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EX-32.1 - III TO I MARITIME PARTNERS CAYMAN I LPv224278_ex32-1.htm
EX-31.2 - III TO I MARITIME PARTNERS CAYMAN I LPv224278_ex31-2.htm
EX-32.2 - III TO I MARITIME PARTNERS CAYMAN I LPv224278_ex32-2.htm
EX-31.1 - III TO I MARITIME PARTNERS CAYMAN I LPv224278_ex31-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q/A
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
 
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from           to
Commission File Number 000-53656

III to I Maritime Partners Cayman I, L.P.
(Exact name of registrant as specified in its charter)
 
Cayman Islands
 
98-0516465
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
5580 Peterson Lane
Suite 155
Dallas, Texas
 
75240
(Address of principal executive offices)
 
(Zip Code)
 
(972) 392-5400
(Registrant’s telephone number, including area code)
 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.x Yes  ¨ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).¨ Yes  ¨ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer   ¨ (Do not check if a smaller reporting company)
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes x  No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
¨ Yes  ¨ No

APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 
 

 
 
Explanatory Note
 
This Amendment No. 1 (“Amendment”) on Form 10-Q/A amends the Periodic Report of III to I Maritime Partners Cayman I, LP (the Company) on Form 10-Q for the period ended September 30, 2010 as filed with the Securities and Exchange Commission on November 15, 2010 (the “Original Filing”). This Amendment is being filed to amend the following:
 
·
Part I, Item 1. Financial Statements
 
·
Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Amendment restates our financial statements in their entirety to reflect a change in the presentation of our forward currency exchange contracts designated for hedge accounting due to a change in their effectiveness under FASB ASC 815, Derivatives and Hedging.  Our testing initially showed the contracts to be effective, however, our revised analysis at year end found that effective April 1, 2010, the contracts were ineffective and therefore had ceased to qualify for hedge accounting under FASB ASC 815, Derivatives and Hedging.  Therefore, the contracts have been accounted for as contracts not designated for hedge accounting as of that date, with subsequent changes in the value of the unmatured contracts shown in our statement of operations rather than in accumulated other comprehensive income (loss).  The restated information is shown in Footnote 2, Restatement of September 30, 2010 Consolidated Financial Statements.  The change affected accumulated other comprehensive income (loss) on our Balance Sheet as of September 30, 2010 and our Statements of Operations for the three and nine months ended September 30, 2010, and our Statements of Equity, Cash Flows, and Comprehensive Income (Loss) for the nine months ended September 30, 2010 changed as a result.

As a result of these changes, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, changed to reflect the restated results of operations.

Except as stated herein, this Form 10-Q/A does not reflect events occurring after the Original Filing on November 15, 2010 and no attempt has been made in this Periodic Report on Form 10-Q/A to modify or update other disclosures as presented in the Original Filing. Accordingly, this Form 10-Q/A should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Filing.

 
2

 

 III TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 
INDEX
 
       
Page
Number
   
Forward-Looking Statements
 
4
PART I.
 
Financial Information
 
5
Item 1.
 
Financial Statements
 
5
   
Consolidated Balance Sheets as of September 30, 2010 (unaudited, restated) and December 31, 2009
 
5
   
Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (unaudited, restated)
 
6
   
Consolidated Statement of Equity as of September 30, 2010 (unaudited, restated)
 
7
   
Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited, restated)
 
8
   
Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2010 and 2009 (unaudited, restated)
 
9
   
Notes to Consolidated Financial Statements (unaudited, restated)
 
10
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
35
Item 4.
 
Controls and Procedures
 
55
PART II.
 
Other Information
 
56
Item 1.
 
Legal Proceedings
 
56
Item 1A.
 
Risk Factors
 
56
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
56
Item 6.
 
Exhibits
 
57

 
3

 

Forward-Looking Statements

Certain statements contained or incorporated by reference in this Form 10-Q including without limitation statements containing the words “believe,” “anticipate,” “attainable,” “forecast,” “will,” “may,” “expect(ation),” “envision,” “project,” “budget,” “objective,” “goal,” “target(ing),” “estimate,” “could,” “should,” “would,” “conceivable,” “intend,” “possible,” “prospects,” “foresee,” “look(ing) for,” “look to,” and words of similar import, are forward-looking statements within the meaning of the federal securities laws.  Forward-looking statements appear in a number of places and include statements with respect to, among other things:

 
·
forecasts about our ability to make cash distributions on the units;
 
·
planned capital expenditures and availability of capital resources to fund capital expenditures;
 
·
future supply of, and demand for, products that will be shipped, supplied or otherwise supported by our vessels;
 
·
expected demand in the maritime shipping industry in general and for our vessels in particular;
 
·
our ability to maximize the use of our vessels;
 
·
estimated future capital maintenance expenditures;
 
·
the absence of future disputes or other disturbances;
 
·
increasing emphasis on environmental and safety concerns;
 
·
our future financial condition or results of operations and our future revenues and expenses;
 
·
our business strategy and other plans and objectives for future operations; and
 
·
any statements contained herein that are not statements of historical fact.

These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions.  Accordingly, our actual results or performance may differ significantly, positively or negatively, from forward-looking statements.  Unanticipated events and circumstances are likely to occur.  Important factors that could cause our actual results of operations or financial condition to differ include, but are not limited to:

 
·
inability to raise sufficient capital;
 
·
fluctuations in charter rates or operating expenses;
 
·
insufficient cash or losses from operations;
 
·
inability to achieve or maintain sufficient utilization of our vessels to cover debt service payments and operating expenses;
 
·
intense competition in the anchor handling tug supply ship or multipurpose bulk carrier industries;
 
·
the occurrence of marine accidents or other hazards;
 
·
fluctuations in currency exchange rates and/or interest rates;
 
·
changes in international trade agreements;
 
·
adverse developments in the marine transportation business; and
 
·
other financial, operational and legal risks and uncertainties detailed from time to time in our Securities and Exchange Commission filings, including those set forth in our Annual Statement on Form 10-K for the year ended December 31, 2009, under Item 1A. Risk Factors.

