30, 2006			September 30, 2005
Cash flows from operating activities:
Net income	$	1,953,282		$	791,054
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		19,600,020			5,928,926
Amortization of deferred finance costs		2,072,665			3,586,453
Amortization of time charter fair value		1,583,334			—
Stock-based compensation		1,626,316			—
Unrealized swap loss		11,891,970			—
Changes in assets and liabilities:
Increase in inventories		(933,550	)		(265,527	)
Increase in due from charterers, net		(1,290,944	)		(83,551	)
Increase in other receivables		(312,843	)		(348,827	)
Increase in prepaid expenses and other current assets		(110,337	)		(1,025,813	)
Increase in accounts payable		1,517,775			723,213
(Decrease) / Increase in sundry liabilities and accruals		(1,005,580	)		1,068,533
Increase in deferred income		1,100,041			1,104,072
Deferred dry-dock costs incurred		(1,059,037	)		(1,204,328	)

Net cash from operating activities	$	36,633,112		$	10,274,205


Cash flows from investing activities:
Vessel acquisitions		(398,146,965	)		(330,623,650	)
Advances for vessel acquisitions		(34,000,000	)		(13,680,000	)
Purchases of property, plant and equipment		(182,726	)		(256,261	)

Net cash used in investing activities	$	(432,329,691	)	$	(344,559,911	)


Cash flows from financing activities:
Proceeds from long-term debt		459,500,000			411,621,351
Repayment of debt		(210,000,000	)		(311,071,351	)
Payment of financing costs		(4,784,306	)		(5,097,296	)
Proceeds from preferred stock issuance		190,937,657			—
Issuance cost of preferred stock offering		(7,671,926	)		—
Proceeds from initial public offering		—			182,771,956
Issuance costs of initial public offering		—			(2,179,655	)
Paid-in capital and common stock		—			68,664,437
Dividends paid		(21,728,930	)		(1,177,731	)

Net cash from financing activities	$	406,252,495		$	343,531,711


Net increase in cash and cash equivalents		10,555,916			9,246,005
Cash and cash equivalents at beginning of period		4,258,809			—

Cash and cash equivalents at end of the period	$	14,814,725		$	9,246,005


Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	10,797,448		$	2,093,044

Non-cash investing and financing activities:
Conversion of 12% Mandatorily Convertible Preferred Stock	$	190,937,657			—

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

Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)

Basis of Presentation and General Information

The Company

The accompanying unaudited consolidated financial statements include the accounts of Quintana Maritime Limited and its wholly owned subsidiaries (collectively, the “Company”). The Company is engaged in marine transportation of dry-bulk cargoes through the ownership and operation of dry-bulk vessels.

The Company is a holding company incorporated on January 13, 2005, under the Laws of the Republic of the Marshall Islands. The Company was formed by affiliates of each of Corbin J. Robertson Jr., First Reserve Corporation (“FRC”) and American Metals & Coal International, Inc. (“AMCI”). On July 20, 2005, the Company completed its initial public offering.

The Company’s vessels are primarily available for charter on a time-charter basis. A time charter involves placing a vessel at the charterer’s disposal for a set period of time during which the charterer may use the vessel in return for the payment by the charterer of a specified daily or monthly hire rate. In time charters, operating costs—which include crewing costs, repairs and maintenance, stores, and lubricants—are typically paid by the owner of the vessel and specified voyage costs such as fuel, canal and port charges are paid by the charterer.

The Company is the sole owner of all of the outstanding shares of the following subsidiaries, each of which was formed in the Marshall Islands for the purpose of owning a vessel in the Company’s fleet. The table includes subsidiaries formed to own vessels that the Company has agreed to purchase. For those subsidiaries that had not been delivered vessels as of September 30, 2006, expected delivery dates for the vessels are given:

Deadweight

Tonnage

(in metric

Delivery

Company

Vessel

Agreement Date

tons)

Built

Date

Fearless Shipco LLC

Fearless I

February 18, 2005

73,427

1997

April 11,2005

King Coal Shipco LLC

King Coal

February 25, 2005

72,873

1997

April 12,2005

Coal Glory Shipco LLC

Coal Glory

March 21, 2005

73,670

1995

April 13,2005

Coal Age Shipco LLC

Coal Age

March 15, 2005

72,861

1997

May 4, 2005

Iron Man Shipco LLC

Iron Man

March 15, 2005

72,861

1997

May 6, 2005

Barbara Shipco LLC

Barbara

March 24, 2005

73,390

1997

July 20, 2005

Coal Pride Shipco LLC

Coal Pride

March 29, 2005

72,600

1999

August 16, 2005

Linda Leah Shipco LLC

Linda Leah

March 24, 2005

73,390

1997

August 22, 2005

Iron Beauty Shipco LLC

Iron Beauty

September 2, 2005

165,500

2001

October 18, 2005

Kirmar Shipco LLC

Kirmar

September 2, 2005

165,500

2001

November 11, 2005

Iron Vassilis Shipco LLC

Iron Vassilis

May 3, 2006

82,000

2006

July 27, 2006

Iron Fuzeyya Shipco LLC

Iron Fuzeyya

May 3, 2006

82,229

2006

August 14, 2006

Iron Bradyn Shipco LLC

Iron Bradyn

May 3, 2006

82,769

2006

August 21, 2006

Grain Harvester Shipco LLC

Grain Harvester

May 3, 2006

76,417

2004

September 5, 2006

Santa Barbara Shipco LLC

Santa Barbara

May 3, 2006

82,266

2006

September 5, 2006

Iron Bill Shipco LLC

Iron Bill

May 3, 2006

82,000

2006

September 7, 2006

Ore Hansa Shipco LLC

Ore Hansa

May 3, 2006

82,229

2006

September 15, 2006

Iron Anne Shipco LLC

Iron Anne

May 3, 2006

82,000

2006

September 25, 2006

Iron Kalypso Shipco LLC

Iron Kalypso

May 3, 2006

82,204

2006

September 25, 2006

Grain Express Shipco LLC

Grain Express

May 3, 2006

76,466

2004

October 9, 2006

Iron Knight Shipco LLC

Iron Knight

May 3, 2006

76,429

2004

9/1/06 — 1/10/07*

Coal Gypsy Shipco LLC

Coal Gypsy

May 3, 2006

82,300

November 2006*

Pascha Shipco LLC

Pascha

May 3, 2006

82,300

December 2006*

Coal Hunter Shipco LLC

Coal Hunter

May 3, 2006

82,300

December 2006*

Iron Lindrew Shipco LLC

Iron Lindrew

May 3, 2006

82,300

January 2007*

Iron Brooke Shipco LLC

Iron Brooke

May 3, 2006

82,300

March 2007*

Iron Manolis Shipco LLC

Iron Manolis

May 3, 2006

82,300

May 2007*


*		Expected delivery dates

**		Under construction

Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)

Basis of Presentation and General Information—The Company (continued)

The operations of the vessels are managed by our wholly owned subsidiary, Quintana Management LLC, which initially subcontracted the technical management of five vessels to Blossom Maritime Corporation, a third-party technical management company. By October 2005, the Company had taken over technical management of all its vessels.

In December 2005, the Company formed a wholly owned subsidiary, Quintana Logistics LLC, to engage in chartering operations, including entry into contracts of affreightment. Under a contract of affreightment, the Company would agree to ship a specified amount of cargo at a specified rate per ton between designated ports over a particular period of time. Contracts of affreightment generally do not specify particular vessels, so the Company would be permitted either to use a free vessel that it owned or to charter in a third-party vessel.

Significant Accounting Policies

Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the management of the Company, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position, operating results and cash flows have been included in the statements. Interim results are not necessarily indicative of results that may be expected for the year ended December 31, 2006. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s periodic filings with the Securities and Exchange Commission (“SEC”), including those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. Please see Note 2 to our consolidated financial statements included in our Form 10-K for the year ended December 31, 2005 for additional information regarding our significant accounting policies.

Income taxes

The Company is incorporated in the Marshall Islands. Under current Marshall Islands law, the Company is not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed on payments of dividends by the Company to its shareholders. In addition, as a foreign corporation, the Company believes that its operating income will be exempt from United States federal income taxation to the extent that the Company’s vessels do not enter United States ports.

Derivative Instruments

The Company designates its derivatives based upon the criteria established by SFAS No. 133, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133, as amended by Statement of Financial Accounting Standards No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities — An amendment of SFAS 133”, (SFAS 138) and Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, (SFAS 149), requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for the changes in the fair value of the derivative depends on the intended use of the derivative and the resulting designation. For a derivative that does not qualify as a hedge, the change in fair value is recognized at the end of each accounting period on the income statement.

Earnings/(loss) per share

Earnings/(loss) per share has been calculated by dividing the net income/(loss) by the weighted average number of common shares outstanding during the period. Diluted earnings/(loss) per share reflects the potential dilution that

Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)

could occur if securities or other contracts to issue common stock were exercised. The following dilutive securities are included in shares outstanding for purposes of computing diluted earnings per share:

Significant Accounting Policies — Earnings (loss) per share (continued)

	•		Restricted stock outstanding under the Company’s 2005 Stock Incentive Plan

	•		Common shares issuable upon exercise of the Company’s outstanding warrants.

The Company had no other dilutive securities for the periods indicated.

The Company calculates the number of shares outstanding for the calculation of basic earnings per share and diluted earnings per share as follows:


	Three Months Ended
	September 30,
					Nine Months		Period from
					Ended		January 13, 2005 to
					September 30,		September 30,
	2006		2005		2006		2005
Weighted average common shares outstanding, basic		37,569,368		19,517,470		28,153,771		10,971,653

Weighted average restricted stock awards		752,493		110,128		622,956		38,819

Common stock issuable upon warrant exercise (1)		600,182		—		151,477		—

Weighted average common shares outstanding, diluted		38,922,043		19,627,598		28,928,204		11,010,472


(1)		On May 11, 2006, the Company sold Units consisting of 12% Mandatorily Convertible Preferred Stock and Class A Warrants in a private placement. 8,182,232 Warrants, with an exercise price of $8.00 and an expiration date of May 11, 2009, were issued. As of September 30, 2006, all the warrants were outstanding.