All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.  The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 
4

 

PART I.  Financial Information

Item 1.  Financial Statements
 
III TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
(Restated)
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
             
ASSETS
           
Cash
  $ 3,390,220     $ 18,267,260  
Cash held in escrow
    25,000       -  
Related party receivables
    145,403       1,949,363  
Due from charterers
    9,573,450       3,263,009  
Other receivables
    352,693       28,788  
Prepaid assets
    89,406       214,490  
Current derivative assets
    41,482       2,773,820  
Other current assets
    897,037       1,142,499  
Current assets
    14,514,691       27,639,229  
                 
Vessels
    516,058,359       168,478,062  
Vessel construction in progress
    -       111,152,161  
On board equipment
    19,220,635       11,912,779  
      535,278,994       291,543,002  
Less accumulated depreciation
    (18,927,344 )     (5,003,164 )
Vessels and equipment, net
    516,351,650       286,539,838  
                 
Investment in unconsolidated entities
    2,231,825       2,977,432  
Deferred loan fees, net
    3,182,138       3,554,818  
Derivative assets, net of current portion
    35,943       2,797,433  
Long-term related party receivable
    909,723       -  
Other assets
    -       207  
Total assets
  $ 537,225,970     $ 323,508,957  
                 
LIABILITIES AND EQUITY
               
Accounts payable and other accrued liabilities
  $ 7,712,177     $ 15,400,959  
Vessel construction installments payable
    -       65,019,372  
Accrued interest payable
    2,710,928       173,608  
Due to related party
    1,731,274       852,663  
Unaccepted equity contributions
    25,000       -  
Current derivative liabilities
    11,044,138       4,522,274  
Current portion of long-term debt
    35,779,986       17,858,391  
Current portion of note payable to related party
    449,000       -  
Current liabilities
    59,452,503       103,827,267  
                 
Long-term derivative liabilities
    21,591,939       5,007,963  
Long-term payable to related party
    2,382,100       -  
Notes payable to related party
    -       477,500  
Long-term debt, net of current portion
    419,539,299       140,527,679  
Total liabilities
    502,965,841       249,840,409  
                 
Commitments and contingencies
               
                 
III to I Maritime Partners Cayman I, L.P. partners' equity:
               
General partner
    107,499       514,138  
Class A limited partners (units issued and outstanding:
               
September 30, 2010 - 615,885, December 31, 2009 - 612,244)
    11,595,884       36,459,320  
Class B limited partners (units issued and outstanding:
               
September 30, 2010 - 84,313, December 31, 2009 - 84,313)
    1,325,978       4,789,036  
Class D limited partners (units issued and outstanding:
               
September 30, 2010 - 2,000, December 31, 2009 - 2,000)
    (187,402 )     (105,253 )
Accumulated other comprehensive (loss) income
    (2,144,002 )     6,456,857  
III to I Maritime Partners Cayman I, L.P. partners' equity
    10,697,957       48,114,098  
Non-controlling interest
    23,562,172       25,554,450  
Total equity
    34,260,129       73,668,548  
                 
Total liabilities and equity
  $ 537,225,970     $ 323,508,957  

See Notes to Consolidated Financial Statements.

 
5

 

III TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
 
(Restated)
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Time charter revenue
  $ 17,283,060     $ 5,886,791     $ 38,366,324     $ 11,105,681  
                                 
Operating expenses:
                               
Vessel operating expenses
    13,489,401       3,692,518       29,849,970       7,894,193  
Depreciation expense
    6,595,787       1,485,303       13,715,739       2,573,269  
Professional fees
    725,177       549,205       1,756,675       2,489,317  
Brokerage and representation fees
    -       232,408       -       560,533  
Other operating expenses
    415,255       197,167       1,222,508       430,250  
Total operating expenses
    21,225,620       6,156,601       46,544,892       13,947,562  
                                 
Operating loss
    (3,942,560 )     (269,810 )     (8,178,568 )     (2,841,881 )
                                 
Other income (expense):
                               
Interest income
    168,851       70,387       279,103       935,719  
Gain on extinguishment of debt
    -       -       5,300,000       -  
Interest expense
    (6,284,217 )     (563,937 )     (12,180,947 )     (2,404,448 )
Net loss on interest rate swaps
    (3,375,998 )     (6,199,724 )     (22,293,395 )     (9,767,863 )
Foreign currency transaction gain (loss)
    6,176,852       407,429       (572,099 )     180,601  
Equity in loss of unconsolidated entities
    (287,570 )     (284,897 )     (576,484 )     (593,926 )
Total other expense
    (3,602,082 )     (6,570,742 )     (30,043,822 )     (11,649,917 )
                                 
Net loss
    (7,544,642 )     (6,840,552 )     (38,222,390 )     (14,491,798 )
Net loss attributable to the non-controlling interest
    1,503,159       1,344,176       9,896,321       2,331,361  
Net loss attributable to III to I Maritime Partners Cayman I, L.P.
    (6,041,483 )     (5,496,376 )     (28,326,069 )     (12,160,437 )
Less general partner interest in net loss
    (84,104 )     (78,078 )     (394,739 )     (176,520 )
Limited partner interest in net loss
  $ (5,957,379 )   $ (5,418,298 )   $ (27,931,330 )   $ (11,983,917 )
                                 
Net loss per general partner unit:
                               
Basic and diluted
  $ (8.50 )   $ (7.89 )   $ (39.87 )   $ (17.83 )
Weighted average general partner units outstanding
    9,900       9,900       9,900       9,900  
                                 
Net loss per limited partner unit:
                               
Basic and diluted
  $ (8.50 )   $ (7.89 )   $ (39.87 )   $ (17.83 )
Weighted average limited partner units outstanding
    701,251       687,016       700,527       672,125  

See Notes to Consolidated Financial Statements.

 
6

 

III TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF EQUITY
 
(Unaudited)
 
(Restated)
 
    
III to I Maritime Partners Cayman I, L.P.
             
                           
Accumulated
             
         
Class A
   
Class B
   
Class D
   
Other
             
   
General
   
Limited
   
Limited
   
Limited
   
Comprehensive
   
Non-controlling
       
   
Partner
   
Partners
   
Partners
   
Partners
   
Income (Loss)
   
Interest
   
Total
 
Balance at December 31, 2009
  $ 514,138     $ 36,459,320     $ 4,789,036     $ (105,253 )   $ 6,456,857     $ 25,554,450     $ 73,668,548  
                                                         
Contributions, net of syndication costs
    (11,900 )     (373,566 )     (101,342 )     (2,405 )     -       10,514,036       10,024,823  
                                                         
Net loss
    (394,739 )     (24,489,870 )     (3,361,716 )     (79,744 )     -       (9,896,321 )     (38,222,390 )
                                                         
Forward currency exchange contracts
    -       -       -       -       (4,364,058 )     (1,454,686 )     (5,818,744 )
                                                         
Foreign currency translation adjustment
    -       -       -       -       (4,236,801 )     (1,155,307 )     (5,392,108 )
                                                         
Balance at September 30, 2010
  $ 107,499     $ 11,595,884     $ 1,325,978     $ (187,402 )   $ (2,144,002 )   $ 23,562,172     $ 34,260,129  
                                                         
See Notes to Consolidated Financial Statements.

 
7

 

III TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
(Restated)
 
   
Nine Months Ended September 30,
 
   
2010
   
2009
 
             
Operating activities:
           
Net loss
  $ (38,222,390 )   $ (14,491,798 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
               
Depreciation
    13,715,739       2,573,269  
Amortization of deferred loan fees
    187,565       24,467  
Foreign currency transaction (gain) loss
    (686,167 )     1,775,465  
Net gain on forward currency exchange contracts
    1,002,874       (1,956,066 )
Net loss on interest rate swaps
    22,293,395       9,767,864  
Settlement of hedge instruments
    255,392       -  
Gain on extinguishment of debt
    (5,300,000 )     -  
Equity in loss of unconsolidated entities
    576,484       593,926  
Payment of interest on Berenberg Facility
    -       (4,109,718 )
Changes in assets and liabilities:
               
Due from charterers
    (6,474,582 )     (2,205,941 )
Other receivables
    (325,354 )     174,079  
Prepaid and other assets
    302,930       (542,572 )
Accounts payable and accrued liabilities
    (5,269,415 )     6,803,211  
Accrued interest payable
    2,543,069       (291,375 )
Net cash used in operating activities
    (15,400,460 )     (1,885,189 )
                 
Investing activities:
               
Net related party receivable
    893,102       (118,692 )
Advances for vessel acquisitions
    (312,243,185 )     (82,842,251 )
Purchase of on board equipment
    (7,907,111 )     (7,147,349 )
Decrease in restricted cash
    -       55,967,374  
Net cash used in investing activities
    (319,257,194 )     (34,140,918 )
                 
Financing activities:
               
Proceeds from Berenberg Facility
    -       1,314,005  
Repayments on Berenberg Facility
    -       (55,435,008 )
Proceeds from NORD/LB Sr. Loan
    286,239,940       102,282,624  
Repayments on NORD/LB Sr. Loan
    (16,896,107 )     (3,196,332 )
Proceeds from borrowing on NORD/LB Credit Facility
    1,391,445       -  
Proceeds from RHKG Loan Agreements
    23,773,358       -  
Proceeds from Hartmann Loans
    9,011,144       -  
Net proceeds from borrowing on Asia Hartmann Loans
    6,414,199       -  
Deferred loan fees
    -       (9,527 )
Repayment of related party note payable
    (28,500 )     (11,513,487 )
Net accounts payable to related party
    921,504       7,501,011  
Contributions from partners
    339,100       5,542,172  
Unaccepted equity contributions
    25,000       (289,500 )
Syndication costs
    (457,151 )     (1,597,500 )
Contributions from non-controlling interests
    10,798,474       5,897,680  
Distributions to non-controlling interests
    -       (689,986 )
Net cash provided by financing activities
    321,532,406       49,806,152  
                 
Effect of exchange rate changes on cash
    (1,751,792 )     2,626,103  
                 
Net (decrease) increase in cash
    (14,877,040 )     16,406,148  
Cash, beginning of period
    18,267,260       2,222,196  
Cash, end of period
  $ 3,390,220     $ 18,628,344  
                 
Non-cash financing and investing activities:
               
Vessel construction installments financed through accounts payable
  $ -     $ 29,499,771  
Deposits on asset acquisition financed through assumption of payable
  $ -     $ 5,300,000  
Construction in progress reclassed to delivered vessels
  $ 105,560,819     $ 35,762,585  
Related party receivables and accrued interest reclassed to long-term receivable
  $ 909,723     $ -  
Syndication costs reclassed to long-term payable
  $ 2,382,100     $ -  
Syndication costs financed through accounts payable
  $ -     $ 2,371,200  

See Notes to Consolidated Financial Statements.