Vessel Acquisitions

On May 3, 2006, the Company entered into memoranda of agreement with affiliates of Metrobulk Holding S.A., or Metrobulk, an unaffiliated third party, to purchase three Panamax drybulk carriers and 14 Kamsarmax drybulk carriers for an aggregate cash purchase price of $735 million.

Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)

Vessel Acquisitions (continued)

During the three months ended September 30, 2006, the Company took delivery of the following nine vessels from affiliates of Metrobulk:


	Deadweight
	Tonnage					Contract			Adjustment to			Adjusted
	(in metric				Delivery	Purchase			Purchase			Purchase
Vessel	tons)		Built		Date	Price			Price (1)			Price
Iron Vassilis		82,000		2006	July 27, 2006	$	43,300,000			—		$	43,300,000
Iron Fuzeyya		82,229		2006	August 14, 2006		45,200,000			—			45,200,000
Iron Bradyn		82,769		2005	August 21, 2006		45,900,000			—			45,900,000
Grain Harvester		76,417		2004	September 5, 2006		41,000,000			(41,163	)		40,958,837
Santa Barbara		82,266		2006	September 5, 2006		43,600,000			(314,303	)		43,285,697
Iron Bill		82,000		2006	September 7, 2006		43,600,000			(209,104	)		43,390,896
Ore Hansa		82,229		2006	September 15, 2006		43,900,000			(381,048	)		43,518,952
Iron Anne		82,000		2006	September 25, 2006		43,300,000			—			43,300,000
Iron Kalypso		82,204		2006	September 25, 2006		45,200,000			(181,875	)		45,018,125

							395,000,000			(1,127,493	)		393,872,507

					Less 10% deposit		(39,500,000	)					(39,500,000	)

						$	355,500,000			(1,127,493	)	$	354,372,507


(1)		Adjustments to purchase price reflect payments made by a Metrobulk affiliate to the Company based on the contracted delivery dates. These adjustments represent refunds to Quintana, which are accounted for as decreases in the respective purchase prices.

Deferred Charges

The deferred charges shown in the accompanying consolidated balance sheet at September 30, 2006 are analyzed as follows:


							Time Charter
	Finance Costs			Drydocking			Fair Value
	(in thousands)
June 30, 2006	$	1,898		$	806		$	8,005
Additions		4,720			933			—
Write-off		(1,833	)		—			—
Amortization		(114	)		(163	)		(528	)

September 30, 2006	$	4,671		$	1,576		$	7,477

Iron Beauty was acquired with an accompanying time-charter agreement that was at an above-market rate on the date of acquisition. The present value of the time charter in excess of market rates was determined to be $9.5 million, and such amount was shown separately as a deferred asset. This results in a daily rate of approximately $30,600 as recognized revenue. For cash flow purposes, the company will continue to receive $36,500 per day less commissions.

Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)

Accumulated Deficit

Accumulated deficit shown in the accompanying consolidated balance sheet as of September 30, 2006, is calculated as follows:


December 31, 2005	$	(360,444	)
Common stock dividends paid March 2006		(5,007,816	)
Common stock dividends paid May 2006		(5,071,130	)
Common stock dividends paid August 2006		(10,440,721	)
Preferred stock dividends paid August 2006		(1,209,263	)
Net income for nine months ended September 30, 2006		1,953,282

September 30, 2006	$	(20,136,092	)

Prepaid Expenses

The prepaid expenses shown in the accompanying consolidated balance sheet at September 30, 2006 and December 31, 2005 are analyzed as follows:


	September 30,		December 31,
Description	2006		2005
	(in thousands)
Prepaid insurance	$	678	$	700
Other prepaid expenses and other current assets		299		167

Total	$	977	$	867

Sundry Liabilities and Accruals

The sundry liabilities and accruals shown in the accompanying consolidated balance sheet at September 30, 2006 and December 31, 2005 are analyzed as follows:


	September 30,		December 31,
Sundry Liabilities and Accruals	2006		2005
	(in thousands)
Interest expense	$	79	$	2,302
Office expenses		800		93
Loan commitment fees		439		62
Other sundry liabilities and accruals		1,089		956

Total	$	2,407	$	3,413

Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)

Long-Term Debt

New Revolving Credit Facility

On July 19, 2006, the Company entered into an 8.25 year, $735 million senior secured revolving credit facility. The Company’s obligations under the credit facility are secured by (i) first priority cross-collateralized mortgages over the vessels; (ii) first priority assignment of all insurances, operational accounts and earnings of the vessels; (iii) first priority pledges over the operating accounts held with the agent, (iv) assignments of existing and future charters for the vessels, and (v) assignments of interest rate swaps. Borrowings under the revolving credit facility bear interest at the rate of LIBOR plus 0.85% per annum (until December 31, 2010) and LIBOR plus 1.10% per annum thereafter. The full amount borrowed under the revolving credit facility will mature on September 30, 2014.

The Company pays a commitment fee of 0.45% per annum on the undrawn amount of commitments under the credit facility. This fee is payable quarterly in arrears.

The loans do not amortize. Instead, the total available commitments reduce over time according to the following schedule of thirty-two consecutive quarterly permanent commitment reductions with the first such reduction occurring on the earlier of December 31, 2006 and the fiscal quarter ending four months after the delivery of Hull 1375:


Reduction 1 (December 31, 2006)	$	10,000,000
Reductions 2 to 5 (March 30, 2007 through December 31, 2007)	$	11,750,000
Reductions 6 to 17 (March 30, 2008 through December 31, 2010)	$	13,250,000
Reductions 18 to 32 (March 30, 2011 through September 30, 2014)	$	15,000,000

Together with the last (32nd) reduction, there is a balloon reduction equal to the lesser of either $294 million or the remaining commitments after the last reduction. The Company may prepay the loans at any time in whole or part without penalty. If the outstanding amount of the loan exceeds the maximum available amount following permanent commitment reduction, a mandatory prepayment is required equal to such excess.

The Company subject to customary conditions precedent before the Company may borrow under the facility, including that no event of default is ongoing or would result from the borrowing, that the Company’s representations and warranties are true and that no material adverse change has occurred. The loan agreement also requires the Company to comply with the following financial covenants:

	•		maintenance of fair market value of ship collateral equal to at least 115% of the outstanding loans (until December 31, 2010) and 125% of the outstanding loans thereafter;

	•		maintenance of an interest coverage ratio of not less than 2.0 to 1;

	•		maintenance of a leverage ratio (total debt to market adjusted total assets) of no greater than 0.75 to 1;

	•		maintenance of net worth, adjusted to reflect the fair market value of the vessels, of at least $200,000,000; and

	•		maintenance of minimum liquidity (cash or time deposits plus available credit line) of $550,000 per ship increasing to $741,000 per ship in 8 quarterly adjustments starting April 1, 2009.

The facility contains customary restrictive covenants and events of default, including nonpayment of principal or interest, breach of covenants or material inaccuracy of representations, default under other material indebtedness, bankruptcy, and change of control. The Company is not permitted to pay dividends if an event of default has occurred or would occur as a result of such dividend payment.

Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)

Long-Term Debt — New Revolving Credit Facility (continued)

The Company may use borrowings under the loan agreement to (i) partially finance the acquisition cost of seventeen new vessels that the Company has contracted to acquire, (ii) finance part of the acquisition cost of other additional vessels, which acquisitions are subject to approval of the facility agent and the satisfaction of certain other conditions on the vessels, and (iii) finance up to $20 million of working capital. In addition, the Company was permitted to draw down under the facility to pay down the old revolving credit facility described below.

As of September 30, 2006, the Company was in compliance with all covenants under the facility, and $459.5 million was outstanding under the facility at an average interest rate of 5.9525%.

Old Revolving Credit Facility

The Company’s previous revolving credit facility, dated October 4, 2005, was a secured, 8-year, $250 million revolving credit facility. Indebtedness under the old revolving credit facility bore interest at a rate equal to LIBOR + 0.975%. As of December 31, 2005, $210 million was outstanding under the revolving credit facility at an average interest rate of 5.28%. On July 21, 2006, the Company repaid the outstanding principal amount of $90.0 million and terminated the facility. In connection with the termination of the facility, the Company wrote off approximately $1.8 million of deferred finance fees and related legal fees, which was a non-cash item.

Related Party Transactions

Trade payables as of September 30, 2006 shown in the accompanying consolidated financial statements include $72,408 related to expenses, including salaries of Company management, office rent, and related expenses, paid for by Quintana Minerals Corporation, on behalf of the Company. On October 31, 2005, the Company and Quintana Minerals Corporation entered into a service agreement, whereby Quintana Minerals agreed to provide certain administrative services to the Company at cost, and the Company agreed to reimburse Quintana Minerals for the expenses incurred by Quintana Minerals in providing those services. Quintana Minerals Corporation is an affiliate of Corbin J. Robertson, the Chairman of the Board of Directors of the Company and significant shareholder in the Company.

Affiliates of Mr. Robertson, the Chairman of the Board of the Company, and First Reserve Corporation, whose affiliate owns approximately 10.2% of our common stock, have the right in certain circumstances to require us to register their shares of common stock in connection with a public offering and sale. In addition, in connection with other registered offerings by us, affiliates of Mr. Robertson, First Reserve and certain other stockholders will have the ability to exercise certain piggyback registration rights with respect to their shares.