 
8

 

III TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
(Unaudited)
 
(Restated)
 

 
    
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net loss
  $ (7,544,642 )   $ (6,840,552 )   $ (38,222,390 )   $ (14,491,798 )
                                 
Foreign currency exchange forward contracts
    (450,066 )     4,935,865       (5,818,744 )     7,688,972  
                                 
Foreign currency translation adjustment
    4,420,877       2,433,472       (5,392,108 )     3,466,111  
                                 
Comprehensive income (loss)
  $ (3,573,831 )   $ 528,785     $ (49,433,242 )   $ (3,336,715 )

See Notes to Consolidated Financial Statements.

 
9

 

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

1.      Nature of Partnership’s Business and Summary of Significant Accounting Policies

References herein to III to I Maritime Partners Cayman I, L.P. (“Cayman I”) include III to I Maritime Partners Cayman I, L.P. and its consolidated subsidiaries.  In accordance with the Securities and Exchange Commission’s (“SEC”) “Plain English” guidelines, these financial statements have been written in the first person.  In this document, the words “we,” “our,” “ours” and “us” refer only to III to I Maritime Partners Cayman I, L.P. and its consolidated subsidiaries or to III to I Maritime Partners Cayman I, L.P. or an individual subsidiary and not to any other person.

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

Our functional currency is the U.S. dollar.  However, the functional currency of many of our subsidiaries is the Euro.  All amounts are stated in U.S. dollars (“USD”), and where the amount relates to a subsidiary, the amount has been translated to Euros (“EUR”) following the USD amount.  Amounts related to future payments which are payable in EUR have been stated in USD and translated using the exchange rate as of September 30, 2010.  Amounts shown in narrative statements related to payments made in the past have been translated using the exchange rate on the date the transaction occurred.  When comparisons are made between balance sheet dates, the appropriate exchange rate for the given balance sheet date is used.  When comparisons are made related to statement of operations amounts, the average exchange rate for the given period is used.

Nature of the Business

Cayman I, a Cayman Islands exempted limited partnership, was formed October 18, 2006.  Cayman I and its consolidated subsidiaries were formed for the primary purpose of acquiring, managing and operating maritime vessels.  Our primary focus has been the purchase and operation of nine anchor-handling tug supply (“AHTS”) vessels, but we also purchased a non-controlling interest in two multipurpose bulk carrier vessels (“mini-bulkers”).  As of September 30, 2010, delivery of all nine of our AHTS vessels had occurred from the shipyard, Fincantieri Cantieri Navali Italiani SpA (“Fincantieri”) in Italy.  We are also authorized to engage in other activities if III to I International Maritime Solutions Cayman, Inc., a Cayman Islands exempted company with limited liability (“General Partner”), believes such activities will benefit our core business of shipping operations.  We are currently authorized to issue Class A, Class B, Class C and Class D limited partner units as well as general partner units.  To date we have issued Class A, Class B and Class D limited partner units and general partner units.

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

Delivery of our AHTS vessels occurred as follows:

AHTS SPV
Vessel Name
Date Delivered
6160 –  MS Juist
UOS Atlantis
February 27, 2009
6161 –  MS Norderney
UOS Challenger
May 28, 2009
6162 –  Isle of Baltrum
UOS Columbia
October 2, 2009
6163 –  Isle of Langeoog
UOS Discovery
February 16, 2010
6168 –  Isle of Amrum
UOS Endeavour
March 11, 2010
6169 –  Isle of Sylt
UOS Enterprise
July 2, 2010
6171 –  Isle of Wangerooge
UOS Explorer
March 15, 2010
6172 –  Isle of Neuwerk
UOS Freedom
June 29, 2010
6173 –  Isle of Usedom
UOS Liberty
June 23, 2010

Initially, we owned approximately 96% of the units of I-A Suresh Capital Maritime Partners Limited, a limited liability company formed under the laws of Cyprus (our “Cyprus Subsidiary”).  On April 28, 2009, having received approval from our limited partners, we underwent a reorganization in order to simplify our ownership structure, streamline the calculation of allocations and distributions by incorporating economic rights in our Second Amended and Restated Agreement of Limited Partnership (“Partnership Agreement”) that formerly resided in the organizational documents of our Cyprus Subsidiary and simplify the financial statements by eliminating the non-controlling interest component related to the Cyprus Subsidiary.  The reorganization was effective on April 1, 2009.  Pursuant to the reorganization, one of the non-controlling unitholders in our Cyprus Subsidiary contributed its units in the Cyprus Subsidiary for newly created Class D units of Cayman I.  The newly created Class D units are structured to represent, in total, substantially the same allocation rights in the results of operations and similar rights of control as the interest in the Cyprus Subsidiary which was the consideration for their issuance.  Our general partner, the other non-controlling unitholder, contributed its units in the Cyprus Subsidiary in exchange for the contribution by the other unitholder and the adoption of the Partnership Agreement.  As a result of the reorganization, we now own 100% of our Cyprus Subsidiary.

In accordance with FASB ASC 810, Consolidation - Non-controlling Interest in a Subsidiary, we have treated the acquisition of the non-controlling interest in our Cyprus Subsidiary as an equity transaction, and have recorded a decrease in the equity of the Class D unitholders and of the general partner equal to the negative carrying value of the non-controlling interest attributable to the acquired interests effective April 1, 2009.

Suresh Capital Maritime Partners Germany GmbH (“German Subsidiary”), a German limited liability company and a wholly owned subsidiary of the Cyprus Subsidiary, was formed for the purpose of acquiring, managing and operating our maritime vessels.

In May 2007, we acquired a 75% limited partnership interest in 12 separate special purpose entities (“SPVs”), each a Kommanditgesellschaft (“KG”), German limited partnership, in order to secure a position in 12 AHTS vessels available from the Fincantieri Shipyards in Italy with expected deliveries through 2010.  The remaining 25% of each SPV is owned by Reederei Hartmann GmbH & Co. KG (“Reederei Hartmann”), a Hartmann Group company, and affiliates of Reederei Hartmann.  Additionally, Hartmann Offshore GmbH (“Hartmann Offshore”), a Hartmann Group company, was retained to provide management services for our AHTS vessels.  Each SPV was formed for the purpose of acquiring, managing and operating a single AHTS vessel.  In December 2007 and January 2008, we transferred our interest in three of the 12 AHTS SPVs for their approximate carrying value to our affiliate, FLTC Fund I.

During 2007, we also acquired a 49% interest in two additional SPVs, each of which acquired and operates one mini-bulker.  The operations of each mini-bulker are managed by Reederei Hesse GmbH & Co. KG (“Reederei Hesse”) with the remaining 51% ownership held by affiliates of Reederei Hesse and the Hartmann Group.  See Note 4 for additional information.

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

Profits and losses are allocated among our partners in accordance with the Partnership Agreement.  Distributions, based on available cash flows, will be made to the partners in accordance with the Partnership Agreement.  The Partnership Agreement entitles our general partner to a portion of all amounts which would otherwise be distributable to our Class A limited partners from distributions of cash flow provided by operations (but not from distributions of capital proceeds), which portion is equal to (i) ten percent until the limited partners have received returns up to the amount of their capital contributions, (ii) twenty percent until the limited partners have received returns equal to twice their capital contributions and (iii) thirty percent thereafter.

Significant Accounting Policies

Principles of Consolidation
Significant intercompany balances and transactions have been eliminated.  We consolidate investments in entities in which we have a controlling interest.  Investments in unconsolidated entities where we have the ability to exercise significant influence over operating and financial policies (generally 20% to 50% ownership) are accounted for using the equity method.

Business Geographics
Non-U.S. operations accounted for 100% of our revenues.  Vessels will regularly move between countries in international waters.  It is therefore impracticable to assign revenues or earnings from operations by geographical area.

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

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

Concentrations of Credit Risk
We maintain deposit accounts with U.S. financial institutions that, at times, exceed the federally insured limits and with foreign financial institutions.  Management believes the financial strength of the U.S. and foreign financial institutions minimizes the credit risk related to our deposits.  We have not experienced any losses from this credit risk.

Cash
Our cash balance will from time to time include amounts which may be subject to the conditions under the agreement with Norddeutsche Landesbank Girozentrale (“Nord/LB”) for the senior loan facility (“Senior Loan”).  The Nord/LB Senior Loan conditions for each SPV prohibit us from making distributions unless payment of any AHTS vessels’ operating costs and all amounts due and payable under the Senior Loan are secured for a 12 month period via either cash reserves or charter coverage.

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

Due from Charterers
Customer obligations due under normal trade terms are recorded as due from charterers.  An allowance for doubtful accounts would represent our estimate of the amount of probable credit losses existing in our accounts receivable.  We have a limited number of customers with individually large amounts due at any given date.  Any unanticipated change in any one of these customers’ credit worthiness or other matters affecting the collectability of amounts due from such customers could have a material effect on the results of operations in the period in which such changes or events occur.  We regularly review all aged accounts receivable for collectability and establish an allowance as necessary for individual customer balances.  As of September 30, 2010 and December 31, 2009, we had recorded no allowance for doubtful accounts.

Derivatives
We account for derivatives and derivatives classified as hedges in accordance with FASB ASC 815, Derivatives and Hedging.  All our derivative and hedge positions are stated at fair value on our consolidated balance sheet.

Realized and unrealized gains and losses related to our foreign currency exchange contracts not classified as hedges are reported in our consolidated statements of operations in foreign currency transaction gain (loss).  Gains and losses related to foreign currency exchange contracts designated for hedge accounting are included in foreign currency transaction gain (loss) on the consolidated statement of operations to the extent they are ineffective, with the effective portion of the fair value gains or losses recorded as part of accumulated other comprehensive income (loss) on the consolidated balance sheet.  The gain or loss related to changes in the fair value of our interest rate swap contracts, none of which are classified as hedges, is reported in loss on interest rate swaps on the consolidated statement of operations.

Vessels and Equipment
Vessels are stated at cost less accumulated depreciation.  Vessel costs include acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for its initial voyage.  On board equipment represents all the equipment required to operate a vessel.  Vessels, net of salvage value, and on board equipment are depreciated on a straight-line basis over their estimated useful lives, which have been determined to be 20 years and 10 years, respectively, from the initial delivery date from the shipyard.

The costs of significant replacements, renewals or betterments will be capitalized over the shorter of the vessel’s and equipment’s remaining useful lives or the lives of the renewals or betterments.  The net book value of any asset component being replaced will be written off as part of vessel operating expenses.  Expenditures for routine maintenance and repairs are expensed as incurred.

Vessel construction in progress represents the cost of acquiring contracts to build vessels, installments paid to the shipyards, certain other payments made to third parties and capitalized interest costs incurred during the construction of each vessel until the vessel is substantially complete and ready for its intended use.

Impairment of Long-Lived Assets
We assess long-lived assets for recoverability in accordance with FASB ASC 360, Property, Plant and Equipment, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  These evaluations for impairment are significantly impacted by estimates of revenues, costs, expenses and other factors.  If these assets are considered to be impaired, the impairment to be recognized is calculated as the excess of the asset’s carrying value over its estimated fair value.  As of December 31, 2009, we evaluated our intentions with respect to the chemical tanker and determined that the asset was impaired.  We therefore recorded an impairment to the deposit on asset acquisition on our balance sheet to reduce the carrying value of this asset to zero in December 2009.  No indicators of potential impairment were noted for the period ended September 30, 2010.

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

Deferred Loan Fees
Costs incurred in connection with the issuance of debt have been capitalized and are being amortized on an effective interest basis to interest expense over the life of the related debt agreements.  Deferred loan fees at September 30, 2010 and December 31, 2009 amounted to $3,182,138 and $3,554,818, respectively, net of accumulated amortization of $254,149 and $63,482, respectively.