In the third quarter of 2006, Quintana Logistics carried cargoes shipped by an affiliate of AMCI International, Inc., which generated revenues of approximately $1.2 million during the quarter. In addition, Quintana Logistics paid or will pay a brokerage fee of 2.5%, or approximately $63,000 to AMCI International, Inc. The Company believes that the freight charged to and the brokerage commissions paid to the AMCI affiliates were representative of market rates. Hans J. Mende, a director of the Company, is the President and controlling stockholder of AMCI International, Inc.

Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)

10.

Commitments and Contingent Liabilities

In February 2005, the Company entered into a three-year, non-cancellable operating lease for its office space in Greece. In December 2005, the Company amended the lease to add additional office space and shorten the term of the lease by one month. Rental expense for the three months ended September 30, 2006 was $72,793. Future rental commitments are payable as follows as of September 30, 2006:


	Amount
	(in thousands)
October 1, 2006 to September 30, 2007	$	219
October 1, 2007 to September 30, 2008		37

Total	$	256

As described in Note 3 above, the Company has entered into agreements with unaffiliated shipowning companies to purchase seventeen vessels. The Company took delivery of nine vessels in the three months ended September 30, 2006 and one vessel in October 2006. The Company expects to take delivery of the remaining vessels on the dates indicated in the table below. As of September 30, 2006, the unpaid balance of the purchase price for the following vessels was $306 million:


					Delivery
Company	Vessel	Purchase Price			Date
Grain Express Shipco LLC	Grain Express	$	39,600,000		October 9 2006
Iron Knight Shipco LLC	Iron Knight		41,400,000		9/1/06 -- 1/10/07*
Coal Gypsy Shipco LLC	Coal Gypsy		43,300,000		November 2006*
Pascha Shipco LLC	Pascha		43,300,000		December 2006*
Coal Hunter Shipco LLC	Coal Hunter		43,100,000		December 2006*
Iron Lindrew Shipco LLC	Iron Lindrew		43,200,000		January 2007*
Iron Brooke Shipco LLC	Iron Brooke		43,100,000		March 2007*
Iron Manolis Shipco LLC	Iron Manolis		43,000,000		May 2007*
Total cost			340,000,000
Less 10% deposit			(34,000,000	)

Total commitment		$	306,000,000


*		Expected delivery dates

The Company has not been involved in any legal proceedings which may have, or have had a significant effect on its business, financial position, results of operations or liquidity, nor is the Company aware of any proceedings that are pending or threatened which may have a significant effect on its business, financial position, results of operations or liquidity. From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business, principally disputes with charterers, personal injury and property casualty claims. The Company expects that these claims would be covered by insurance, subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.

11.

Hedging Transaction

Effective July 1, 2006, the Company entered into an interest-rate swap with Fortis Bank (Nederland) N.V. (“Fortis”) on a variable notional amounts ranging from $295 million to approximately $702 million, based on expected principal outstanding under the Company’s new revolving credit facility. Under the terms of the swap, the Company will make quarterly payments to Fortis on the relevant notional amount at a fixed rate of 5.135%, and Fortis will make quarterly floating-rate payments to the Company on the same notional amount. The swap transaction effectively converts the Company’s expected floating-rate interest obligation under its new revolving credit facility to a fixed rate of 5.135%, exclusive of margin due to its lenders. Because the Company’s new revolving credit facility, which was put in place to finance the Metrobulk acquisition, provides for variable-rate interest, management determined that an interest-rate swap, in which the Company fixed the rate due its lenders, would best protect the Company from increasing interest rates in the future. The swap is effective from July 1, 2006 to December 31, 2010. In addition, Fortis has the option to enter into an additional swap with the Company effective December 31, 2010 to June 30, 2014. Under the terms of the

Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)

11.

Hedging Transaction (continued)

optional swap, the Company will make quarterly fixed-rate payments of 5.00% to Fortis on a notional amount of $504 million, and Fortis will make quarterly floating-rate payments to the Company on the same notional amount. During the quarter ended September 30, 2006, Fortis paid the Company approximately $271,000.

Under SFAS 133, the Company marks to market the fair market value of the derivative at the end of every period, which may result in significant fluctuations from period to period, and reflects the resulting gain or loss as “Unrealized swap loss (gain)” on its Statement of Operations as well as including that amount on its balance sheet. At September 30, 2006, the fair value amounted to a loss of $11,891,970, which resulted from the decrease in LIBOR, to which the variable-rate portion of the swap is tied, during the period.

12.

Special Meeting of Stockholders; Issuance of Common Stock Upon Conversion of Preferred Stock

In May 2006, we completed a private placement of units, consisting of 12% Mandatorily Convertible Preferred Stock and Class A Warrants, to institutional investors and certain other accredited investors. Under the terms governing the equity issuance, we were required to hold a special meeting to approve the conversion of the preferred stock as well as the issuance of common stock upon the conversion of the preferred stock and the exercise of the warrants.

On August 11, 2006, the Company held a special meeting of stockholders in Calgary, Alberta, Canada. At the meeting, the following unified proposal was approved by a majority of the stockholders, voting in person or by proxy:

	•		The conversion of the Company’s 12% Mandatorily Convertible Preferred Stock into shares of common stock;

	•		The exercisability of the 8,182,232 Class A Warrants to purchase shares of the Company’s common stock; and

	•		The issuance of shares of the Company’s common stock upon conversion of the shares of Preferred Stock and the exercise of the Warrants.

Accordingly, at 5 p.m. Eastern time on August 11, 2006, all of the Company’s outstanding preferred stock was converted into common stock at a ratio of 12.5 shares of common stock per share of preferred stock. As a result, 25,569,462 additional shares of common stock were issued on that date. This issuance is shown as a non-cash transaction in the statements of cash flows. The Company received proceeds of $ 190,937,657, net of issuance costs, from the issuance of the preferred stock that was converted into the common stock. The Company did not receive any additional proceeds as a result of the conversion.

13.

Cash Dividend

On August 30, 2006, the Company paid a cash dividend of $0.21 per common share to common shareholders of record on August 22, 2006, for a total payment of $10.4 million. In addition, the Company declared a cash dividend of equivalent to the 12% coupon on the 12% Mandatorily Convertible Preferred Stock with respect to the period from May 11 to May 30, 2006, or an aggregate preferred dividend of $1.2 million.

14.

Stock Incentive Plan

The Company did not issue any common stock under its 2005 Stock Incentive Plan during the three months ended September 30, 2006. As of September 30, 2006 there were 748,900 shares of restricted stock outstanding. The vesting of the restricted stock is not conditioned on anything other than the passage of time and the grantee’s continued employment or services with the Company. The Company’s 2005 Stock Incentive Plan provides for a maximum of 3,000,000 shares of common stock to be issued under the plan. As of September 30, 2006, 2,139,750 shares remained available for issuance under the plan.

Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)

14.

Stock Incentive Plan (continued)

Outstanding Restricted Stock

Restricted stock outstanding as of September 30, 2006 includes the following:


				Weighted
				Average Fair
	Number of Shares			Value Per Share
Outstanding at June 30, 2006		753,250		$	9.48
Granted		—			—
Vested		—			—
Canceled or expired		(4,350	)		9.88

Outstanding at September 30, 2006		748,900		$	9.48

The total expense related to the restricted-stock awards is calculated by multiplying the number of shares awarded by the average high and low sales price of the Company’s common stock on the grant date, which we consider to be its fair market value. The Company amortizes the expense over the total vesting period of the awards on a straight-line basis.

Total compensation cost charged against income was $597,873 for the restricted stock for the three-month period ended September 30, 2006 and $1,626,316 for the nine-month period ended September 30, 2006. Total unamortized compensation cost relating to the restricted stock at September 30, 2006 was $6.2 million. The total compensation cost related to unvested awards not yet recognized is expected to be recognized over a weighted-average period of approximately 3 years.

15.

Forward Currency Exchange Contracts

The Company entered into the following forward currency exchange contracts in the course of and subsequent to the period:


Contract Date	Notional Amount (€)		For Value	Rate ($/€)
September 26, 2006		1,000,000	March 26, 2007		1.2800
September 29, 2006		1,000,000	December 29, 2006		1.2745
October 6, 2006		1,000,000	June 29, 2007		1.2795
October 10, 2006		1,000,000	September 28, 2007		1.2725

The Company entered into these contracts in order to mitigate foreign-exchange risk in connection with potential fluctuations in the value of the Euro.

16.

Subsequent Events

	•		On October 2, 2006 the Company drew an additional $35.6 million from the new loan facility for the delivery of Grain Express and took delivery of the vessel on October 9, 2006.

	•		As of October 31, 2006, 453,336 warrants had been exercised, resulting in proceeds of approximately $3.6 million to the Company and a total of 50,166,690 shares outstanding.

	•		On November 2, 2006, the Company declared a cash dividend of $0.21 per common share. The dividend will be payable on November 24, 2006 to shareholders of record on November 13, 2006.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and the notes thereto included elsewhere in this filing as well as in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2005.