Non-controlling Interest
The non-controlling interest in our consolidated balance sheet reflects the original investment by non-controlling unitholders in the consolidated subsidiaries along with their proportional share of the earnings or losses of the subsidiaries, which are consolidated in our financial statements, less any distributions received by them from our consolidated subsidiaries.  The non-controlling interest also receives a portion of the cumulative foreign currency translation adjustment and syndication costs.

Syndication Costs
Syndication costs are costs or fees incurred for financial services including, but not limited to, the procurement of equity at any level within Cayman I.  Such costs are netted against non-controlling interest and partners’ equity in proportion to the ownership of each class of partner.  See Note 7 for additional information.

Revenue Recognition
Our revenue is earned primarily from time chartering of vessels to charterers based upon daily rates of hire. A time charter is a lease arrangement under which we provide a vessel to a charterer and we are responsible for all crewing, insurance and other operating expenses.  Time charters may be long term charters for six months to several years, or short-term charters, typically called “spot charters” measured in days or weeks.  Our AHTS SPVs participate in a pool arrangement (“UOS AHTS Pool”) with three SPVs to be owned by FLTC Fund I under which they will pool their revenue less voyage expenses (“Voyage Results”).  Revenue from charters, including any mobilization fees, is generally recorded when services are rendered, estimates are reasonably determinable and collection is reasonably assured.  Revenue is recognized net of price adjustments and other potential adjustments based upon the daily charter rate for the reporting period.  Our pooling arrangement under the UOS AHTS Pool will not have any bearing on our revenue until such time as one of the vessels to be owned by FLTC Fund I begins to participate in the UOS AHTS Pool.  The first of FLTC Fund I’s vessels was delivered September 21, 2010, and is expected to begin to participate in the UOS AHTS Pool in the fourth quarter 2010, along with the other two vessels of FLTC Fund I, which were delivered October 12th and October 27th, respectively.  After such time, our revenue will be recorded taking into account potential pool adjustments for the period.

Five customers represented 85.7% and 90.1%, respectively, of our revenue for the three and nine months ended September 30, 2010.  During the three and nine months ended September 30, 2009, two customers represented 100% of our revenue.  These customers’ accounts receivable balances represented 74.7% and 100% of our accounts receivable at September 30, 2010 and December 31, 2009, respectively.

Other revenue (i.e. Fuel Revenue, Oil & Lube Revenue, etc.), which is included in charter revenue, is reported gross according to FASB ASC 605 Revenue Recognition, as we are the primary obligor in the arrangement.  Whether a supplier or our entity is responsible for providing the product or service desired by the charterer is a strong indicator of our entity’s role in the transaction. If we are responsible for fulfillment, including the acceptability of the products or services ordered or purchased by the charterer, that fact is a strong indicator that we have risks and rewards of a principal in the transaction and that we should record revenue gross based on the amount billed to the charterer. Representations (written or otherwise) made by our entity during marketing and the terms of the sales contract generally will provide evidence as to whether we or the supplier is responsible for fulfilling the ordered product or service. Due to these indications of our role as primary obligor, the revenue is recorded gross based on the amount billed to the charterer.

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

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

During the three and nine months ended September 30, 2010 and 2009, we incurred a foreign currency transaction gain (loss) of $6,176,852 and ($572,099) and $407,429 and $180,601, respectively. These amounts include the effect of changes in the valuation of the forward currency exchange contracts as well as translation of certain cash deposit balances held in EUR to USD at the reporting dates.

Included in accumulated other comprehensive income (loss) at September 30, 2010 and December 31, 2009 are the cumulative changes in foreign currency translation adjustments representing a gain of $1,604,368 and $2,632,434, respectively, which resulted from the translation of our financial statements from the functional currency of EUR to the reporting currency of USD.

We exclude foreign currency transaction gains and losses resulting from intercompany foreign currency transactions that are long-term in nature from the determination of net income (loss).

Income Taxes
We are not subject to U.S. federal or state income taxes.  Our taxable income and losses are reported on the income tax returns of the respective partners and non-controlling unitholders.  Based on the current structure and activity of the Cyprus Subsidiary and on current tax laws in Cyprus, the Cyprus Subsidiary is subject to income tax in Cyprus.  The German Subsidiary is treated as a German corporation for tax purposes and is subject to German corporate income taxes.

German income taxes are accounted for under FASB ASC 740, Income Taxes, which requires an assets and liabilities approach to financial accounting and reporting for deferred income taxes.  Deferred income taxes and liabilities are computed for differences between financial statement and tax bases of assets and liabilities that result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances may be established to reduce deferred taxes to the amount expected to be realized.  We had no deferred taxes as of September 30, 2010 and December 31, 2009.

We are subject to foreign income taxes in Cyprus and Germany.  Accordingly, all tax years since inception are still subject to audit by the taxing authorities in those jurisdictions.  Our AHTS SPVs are subject to the tonnage tax regime in Germany, which results in the AHTS SPVs being taxed on the net tonnage of the AHTS vessels rather than the income generated in the AHTS SPVs.

Our policy is to recognize potential interest and penalties related to income tax matters in income tax expense.  We believe we have appropriate support for the income tax positions taken and to be taken on our income tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter.

Recent Accounting Pronouncements

In October 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue Arrangements, which amends ASC 605, Revenue Recognition, to require companies to allocate revenue in multiple-element arrangements based on an element’s estimated selling price if vendor-specific or other third-party evidence of value is not available. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Earlier application is permitted. The adoption of this ASU is not expected to have a material impact on the Partnership’s financial position, results of operations or cash flows.

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

2.      Restatement of September 30, 2010 Consolidated Financial Statements (unaudited)

These financial statements contain restatements related to the recognition of the fair value of the forward currency exchange contracts that were designated for hedge accounting under FASB ASC 815, Derivatives and Hedging, which were deemed ineffective for hedge accounting in second quarter 2010.

During the 2010 year-end procedures, it was discovered that we had an error in the inputs to our testing for our hedge effectiveness related to our forward currency exchange contracts designated for hedge accounting.  After investigating, we determined that the inception of the error was in the second quarter, when we failed to change our prospective inputs for our underlying item (our USD denominated revenue) in response to new charters in place for our new AHTS vessels, one of which called for us to be paid in Australian dollars (AUD), In addition, another vessel was placed into the North Sea spot market, where payment is typically made in Great British pounds (GBP).  The decreases in prospective USD revenue caused our hedge effectiveness for these contracts to fall below the threshold generally accepted as being highly effective as of the quarter ended June 30, 2010.

As a result, rather than recording the changes to the fair value of the unmatured contracts from April 1, 2010 forward to accumulated other comprehensive income (loss), these changes instead must be recorded to our results of operations.  This results in a decrease to our net loss of $9,978,199 and $438,699, respectively, and an equivalent increase to our other comprehensive loss for the three and nine months ended September 30, 2010.
 
The impact of these restatements on our September 30, 2010 financial statements is reflected in the following tables.  Please note that the tables below reflect only the lines that were restated:
 
   
September 30, 2010
 
   
As
             
   
Previously
         
As
 
Consolidated Balance Sheet  
Reported
   
Restatement
   
Restated
 
III to I Maritime Partners Cayman I, L.P. partners' equity:
                 
General partner
  $ 102,914     $ 4,585     $ 107,499  
Class A limited partners (units issued and outstanding:
                       
September 30, 2010 - 615,885, December 31, 2009 - 612,244)
    11,311,420       284,464       11,595,884  
Class B limited partners (units issued and outstanding:
                       
September 30, 2010 - 84,313, December 31, 2009 - 84,313)
    1,286,929       39,049       1,325,978  
Class D limited partners (units issued and outstanding:
                       
September 30, 2010 - 2,000, December 31, 2009 - 2,000)
    (188,328 )     926       (187,402 )
Accumulated other comprehensive (loss) income
    (1,814,978 )     (329,024 )     (2,144,002 )

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

   
Three Months Ended September 30, 2010
   
Nine Months Ended September 30, 2010
 
   
As
               
As
             
   
Previously
         
As
   
Previously
         
As
 
Consolidated Statement of Operations
 
Reported
   
Restatement
   
Restated
   
Reported
   
Restatement
   
Restated
 
                                     
Foreign currency transaction gain (loss)
  $ (3,801,347 )   $ 9,978,199     $ 6,176,852     $ (1,010,798 )   $ 438,699     $ (572,099 )
Net loss
    (17,522,841 )     9,978,199       (7,544,642 )     (38,661,089 )     438,699       (38,222,390 )
Net loss attributable to the non-controlling interest
    3,997,709       (2,494,550 )     1,503,159       10,005,996       (109,675 )     9,896,321  
Net loss attributable to III to I Maritime Partners Cayman I, L.P.
    (13,525,132 )     7,483,649       (6,041,483 )     (28,655,093 )     329,024       (28,326,069 )
Less general partner interest in net loss
    (188,285 )     104,181       (84,104 )     (399,324 )     4,585       (394,739 )
Limited partner interest in net loss
  $ (13,336,847 )   $ 7,379,468     $ (5,957,379 )   $ (28,255,769 )   $ 324,439     $ (27,931,330 )
Net loss per general partner unit:
                                               
Basic and diluted
  $ (19.02 )   $ 10.52     $ (8.50 )   $ (40.34 )   $ 0.47     $ (39.87 )
Net loss per limited partner unit:
                                               
Basic and diluted
  $ (19.02 )   $ 10.52     $ (8.50 )   $ (40.34 )   $ 0.47     $ (39.87 )

 
17

 

III TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
SEPTEMBER 30, 2010
 
(Unaudited)
(Restated)
 
Consolidated Statement of Equity
 
As Previously Reported
                                         
   
III to I Maritime Partners Cayman I, L.P.
             
                           
Accumulated
             
         
Class A
   
Class B
   
Class D
   
Other
             
   
General
   
Limited
   
Limited
   
Limited
   
Comprehensive
   
Non-controlling
       
   
Partner
   
Partners
   
Partners
   
Partners
   
Income (Loss)
   
Interest
   
Total
 
Balance at December 31, 2009
  $ 514,138     $ 36,459,320     $ 4,789,036     $ (105,253 )   $ 6,456,857     $ 25,554,450     $ 73,668,548  
                                                         
Contributions, net of syndication costs
    (11,900 )     (373,566 )     (101,342 )     (2,405 )     -       10,514,036       10,024,823  
                                                         
Net loss
    (399,324 )     (24,774,334 )     (3,400,765 )     (80,670 )     -       (10,005,996 )     (38,661,089 )
                                                         
Forward currency exchange contracts
    -       -       -       -       (4,023,991 )     (1,341,330 )     (5,365,321 )
                                                         
Foreign currency translation adjustment
    -       -       -       -       (4,247,844 )     (1,158,988 )     (5,406,832 )
                                                         
Balance at September 30, 2010
  $ 102,914     $ 11,311,420     $ 1,286,929     $ (188,328 )   $ (1,814,978 )   $ 23,562,172     $ 34,260,129  
 
 
Restatement
                                         
   
III to I Maritime Partners Cayman I, L.P.
             