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provided for under these sections. These statements may include words such as “believe,” “estimate,” “project,” “intend,” “expect,” “plan,” “anticipate,” and similar expressions in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward looking statements reflect management’s current expectations and observations with respect to future events and financial performance. Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected, or implied by those forward-looking statements. The principal factors that affect our financial position, results of operations and cash flows include, charter market rates, which have recently increased to historic highs, and periods of charter hire, vessel operating expenses and voyage costs, which are incurred primarily in U.S. dollars, depreciation expenses, which are a function of the cost of our vessels, significant vessel improvement costs and our vessels’ estimated useful lives, and financing costs related to our indebtedness. Our actual results may differ materially from those anticipated in these forward looking statements as a result of certain factors which could include the following: (1) changes in demand in the dry-bulk market, including changes in production of, or demand for, commodities and bulk cargoes, generally or in particular regions; (2) greater than anticipated levels of dry-bulk-vessel newbuilding orders or lower than anticipated rates of dry-bulk-vessel scrapping; (3) changes in rules and regulations applicable to the dry-bulk industry, including legislation adopted by international bodies or organizations such as the International Maritime Organization and the European Union or by individual countries; (4) actions taken by regulatory authorities; (5) changes in trading patterns significantly affecting overall dry-bulk tonnage requirements; (6) changes in the typical seasonal variations in dry-bulk charter rates; (7) changes in the cost of other modes of bulk commodity transportation; (8) changes in general domestic and international political conditions; (9) changes in the condition of the Company’s vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking costs); (10) and other factors listed from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2005 and our Registration Statement on Form S-1/S-3 originally filed with the Securities and Exchange Commission on June 19, 2006. We disclaim any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Executive Overview

General

We are an international provider of dry-bulk marine transportation services that was incorporated in the Marshall Islands on January 13, 2005 and began operations in April 2005. Prior to the completion of our initial public offering, we financed the acquisition of our fleet through capital contributions by affiliates of each of Corbin J. Robertson, Jr., First Reserve Corporation and American Metals & Coal International and through borrowings. In July 2005, we completed our initial public offering and established our initial fleet of eight vessels. In October 2005, we entered into agreements to purchase two Capesize vessels, which were delivered in the fourth quarter of 2005.

In May 2006, we completed a private placement of equity to institutional investors and certain other accredited investors. The sale of units, consisting of 12% Mandatorily Convertible Preferred Stock and Class A Warrants, resulted in gross proceeds to Quintana of approximately $191 million. The Company’s founders, including affiliates of Corbin J. Robertson, Jr., First Reserve Corporation and AMCI International Inc., and members of management invested an aggregate of $41.2 million in the private placement, or approximately 22% of the total

gross proceeds to the Company. The proceeds of the offering were used to purchase the vessels described below in “—Acquisitions” as well as to refinance our old revolving credit facility.

In August 2006, we held a special meeting of stockholders to approve the conversion of each share of preferred stock into 12.5 shares of common stock as well as the issuance of common stock upon conversion of the preferred stock and upon exercise of the outstanding warrants. Our stockholders approved this proposal and, as a result, all outstanding preferred stock was converted into common stock effective August 11, 2006.

Acquisitions

In May 2006, we entered into memoranda of agreement with affiliates of Metrobulk Holding S.A., or Metrobulk, an unaffiliated third party, to purchase three Panamax drybulk carriers and 14 Kamsarmax drybulk carriers for an aggregate cash purchase price of $735 million (the “Acquisition”). Kamsarmaxes are a Panamax sub-class that have more carrying capacity than typical Panamax designs. These vessels, when delivered, will have an aggregate cargo-carrying capacity of 1,380,809 dwt. The first nine vessels were delivered as of September 30, 2006, and the remaining eight vessels are expected to be delivered between November 2006 and May 2007. Assuming delivery of these vessels to us on the currently anticipated schedule, our post-Acquisition fleet would have a combined cargo-carrying capacity of 2,296,881 dwt and a dwt-weighted average age of 4.0 years in May 2007.

All of the Metrobulk vessels are under time charter agreements with an affiliate of Bunge Limited, or Bunge, a multinational agribusiness company. Sixteen of the vessels in the acquisition fleet are or will become subject to one master time charter with Bunge expiring at the end of 2010. Fourteen of these sixteen vessels are now subject to the master time charter, and the two other vessels (Iron Knight and Iron Bradyn) are currently under separate charters but will become subject to the master time charter following the termination of their current charters. One of the vessels in the acquisition fleet, Grain Harvester, is subject to a separate time charter with Bunge which expires on or about August 2009.

We expect to finance the remainder of the vessels we have agreed to acquire through a combination of cash and borrowings under our new revolving credit facility.

Results of Operations

Charters

We generate revenues by charging customers for the transportation of dry-bulk cargo using our vessels. All our vessels are currently employed under time charters to well-established and reputable charterers. We may employ vessels under spot-market charters in the future. A time charter is a contract for the use of a vessel for a specific period of time during which the charterer pays substantially all of the voyage expenses, including port and canal charges and the cost of bunkers, but the vessel owner pays the vessel operating expenses. Under a spot-market charter, the vessel owner pays both the voyage expenses (less specified amounts covered by the voyage charterer) and the vessel operating expenses. Vessels operating in the spot-charter market generate revenues that are less predictable than time charter revenues but may enable us to capture increased profit margins during periods of improvements in dry-bulk rates. However, we will be exposed to the risk of declining dry-bulk rates when operating in the spot market, which may have a materially adverse impact on our financial performance.

Third Quarter 2006

In the three months ended September 30, 2006, our fleet had a utilization of 99.2%, compared to 99% in the third quarter of 2005. We calculate fleet utilization by dividing the number of our operating days during a period by the number of our ownership days during the period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning.

Our net daily revenues per ship per day for the total fleet for the third quarter of 2006 were $19,652, compared to $20,991 in the corresponding period in 2005. Net daily revenue consists of our voyage and time charter revenues

less voyage expenses during a period divided by the number of our operating days during the period, net of commissions but including idle time, which is consistent with industry standards.

Vessel operating expenses per ship per day were $3,461 for the fleet in the third quarter of 2006, compared to $4,540, including $766 per day in third-party management fees, in the third quarter of 2005. Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. To arrive at a per ship per day amount, we divide our total vessel operating expenses by the ownership days in the period.

Nine Months Ended September 30, 2006

In the nine months ended September 30, 2006, our fleet had a utilization of 98.9%, compared to 92.4% in the corresponding period in 2005.

Our net daily revenues per ship per day for the total fleet for the first nine months of 2006 were $20,455, compared to $20,525 in the corresponding period in 2005.

Vessel operating expenses per ship per day were $3,816 for the fleet in the nine months ended September 30, 2006, compared to $4,331, including $608 per day in third-party management fees, in the corresponding period in 2005.

All vessels owned by the Company were employed under time-charter contracts throughout the nine-month period ended September 30, 2006. As of September 30, 2006, those charters have remaining terms of between 5 months and 51 months. We have rechartered the vessels whose charters expired subsequent to the expiration of the period. We believe that these long-term charters provide better stability of earnings and consequently increase our cash flow visibility to our shareholders.

Logistics Operations

In December 2005, the Company formed a wholly owned subsidiary, Quintana Logistics LLC, to engage in chartering operations, including entry into contracts of affreightment. Under a contract of affreightment, Quintana would agree to ship a specified amount of cargo at a specified rate per ton between designated ports over a particular period of time. Contracts of affreightment generally do not specify particular vessels, so Quintana would be permitted either to use a free vessel that it owned or to charter in a third-party vessel.

Three Months Ended September 30, 2006 Compared with Three Months Ended September 30, 2005

Net Revenues

Net revenues for the three months ended September 30, 2006 were $25.0 million after brokerage commissions of $1.2 million, compared to $13 million after brokerage commissions of $0.5 million for the corresponding period in 2005, an increase of 92%. In the three months ended September 30, 2006, $25.0 million of our revenues was earned from time charters, and $1.2 million was earned from our Quintana Logistics operations. In the three months ended September 30, 2005, all of our revenues were earned from time charters. The increase in revenues during the three months ended September 30, 2006 over the corresponding period in 2005 is primarily due to our operation of fleet of 13.4 vessels during the entire three-month period in 2006 compared to partial operations during the corresponding 2005 period of an average of 6.7 ships. Our net daily revenues per ship per day for the total fleet for the third quarter of 2006 were $19,652, compared to $20,991 in the corresponding period in 2005. The decrease was primarily due to lower average charter rates during the 2006 period.

Commissions and Other Voyage Expenses

When we employ our vessels on spot market voyage charters, including those associated our our Quintana Logistics operations, we incur expenses that include port and canal charges and bunker expenses. We expect that port and canal charges and bunker expenses will continue to represent a relatively small portion of our vessels’ overall expenses because we expect the majority of our vessels to continue to be employed under time charters that require the charterer to bear all of those expenses. As is common in the dry-bulk shipping industry, we pay

commissions ranging from 0% to 6.25% of the total daily charter hire rate of each charter to unaffiliated ship brokers associated with the charterers, depending on the number of brokers involved with arranging the charter.

For the quarter ended September 30, 2006, our commissions totaled $1.2 million, compared to $0.5 million during the corresponding period in 2005, an increase of 140%. Commissions were higher for the three months ended September 30, 2006 than the corresponding period in 2005 principally because we operated 13.4 vessels for the entire three-month period in 2006, compared to an average of 6.7 vessels during the 2005 period.

We incurred voyage expenses for the quarter ended September 30, 2006 of $1.4 million attributable to our Quintana Logistics operations. We did not incur any voyage expenses for the period ended September 30, 2005 because we did not conduct any of our chartering activities under Quintana Logistics until 2006.

Vessel Operating Expenses

For the three months ended September 30, 2006, our vessel operating expenses were $4 million, or an average of $3,461 per ship per day, compared to operating expenses of $2.8 million during the corresponding period in 2005, or an average of $4,540 per day, which included $766 per day for third-party management fees. We took over technical management of all our vessels in the fourth quarter of 2005; accordingly, technical management fees that were previously included in vessel operating expenses are now reflected in our general and administrative expenses. Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. The increase in total operating expenses for the 2006 period was primarily due to the enlargement of our fleet: we operated 13.4 vessels during the 2006 period, compared to an average of 6.7 vessels during the 2005 period. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for insurance, may also cause these expenses to increase.

General and Administrative Expenses

For the three months ended September 30, 2006, we incurred $2.7 million of general and administrative expenses, compared to $1.6 million for the three months ended September 30, 2005, an increase of approximately $1.1 million, or 69%. Our general and administrative expenses include the salaries and other related costs of the executive officers and other employees, our office rents, legal and auditing costs, regulatory compliance costs, other miscellaneous office expenses, long-term compensation costs, and corporate overhead. Our general and administrative expenses for the third quarter of 2006 were comparatively higher than those in the corresponding period in 2005 because the Company operated an average of 13.4 vessels during the 2006 period, compared to an average of 6.7 vessels during the 2005 period. For the third quarter of 2006, general and administrative expenses represented 10.8% of our net revenues for the period, as compared to 12.3% for the corresponding period in 2005.

Depreciation

We depreciate our vessels based on a straight line basis over the expected useful life of each vessel, which is 25 years from the date of their initial delivery from the shipyard. Depreciation is based on the cost of the vessel less its estimated residual value, which is estimated at $220 per lightweight ton, at the date of the vessel’s acquisition, which we believe is common in the dry-bulk shipping industry. Secondhand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. However, when regulations place limitations over the ability of a vessel to trade on a worldwide basis, its useful life is adjusted to end at the date such regulations become effective. For the three months ended September 30, 2006, we recorded $7.2 million of vessel depreciation charges, compared to approximately $3.9 million for the three months ended September 30, 2005, an increase of $3.3 million, or 85%. We incurred significantly higher depreciation charges in the third quarter of 2006 than in the corresponding period in 2005 because we operated 13.4 vessels for the entire 2006 period, compared to an average of 6.7 vessels for the 2005 period. As a result of the delivery of 9 vessels as of September 30, 2006 and our agreement to purchase an additional 8 vessels, we expect our depreciation charges to increase on a period-by-period basis as those vessels are delivered.

Time Charter Value Amortization

Iron Beauty was acquired in October 2005 with an existing time charter at an above-the-market rate. We deduct the fair value of above-market time charters from the purchase price of the vessel and allocate it to a deferred asset which is amortized over the remaining period of the time charter as a reduction to hire revenue. With respect to Iron Beauty, this results in a daily rate of approximately $30,600 as recognized revenue. For cash flow purposes the company will continue to receive $36,500 per day less commissions. For the three months ended September 30, 2006, we recorded $0.5 million of time charter amortization charges. Because we did not acquire Iron Beauty until the fourth quarter of 2005, we did not record any time-charter amortization charges in the third quarter of 2005. If we acquire additional vessels in the future that have above-market time charters attached to them, our time-charter-value amortization is likely to increase.

Drydocking

We capitalize the total costs associated with a drydocking and amortize these costs on a straightline basis through the date of the next drydocking, which is typically 30 to 60 months. Regulations or incidents may change the estimated dates of the next drydocking for our vessels. For the three months ended September 30, 2006, amortization expense related to drydocking totaled $162,985, compared to $127,225 for the corresponding period in 2005, an increase of $ 35,760 or 28%. This increase was primarily due to the fact that we were amortizing drydocking expense for a total of three vessels for three months in the 2006 period, compared to two vessels for the 2005 period.

Interest Expense

We incurred $3.4 million of interest expense in the third quarter of 2006, compared to $1.3 million in the third quarter of 2005. The difference is primarily attributable to larger principal amounts outstanding under our revolving credit facility in the 2006 period compared to amounts outstanding under our term loan facility in the 2005 period.

Unrealized Swap Loss

In the three months ended September 30, 2006, we incurred $11.9 million in unrealized swap loss attributable to our interest-rate swap. There was no corresponding loss in the third quarter of 2005 because we did not have any swaps in place at that time. The loss on the swap is due to the decrease in LIBOR, to which the variable-rate portion of the swap is tied, in the third quarter.

Finance Costs

In the third quarter of 2006, we incurred $1.9 million in finance costs, compared to $3.3 million in the corresponding period in 2005. Of the $1.9 million incurred in the 2006 period, $1.8 million was attributable to the unamortized portion of fees paid in connection with our old revolving credit facility. The decrease from the 2005 period was primarily attributable to the lower amount of financing fees written off during the period.

Nine Months Ended September 30, 2006 Compared with the Period from January 13, 2005 to September 30, 2005

Net Revenues

Net revenues for the nine months ended September 30, 2006 were $66.3 million after brokerage commissions of $3 million, compared to $20 million after brokerage commissions of $0.8 million for the period from January 13, 2005 to September 30, 2005, an increase of 232%. In the nine months ended September 30, 2006, $64.9 million of our revenues was earned from time charters, and $4.5 million was earned from our Quintana Logistics operations. In the 2005 period, all of our revenues were earned from time charters. The increase in revenues during the 2006 period over the corresponding period in 2005 is primarily due to our operation of fleet of an average of 11.4 vessels during the period in 2006 period compared to partial operations of an average of 3.7 vessels during the corresponding 2005 period.

Commissions and Other Voyage Expenses

For the nine months ended September 30, 2006, our commissions totaled $3 million, compared to $0.8 million during the corresponding period in 2005, an increase of 275%. Commissions were higher for the nine months ended September 30, 2006 than for the period from January 13 to September 30, 2005 principally because we operated 11.4 vessels for the entire nine-month period in 2006, compared to an average of 3.7 vessels during the 2005 period.

We incurred voyage expenses for the nine months ended September 30, 2006 of $4.1 million attributable to our Quintana Logistics operations. We did not incur any voyage expenses for the period ended September 30, 2005 because we did not conduct any of our chartering activities under Quintana Logistics until 2006.

Vessel Operating Expenses

For the nine months ended September 30, 2006, our vessel operating expenses were $11.4 million, or an average of $3,816 per ship per day, compared to operating expenses of $4.2 million during the period from January 13, 2005 to September 30, 2005, or an average of $4,331 per day, which included $608 per day for third-party management fees. We took over technical management of all our vessels in the fourth quarter of 2005; accordingly, technical management fees that were previously included in vessel operating expenses are now reflected in our general and administrative expenses. The increase in total operating expenses for the 2006 period was primarily due to the enlargement of our fleet: we operated 11.4 vessels during the 2006 period, compared to an average of 3.7 vessels during the 2005 period. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for insurance, may also cause these expenses to increase.

General and Administrative Expenses

For the nine months ended September 30, 2006, we incurred $7.2 million of general and administrative expenses, compared to $2.7 million for the period from January 13, 2005 to September 30, 2005, an increase of approximately $4.5 million, or 167%. Our general and administrative expenses for the nine months ended September 30, 2006 were comparatively higher than those in the corresponding period in 2005 because the Company had limited operations during the first nine months of 2005. For the first nine months of 2006, general and administrative expenses represented 10.9% of our net revenues for the period, as compared to 13.5% for the corresponding period in 2005.

Depreciation

For the nine months ended September 30, 2006, we recorded $19.1 million of vessel depreciation charges, compared to approximately $5.7 million for the period from January 13, 2005 to September 30, 2005, an increase of $13.4 million, or 235%. We incurred significantly higher depreciation charges in the first nine months of 2006 than in the corresponding period in 2005 because we operated an average of 11.4 vessels for the 2006 period, compared to an average of 3.7 vessels for the 2005 period. As a result of our recent purchase of 9 vessels and agreement to purchase an additional 8 vessels, we expect our depreciation charges to increase on a period-by-period basis as those vessels are delivered.

Time Charter Value Amortization

For the nine months ended September 30, 2006, we recorded $1.6 million of time charter amortization charges. Because we did not acquire Iron Beauty until the fourth quarter of 2005, we did not record any time-charter amortization charges in the corresponding 2005 period. If we acquire additional vessels in the future that have above-market time charters attached to them, our time-charter-value amortization is likely to increase.

Drydocking

For the nine months ended September 30, 2006, amortization expense related to drydocking totaled $402,871, compared to $160,575 for the corresponding period in 2005, an increase of $242,296, or 151%. This increase was primarily due to the fact that we were amortizing drydocking expense for a total of two vessels for 9

months and one vessel for three months in the 2006 period, compared to two vessels for three months in the 2005 period.

Interest Expense

We incurred $8.3 million of interest expense in the first nine months of 2006, compared to $2.9 million in the comparable period in 2005. The difference is primarily attributable to larger principal amounts outstanding under our revolving credit facilities in the 2006 period compared to amounts outstanding under our term loan facility and old revolving credit facility in the 2005 period.

Unrealized Swap Loss

In the nine months ended September 30, 2006, we incurred $11.9 million in unrealized swap loss attributable to our interest-rate swap. There was no corresponding loss in the third quarter of 2005 because we did not have any swaps in place at that time. The loss on the swap is due to the decrease in LIBOR, to which the variable-rate portion of the swap is tied, in the third quarter.

Finance Costs

In the first nine months of 2006, we incurred $2.1 million in finance costs, compared to $3.6 million in the corresponding period in 2005. Of the $1.9 million incurred in the 2006 period, $1.8 million was attributable to the unamortized portion of fees paid in connection with our old revolving credit facility. The decrease from the 2005 period was primarily attributable to the lower amount of financing fees written off during the period.

Inflation

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

Liquidity and Capital Resources

Cash and Capital Expenditures

For the three months ended September 30, 2006, we financed our capital requirements primarily from proceeds from a private placement of equity, drawdowns under our new revolving credit facility, and cash from operations. As of September 30, 2006, our cash balance was approximately $14.8 million. We estimate that our cash flow from our charters will be sufficient to fund our working capital requirements for the next twelve months.

We intend to fund our future acquisition-related capital requirements principally through borrowings under our revolving credit facility or equity issuances and to repay all or a portion of such borrowings from time to time with a combination of the net proceeds of equity issuances and cash from operations. We believe that funds will be available from these sources to support our growth strategy, which involves the acquisition of additional vessels. Depending on market conditions in the dry-bulk shipping industry and acquisition opportunities that may arise, we may be required to obtain additional debt or equity financing.

Net cash provided by operating activities was $36.6 million for the nine months ended September 30, 2006, compared to $10.3 million for the period from January 13, 2005 to September 30, 2005. Substantially all our cash from operating activities is generated under our time charters.

Net cash used in investing activities was $432.3 million for the nine months ended September 30, 2006, compared to $344.6 million for the period from January 13, 2005 to September 30, 2005. Of the cash used in investing activities for the 2006 period, $398 million was attributable to the acquisition of vessels during the period. In the 2005 period, nearly all of the cash used in investing activities was used to acquire the vessels purchased in the first nine months of 2005.

Net cash from financing activities was $406.2 million for the nine months ended September 30, 2006, compared to $343.5 million for the period from January 13, 2005 to September 30, 2005. During the 2006 period, we repaid $210 million under our old revolving credit facility from $191 million in proceeds from the issuance of units, consisting of preferred stock and warrants, and $459.5 million of debt and borrowings.

The 2005 period reflects the repayment of approximately $311 million under a revolving credit facility in effect at that time from debt and borrowings of approximately $411.6 million.

Dividends

Our policy is to declare and pay quarterly dividends to shareholders. At its first meeting every year, our board of directors estimates a minimum annualized dividend, to be declared and paid quarterly, which is subject to reduction or elimination under certain circumstances, including restrictions under Marshall Islands law, covenants under our debt instruments, and changing market conditions. For 2006, our Board fixed a minimum annualized dividend of $0.84. The cumulative amount of dividends paid in 2006 is as follows:


	Cumulative
	Amount
	Paid
Common stock dividends paid March 2006	$	5,007,816
Common stock dividends paid May 2006		5,071,130
Common stock dividends paid August 2006		10,440,721
Preferred stock dividends paid August 2006		1,209,263

Total	$	21,728,930

Contractual Obligations and Commercial Commitments

Revolving Credit Facility

General. On July 19, 2006, we, together with our wholly owned subsidiaries, entered into an 8.25 year, $735 million senior secured revolving credit facility, with Fortis Bank N.V./S.A. as arranger. This credit facility replaces our existing credit facility described above.

Security. Our obligations under the credit facility are secured by (i) first priority cross-collateralized mortgages over the vessels; (ii) first priority assignment of all insurances, operational accounts and earnings of the vessels; (iii) first priority pledges over the operating accounts held with the agent, (iv) assignments of existing and future charters for the vessels, and (v) assignments of interest rate swaps.

Interest. Borrowings under the revolving credit facility bear interest at the rate of LIBOR plus 0.85% per annum (until December 31, 2010) and LIBOR plus 1.10% per annum thereafter. The full amount borrowed under the revolving credit facility will mature on September 30, 2014.

Commitment Fee. We pay a commitment fee of 0.45% per annum on the undrawn amount of commitments under the credit facility. This fee is payable quarterly in arrears.

Repayment. The loans do not amortize. Instead, the total available commitments reduce over time according to the following schedule of thirty-two consecutive quarterly permanent commitment reductions with the first such reduction occurring on the earlier of December 31, 2006 and the fiscal quarter ending four months after the delivery of Hull 1375:


Reduction 1 (December 31, 2006)	$	10,000,000
Reductions 2 to 5 (March 30, 2007 through December 31, 2007)	$	11,750,000
Reductions 6 to 17 (March 30, 2008 through December 31, 2010)	$	13,250,000
Reductions 18 to 32 (March 30, 2011 through September 30, 2014)	$	15,000,000

Conditions. We are subject to customary conditions precedent before we may borrow under the facility, including that no event of default is ongoing or would result from the borrowing, that our representations and warranties are true and that no material adverse change has occurred.

Financial Covenants. The loan agreement also requires us to comply with the following financial covenants:

	•		maintenance of fair market value of ship collateral equal to at least 115% of the outstanding loans (until December 31, 2010) and 125% of the outstanding loans thereafter;

	•		maintenance of an interest coverage ratio of not less than 2.0 to 1;

	•		maintenance of a leverage ratio (total debt to market adjusted total assets) of no greater than 0.75 to 1;

	•		maintenance of market value adjusted net worth of at least $200,000,000; and

	•		maintenance of minimum liquidity (cash or time deposits plus available credit line) of $550,000 per ship increasing to $741,000 per ship in 8 quarterly adjustments starting April 1, 2009.

Restrictive Covenants. The facility contains customary restrictive covenants.

Use of Borrowings. The Company may use borrowings under the loan agreement to (i) refinance the debt outstanding under the existing credit facility, (ii) partially finance the acquisition cost of seventeen new vessels that the Company has contracted to acquire, (iii) finance part of the acquisition cost of other additional vessels, which acquisitions are subject to approval of the facility agent and the satisfaction of certain other conditions on the vessels, and (iv) finance up to $20 million of working capital. In addition, the Company was permitted to draw down under the facility to pay down the old revolving credit facility. We may not use borrowings to pay dividends.

Events of Default. The loan agreement contains customary events of default, including nonpayment of principal or interest, breach of covenants or material inaccuracy of representations, default under other material indebtedness, bankruptcy, and change of control. We are not permitted to pay dividends if an event of default has occurred or if the payment of such dividend would result in an event of default.

Shelf Registration Statement

On June 19, we filed a resale registration statement on Form S-1 with the Securities and Exchange Commission, registering 2,045,558 units, 2,045,558 shares of 12% Mandatorily Convertible Preferred Stock, and 8,182,232 Class A Warrants. Subsequent to the conversion of the preferred stock and the Company’s eligibility to file a registration statement on Form S-3, this registration was amended to be filed on Form S-3 and cover only the warrants and the common stock issued upon conversion of the preferred stock and issuable upon exercise of the warrants. This registration statement registers securities on behalf of third parties, and we will not receive any proceeds from the sales of these securities. On September 20, 2006, this registration statement was declared effective by the SEC.

Contractual Obligations

The following table sets forth our expected contractual obligations and their maturity dates as of September 30, 2006.


					Three		More
	Within		One to		Years to		Than
	One		Three		Five		Five
	Year		Years		Years		Years		Total
	(in thousands)
Revolving credit facility.	$	45,250	$	157,500	$	118,250	$	138,500	$	459,500
Acquisition of vessels		306,000		—		—		—		306,000
Office lease(1)		219		37		—		—		256

Total	$	351,469	$	157,537	$	118,250	$	138,500	$	765,756


(1)		Represents the U.S. Dollar equivalent of lease payments in Euros as calculated in accordance with the rate of $1.27 to €1.00 as of September 30, 2006. Such rate was $1.28 to €1.00 as of November 1, 2006. Our office lease has a two-year term.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies

Information regarding the Company’s Critical Accounting Policies is included in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

Risks Related to our Business

	•		Because we are a new company with a limited operating history, we may be less successful in implementing our business strategy than a more seasoned company.

	•		We cannot assure you that our board of directors will declare dividends.

	•		Our earnings may be adversely affected if we do not successfully employ our vessels on medium- or long-term time charters or take advantage of favorable opportunities in the spot market.

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

	•		We cannot assure you that we will be able to borrow further amounts under our revolving credit facility, which we may need to fund the acquisition of additional vessels.

	•		Restrictive covenants in our revolving credit facility impose, and any future debt facilities will impose, financial and other restrictions on us.

	•		Servicing future indebtedness would limit funds available for other purposes, such as the payment of dividends.

	•		Unless we set aside reserves for vessel replacement, at the end of a vessel’s useful life our revenue will decline, which would adversely affect our cash flows and income.

	•		Purchasing and operating secondhand vessels may result in increased operating costs and reduced fleet utilization.

	•		When our time charters end, we may not be able to replace them promptly or with profitable ones.

	•		Charterers may default on time charters that provide for above-market rates.

	•		Contracts of affreightment may result in losses.

	•		The international dry-bulk shipping industry is highly competitive, and we may not be able to compete successfully for charters with new entrants or established companies with greater resources.

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

	•		Risks associated with operating oceangoing vessels could negatively affect our business and reputation, which could adversely affect our revenues and stock price.

	•		The operation of dry-bulk carriers has certain unique operational risks.

	•		Our vessels may suffer damage and we may face unexpected costs, which could adversely affect our cash flow and financial condition.

	•		The shipping industry has inherent operational risks that may not be adequately covered by our insurance.

	•		If we acquire additional dry-bulk carriers and those vessels are not delivered on time or are delivered with significant defects, our earnings and financial condition could suffer.

	•		We may earn United States source income that is subject to tax, thereby reducing our earnings.

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

	•		The enactment of proposed legislation could affect whether dividends paid by us constitute qualified dividend income eligible for a preferential rate of federal income taxation.

	•		Because we expect to generate all of our revenues in U.S. dollars but may incur a portion of our expenses in other currencies, exchange rate fluctuations could hurt our results of operations.

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

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

	•		As we expand our business, we may need to improve our operating and financial systems and will need to recruit suitable employees and crew for our vessels.

	•		The international dry-bulk shipping sector is extremely cyclical and volatile; these factors may lead to reductions and volatility in our charter hire rates, vessel values and results of operations.

	•		Charter hire rates in the dry-bulk sector are above historical averages and future growth will depend on continued economic growth in the world economy that exceeds the capacity of the growing world fleet’s ability to match it.

	•		We may not be able to draw down the full amount under our revolving credit facility if the market value of our vessels declines.

	•		We may breach some of the covenants under our revolving credit facility if the market price of our vessels, which are above historical averages, declines.

	•		Our substantial operations outside the United States expose us to political, governmental and economic instability, which could harm our operations.

	•		Seasonal fluctuations in industry demand could adversely affect our operating results and the amount of available cash with which we can pay dividends.

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

	•		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.

	•		Maritime claimants could arrest one or more of our vessels, which could interrupt our cash flow.

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

	•		Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.

	•		An economic slowdown in Asia could have a material adverse effect on our business, financial position and results of operations.

	•		World events could affect our results of operations and financial condition.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rates

Effective July 1, 2006, we entered into a swap transaction with respect to our revolving credit facility. Because the revolving credit facility provided for variable-rate interest, management determined that an interest-rate swap would best protect the Company from interest-rate risk on amounts outstanding under its revolving credit facility. This swap effectively insulates us from interest-rate risk relating to the floating rates payable under the facility until December 31, 2010, as we are required to pay a fixed rate of 5.135%, exclusive of spread due our

lenders. On December 31, 2010, the counterparty to the swap may exercise an option to lock our fixed rate at 5.00% through June 30, 2014. If the counterparty does not exercise this option, we will be exposed to market rates at that time.

We may have sensitivity to interest rate changes with respect to future debt facilities.

Currency and Exchange Rates

We expect to generate all of our revenue in U.S. Dollars. The majority of our operating expenses and management expenses are in U.S. Dollars, and we expect to incur up to approximately 20% of our operating expenses in currencies other than U.S. Dollars. This difference could lead to fluctuations in net income due to changes in the value of the U.S. Dollar relative to other currencies.

We have entered into the following forward currency exchange contracts:


Contract Date	Notional Amount (€)		For Value	Rate ($/€)
September 26, 2006		1,000,000	March 26, 2007		1.2800
September 29, 2006		1,000,000	December 29, 2006		1.2745
October 6, 2006		1,000,000	June 29, 2007		1.2795
October 10, 2006		1,000,000	September 28, 2007		1.2725

In the future, we may enter into additional financial derivatives to mitigate the risk of exchange rate fluctuations.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, summarized and processed within time periods specified in the SEC’s rules and forms. As of the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon this evaluation, our chief executive officer and our chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.

During the last fiscal quarter, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We have not been involved in any legal proceedings which may have, or have had a significant effect on our business, financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.

Legal Proceedings Related to Mr. Molaris

A private individual has filed a complaint with the public prosecutor of the Athens Magistrates Court against Mr. Molaris and four others relating to allegations that, while Mr. Molaris was employed by Stelmar Shipping Ltd., they conspired to defraud the individual of a brokerage fee of €1.2 million purportedly owed by a shipyard in connection with the repair of a Stelmar vessel. Mr. Molaris believes the complaint is without merit and is vigorously contesting these allegations. The prosecutor has referred the matter to a Greek judge for further investigation. The judge will determine whether the claim has sufficient merit to forward the matter on to a court for adjudication. We have been advised that an independent committee of the board of directors of Stelmar conducted an inquiry into these allegations and found no evidence to support them.

Item 1A. Risk Factors

In addition to the risk factors described below, please see Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors.”

Risks Related to the Acquisition

Our substantial debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

Following the completion of the acquisition of all 17 of our new vessels, we will have substantial indebtedness. We expect that upon the delivery of our contracted fleet of new vessels we will have approximately $735 million of indebtedness outstanding under our new revolving credit facility, and we will be a substantially more highly leveraged company than we have been historically. We also expect to incur more indebtedness in connection with future acquisitions. Our high level of debt could have important consequences to us, including the following:

	•		our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

	•		we may need to use a substantial portion of our cash from operations to make principal and interest payments on our debt, reducing the funds that would otherwise be available for operations, future business opportunities and dividends to our shareholders;

	•		our debt level could make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and

	•		our debt level may limit our flexibility in responding to changing business and economic conditions.

Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing dividends, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms, or at all.

As we expand our business, we may need to improve our operating and financial systems and expand our commercial and technical management staff, and will need to recruit suitable employees and crew for our vessels.

Our current operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet, and attempts to improve those systems may be ineffective. In addition, as we expand our fleet, we will need to recruit suitable additional administrative and management personnel. We cannot guarantee that we will be able to continue to hire suitable employees as we expand our fleet. If we encounter business or financial difficulties, we may not be able to adequately staff our vessels. If we are unable to grow our financial and operating systems or to recruit suitable employees as we expand our fleet, our financial performance may be adversely affected and, among other things, the amount of cash available for dividends to our shareholders may be reduced.

Our acquisition of the new vessels is subject to a number of conditions, which may delay our receipt of revenues.

We have entered into memoranda of agreement with affiliates of Metrobulk for the purchase of 17 vessels. To date, 10 of these vessels have been delivered. However, the consummation of the acquisition of the remaining vessels is subject to a number of conditions. We cannot guarantee whether or when all the conditions to the acquisition will be satisfied or waived, permitting the acquisition to be consummated when and as currently contemplated. The failure to consummate the acquisition when and as currently contemplated would delay our receipt of revenues under the time charters for the new vessels, and therefore materially and adversely affect our results of operations and financial condition.

Delays in deliveries of newbuildings to be purchased in the acquisition could materially and adversely harm our operating results.

As part of the Metrobulk acquisition, we have agreed to purchase six newbuildings that are scheduled to be delivered at various times over approximately the next six months. The delivery of these vessels could be delayed, which would delay our receipt of revenues under the time charters for these vessels, and thereby adversely affect our results of operations and financial condition.

The delivery of the newbuildings could be delayed because of:

	•		work stoppages or other labor disturbances or other event that disrupts the operations of the shipbuilder;

	•		quality or engineering problems;

	•		changes in governmental regulations or maritime self-regulatory organization standards;

	•		lack of raw materials;

	•		bankruptcy or other financial crisis of the shipbuilder;

	•		a backlog of orders at the shipbuilder;

	•		hostilities, political or economic disturbances in the country where the vessels are being built;

	•		weather interference or catastrophic event, such as a major earthquake or fire;

	•		our requests for changes to the original vessel specifications;

	•		shortages of or delays in the receipt of necessary construction materials, such as steel;

	•		our inability to obtain requisite permits or approvals; or

	•		a dispute with the shipbuilder.

In addition, the shipbuilding contracts for the new vessels contains a “force majeure” provision whereby the occurrence of certain events could delay delivery or possibly terminate the contract. If delivery of a vessel is materially delayed or if a shipbuilding contract is terminated, it could adversely affect our results of operations and financial condition and our ability to pay dividends to our shareholders.

In addition, while we will purchase the vessels from Metrobulk or its affiliates, Metrobulk is itself not in direct privity with the shipyard with respect to several of the newbuildings. Accordingly, neither the sellers nor we may be

in a position to fully monitor the progress of the newbuildings or the compliance of the construction with expected specifications.

Problems in the delivery of the secondhand vessel to be purchased in the acquisition could materially and adversely affect our operating results.

With respect to the delivery of Iron Knight, the remaining secondhand vessel we have contracted to purchase in the acquisition, certain events may arise which result in us not taking delivery of the vessel, such as a total loss of a vessel, a constructive loss of the vessel, or substantial damage to the vessel prior to delivery. In addition, the delivery of this vessel with substantial defects could have similar consequences. We intend to conduct only a limited inspection of this vessel. Any of these events could reduce our receipt of revenues under the time charters for this vessel, and thereby materially and adversely affect our results of operation and financial condition.

We cannot assure you that we will be able to borrow adequate amounts under our new revolving credit facility.

Our ability to borrow amounts under our credit facility is subject to the execution of customary documentation relating to the facility, including security documents, satisfaction of certain customary conditions precedent and compliance with terms and conditions included in the loan documents. There are restrictions on the amount that can be advanced to us under the revolving credit facility based on the market value of the vessel or vessels in respect of which the advance is being made and, in certain circumstances, based additionally on the capacity of the vessel, and the price at which we acquired the vessel and other factors. Prior to each drawdown, we will be required, among other things, to meet specified financial ratios and other requirements. To the extent that we are not able to satisfy these requirements, we may not be able to draw down the full amount under our revolving credit facility. We may be required to prepay amounts borrowed under our new revolving credit facility if we experience a change of control.

Restrictive covenants in our new revolving credit facility impose financial and other restrictions on us, including our ability to pay dividends.

The new revolving credit facility we entered into on July 19, 2006 imposes operating and financial restrictions on us and requires us to comply with certain financial covenants. These restrictions and covenants may limit our ability to, among other things:

	•		pay dividends if an event of default has occurred and is continuing under our new revolving credit facility or if the payment of the dividend would result in an event of default;

	•		incur additional indebtedness, including through the issuance of guarantees;

	•		change the flag, class or management of our vessels;

	•		create liens on our assets;

	•		sell our vessels without replacing such vessels or prepaying a portion of our loan;

	•		merge or consolidate with, or transfer all or substantially all our assets to, another person; or

	•		change our business.

Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours and we cannot guarantee that we will be able to obtain our lenders’ consent when needed. If we do not comply with the restrictions and covenants in our proposed revolving credit facility, we will not be able to pay dividends to you, finance our future operations, make acquisitions or pursue business opportunities.

We will derive all of our revenues with respect to the Metrobulk vessels from one charterer, and the loss of this charterer or any time charter or any vessel could result in a significant loss of revenues and cash flow.

Bunge and its affiliates initially will be the only charterer of the Metrobulk vessels. As a result, Bunge’s payments to us will be our sole source of operating cash flow from these vessels over the term of the governing master time charter expiring December 31, 2010. After we acquire the vessels, Bunge and its affiliates will account for a substantial majority of our revenues. Bunge therefore will have a substantial amount of leverage in any discussions or disputes it may have with us, which it may choose to exercise to our disadvantage. Because most of the time charters with Bunge provide for annual rate determinations within an agreed rate structure during certain

periods, Bunge may have the opportunity to apply such leverage to such rate determinations. In addition, at any given time in the future, if Bunge were to experience financial difficulties, we cannot assure you that Bunge would be able to make charter payments to us or make them at the levels provided for in our master time charter with Bunge. If Bunge is unable to make charter payments to us, or makes them at a significantly lower level than we expect, our results of operations and financial condition will be materially adversely affected.

We could lose Bunge or another party as a charterer or the benefits of a time charter if:

	•		the charterer fails to make charter payments to us;

	•		the vessel is off-hire for more than 20 days in any year for reasons other than drydocking required to maintain a vessel’s status with its classification society; or

	•		we are unable to reach an agreement in advance with Bunge on the level of charter hire to be paid to us within a specified daily hire rate range in any year.

If we lose a time charter, we may be unable to re-deploy the related vessel on terms as favorable to us as in the original time charter. In the worst case, we may not receive any revenues from that vessel, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition.

The loss of any of our charterers, time charters or vessels, or a decline in payments under our charters, could have a material adverse effect on our business, results of operations and financial condition and our ability to pay dividends to our shareholders.

We initially will depend on Bunge, which is an agribusiness, for all of our revenues from the Metrobulk vessels and therefore we are exposed to risks in the agribusiness market.

Bunge and its affiliates initially will charter all of the vessels acquired from Metrobulk. Accordingly, our business will be exposed to all the economic and other risks inherent in the agribusiness market. Changes in the economic, political, legal and other conditions in agribusiness could adversely affect our business and results of operations. Based on Bunge’s filings with the SEC, these risks include the following, among others:

The availability and demand for the agricultural commodities and agricultural commodity products that Bunge uses and sells in its business can be affected by weather, disease and other factors beyond its control.

	•		Bunge is vulnerable to cyclicality in the oilseed processing industry.

	•		Bunge is vulnerable to increases in raw material prices.

	•		Bunge is subject to economic and political instability and other risks of doing business globally and in emerging markets.

Deterioration in Bunge’s business as a result of these or other factors could have a material adverse impact on Bunge’s ability to make timely charter hire payments to us and to renew its time charters with us. This could have a material adverse impact on our financial condition and results of operations.

Most of the Bunge charters provide for daily hire rates beginning in 2007 that are to be negotiated within specified ranges, which may result in lower-than-expected revenues for certain vessels.

The Bunge master charter agreement provides for daily hire rates beginning in 2007 that are to be negotiated within specified ranges. To date, rates have been negotiated for 2007, but if the actual daily hire rate for one or more vessels were below expected rates in future periods, our results of operations could be materially and adversely affected. The Bunge master charter agreement also provides that in the event the parties are unable to reach agreement in respect of rates for the following year, the contract will be automatically terminated. If any such termination occurred, particularly during a depressed charter hire market, we may be unable to rehire the applicable vessels at favorable rates or at all, and our results of operations may be materially and adversely affected.

We may sell one or more of the 17 drybulk vessels that we have recently purchased or have agreed to purchase in the acquisition and forego any anticipated revenues and cash flows from operating any of the vessels we sell.

While we have purchased 10 vessels in the acquisition and intend to purchase an additional 7 drybulk vessels in the acquisition, attractive opportunities may arise to sell one or more of these vessels while they are under construction or after they are delivered. We will review any such opportunity and may conclude that the sale of one

or more vessels would be in our best interests. If we sell a vessel, we would forego any anticipated revenues and anticipated cash flows from operating the vessel over its useful life.

Risks Relating to the Warrants

Future sales of our common stock may result in a decrease in the market price of our common stock, even if our business is doing well.

The market price of our common stock could decline due to the issuance and subsequent sales of a large number of shares of our common stock in the market or the perception that such sales could occur following the exercise of the warrants. This could make it more difficult to raise funds through future offerings of common stock or securities convertible into common stock.

We had outstanding 49,713,354 shares of our common stock, based on the number of shares of common stock outstanding as of September 30, 2006. Assuming an exercise of the warrants to purchase common stock, we would have an additional 8,182,232 shares of common stock outstanding or a total of 57,895,586 shares of common stock, all of which may be resold in the public market.

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

On August 11, 2006, all 2,045,558 shares of the Company’s outstanding shares of 12% Mandatorily Convertible Preferred Stock were automatically converted into shares of the Company’s common stock at a ratio 12.5 common shares per preferred share. Under the terms of the Statement of Designation governing the preferred stock, the preferred stock was automatically converted into common stock upon an affirmative vote of common shareholders approving a conversion. This affirmative vote was obtained at a Special Meeting of Stockholders on August 11, 2006.

As a result of the conversion, 24,569,462 shares of common stock were issued to the former holders of preferred stock. No consideration was received by the Company as a part of the conversion. In addition, the Company paid no commission or other remuneration to solicit the conversion; accordingly, the conversion was exempt from registration under Section 3(a)(9) of the Securities Act of 1933.

Item 4. Submission of Matters to a Vote of Security Holders

We held a special meeting of stockholders on August 11, 2006, in Calgary, Alberta, Canada. The proposal presented for approval at the meeting was:

	•		The conversion of the Company’s 12% Mandatorily Convertible Preferred Stock into shares of common stock;

	•		The exercisability of the 8,182,232 Class A Warrants to purchase shares of the Company’s common stock; and

	•		The issuance of shares of the Company’s common stock upon conversion of the shares of Preferred Stock and the exercise of the Warrants.

As of the record date of the meeting, 24,148,242 shares of common stock were outstanding, and 15,529,097 shares were voted. The proposal was approved. 15,259,859 shares voted in favor of the proposal, 55,857 shares voted against the proposal, and 213,381 shares abstained.

Item 6. Exhibits


Exhibit
No.			Description
	3.1*	—	Amended and Restated Articles of Incorporation
	3.2	—	Articles of Amendment of Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Company on August 17, 2006)
	3.3*	—	Amended and Restated By-laws
	4.1*	—	Form of Share Certificate
	4.2**	—	Form of Unit Certificate
	4.3**	—	Form of Preferred Stock Certificate
	4.4**	—	Form of Warrant
	4.5**	—	Statement of Designations
	4.6**	—	Warrant Agreement
	10.1*	—	Agreement Related to Credit Facility
	10.2*	—	First Supplemental Agreement to US$262,456,000 Credit Facility
	10.3*	—	Second Supplemental Agreement to US$262,456,000 Credit Facility
	10.4*	—	Registration Rights Agreement
	10.5**	—	Memorandum of Agreement for purchase of Bulk One
	10.6**	—	Memorandum of Agreement for purchase of Bulk Two
	10.7**	—	Memorandum of Agreement for purchase of Bulk Three
	10.8**	—	Memorandum of Agreement for purchase of Bulk Four
	10.9**	—	Memorandum of Agreement for purchase of Bulk Five
	10.10**	—	Memorandum of Agreement for purchase of Bulk Six
	10.11**	—	Memorandum of Agreement for purchase of Bulk Seven
	10.12**	—	Memorandum of Agreement for purchase of Bulk Eight


Exhibit
No.			Description
	10.13**	—	Memorandum of Agreement for purchase of Kamsarmax H.1373
	10.14**	—	Memorandum of Agreement for purchase of Kamsarmax H.1374
	10.15**	—	Memorandum of Agreement for purchase of Kamsarmax H.1375
	10.16**	—	Memorandum of Agreement for purchase of Kamsarmax H.1394
	10.17**	—	Memorandum of Agreement for purchase of Kamsarmax H.1395
	10.18**	—	Memorandum of Agreement for purchase of Kamsarmax H.1357
	10.19**	—	Memorandum of Agreement for purchase of Kamsarmax H.1358
	10.20**	—	Memorandum of Agreement for purchase of Kamsarmax H.1396
	10.21**	—	Memorandum of Agreement for purchase of Kamsarmax H.1359
	10.22**	—	Master Time Charter Party and Block Agreement dated November 21, 2005
	10.23**	—	Novation Agreement
	10.24*	—	2005 Stock Incentive Plan
	10.25	—	Form of Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to
			Current Report on Form 8-K filed January 13, 2006)
	10.26	—	Form of Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed January 13, 2006)
	10.27	—	Revolving Credit Facility (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed October 6, 2005)
	10.28	—	Services Agreement between Quintana Maritime Limited and Quintana Minerals Corporation, dated as of October 31, 2005 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed November 3, 2005)
	10.29	—	Loan Agreement ($735 million revolving credit facility) (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on July 24, 2006)
	31.1***	—	Certification pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 by Chief Executive Officer.
	31.2***	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.
	32.1****	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.
	32.2****	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.


*		Incorporated by reference to the Company’s Registration Statement filed on Form S-1 (File No. 333-124576) with the Securities and Exchange Commission on July 14, 2005.

**		Incorporated by reference to Amendment No. 1 to the Company’s Registration Statement filed on Form S-1 (File No. 333-135309) with the Securities and Exchange Commission on July 21, 2006

***		Filed herewith

****		Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 9th day of November 2006.


	QUINTANA MARITIME LIMITED
	By:	/s/ Stamatis Molaris
		Stamatis Molaris
		Chief Executive Officer, President and Director (Principal Executive Officer)


	/s/ Paul J. Cornell
	Paul J. Cornell
	Chief Financial Officer (Principal Financial Officer; Principal Accounting Officer)

EXHIBIT INDEX


Exhibit
Number		Description
31.1***	—	Certification pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 by Chief Executive Officer.
31.2***	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.
32.1****	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.
32.2****	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.