                           
Accumulated
             
         
Class A
   
Class B
   
Class D
   
Other
             
   
General
   
Limited
   
Limited
   
Limited
   
Comprehensive
   
Non-controlling
       
   
Partner
   
Partners
   
Partners
   
Partners
   
Income (Loss)
   
Interest
   
Total
 
Balance at December 31, 2009
  $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                         
Change in Contributions, net of syndication costs
    -       -       -       -       -       -       -  
                                                         
Change in Net loss
    4,585       284,464       39,049       926       -       109,675       438,699  
                                                         
Change in Forward currency exchange contracts
    -       -       -       -       (340,067 )     (113,356 )     (453,423 )
                                                         
Change in Foreign currency translation adjustment
    -       -       -       -       11,043       3,681       14,724  
                                                         
Change in the Balance at September 30, 2010
  $ 4,585     $ 284,464     $ 39,049     $ 926     $ (329,024 )   $ -     $ -  
                                                         
                                                         
As Restated
                                                       
   
III to I Maritime Partners Cayman I, L.P.
                 
                                   
Accumulated
                 
           
Class A
   
Class B
   
Class D
   
Other
                 
   
General
   
Limited
   
Limited
   
Limited
   
Comprehensive
   
Non-controlling
         
   
Partner
   
Partners
   
Partners
   
Partners
   
Income (Loss)
   
Interest
   
Total
 
Balance at December 31, 2009
  $ 514,138     $ 36,459,320     $ 4,789,036     $ (105,253 )   $ 6,456,857     $ 25,554,450     $ 73,668,548  
                                                         
Contributions, net of syndication costs
    (11,900 )     (373,566 )     (101,342 )     (2,405 )     -       10,514,036       10,024,823  
                                                         
Net loss
    (394,739 )     (24,489,870 )     (3,361,716 )     (79,744 )     -       (9,896,321 )     (38,222,390 )
                                                         
Forward currency exchange contracts
    -       -       -       -       (4,364,058 )     (1,454,686 )     (5,818,744 )
                                                         
Foreign currency translation adjustment
    -       -       -       -       (4,236,801 )     (1,155,307 )     (5,392,108 )
                                                         
Balance at September 30, 2010
  $ 107,499     $ 11,595,884     $ 1,325,978     $ (187,402 )   $ (2,144,002 )   $ 23,562,172     $ 34,260,129  

 
18

 
 
III TO I MARITIME PARTNERS CAYMAN I, L.P. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
SEPTEMBER 30, 2010
 
(Unaudited)
(Restated)
 
   
Nine Months Ended September 30, 2010
 
   
As
             
   
Previously
         
As
 
Consolidated Statements of Cash Flows
 
Reported
   
Restatement
   
Restated
 
                   
Net loss
  $ (38,661,089 )   $ 438,699     $ (38,222,390 )
Net gain on forward currency exchange contracts
    (267,471 )     1,270,345       1,002,874  
Settlement of hedge instruments
    1,964,436       (1,709,044 )     255,392  
 
   
Three Months Ended September 30, 2010
   
Nine Months Ended September 30, 2010
 
   
As
               
As
             
   
Previously
         
As
   
Previously
         
As
 
Consolidated Statements of Comprehensive Income (Loss) 
 
Reported
   
Restatement
   
Restated
   
Reported
   
Restatement
   
Restated
 
                                     
Net loss
  $ (17,522,841 )   $ 9,978,199     $ (7,544,642 )   $ (38,661,089 )   $ 438,699     $ (38,222,390 )
Foreign currency exchange forward contracts
    8,756,323       (9,206,389 )     (450,066 )     (5,365,321 )     (453,423 )     (5,818,744 )
Foreign currency translation adjustment
    5,192,687       (771,810 )     4,420,877       (5,406,832 )     14,724       (5,392,108 )

3.      Maritime Vessels

As of September 30, 2010, the construction and delivery of all nine AHTS vessels which we committed to purchase was complete.  The cost of each AHTS vessel ranged from $50,724,710 (EUR 37,264,700) to $59,300,313 (EUR 43,564,732) for a total acquisition cost of $497,629,060 (EUR 365,581,149).  Under the contracts, installments were due upon certain milestones being met during the construction.  Approximately 30% of the total construction costs required deposits, some of which were funded with equity while others were funded through draws on our former credit facility with Berenberg Bank, loans from Reederei Hartmann and their affiliates, and our Senior Loan.  Amounts drawn on our Senior Loan required either that each AHTS SPV be fully funded based on the capital as called for in the AHTS SPV company agreements, or provision of a guarantee acceptable to Nord/LB.  A guarantee from Reederei Hartmann, our primary non-controlling interest holder and the 25% owner of the three AHTS SPVs of FLTC Fund I, (“Hartmann Guarantee”) in the amount of $45,932,786 (EUR 32,046,875) was outstanding at December 31, 2009.  There is no outstanding amount under the Hartmann Guarantee at September 30, 2010.  As of September 30, 2010 and December 31, 2009, we incurred $535,278,994 and $291,543,002, respectively, in connection with the acquisition of the AHTS vessels and on board equipment.

In addition to our AHTS vessels and our interests in the mini-bulkers, we entered into an agreement related to the potential acquisition of a chemical tanker, which would have been owned by Kronos Shipping I, Ltd. (“Kronos”).  On November 13, 2007, III to I IMS Holdings, LLC (“IMS Holdings”), the sole shareholder of our general partner, entered into a Memorandum of Agreement (“MOA”) with the Schulte Group relating to the acquisition of the chemical tanker.  Pursuant to the MOA, IMS Holdings placed an order for the chemical tanker through the Schulte Group for the purchase price of $41,500,000 to be paid in five equal installments.  The Schulte Group agreed to loan IMS Holdings up to $8,300,000 for the first installment payment (“Schulte Group Facility”) and to facilitate a bank guarantee for the second installment payment of $8,300,000.  The Schulte Group formed Anthos Shipping Co. Limited (“Anthos”), a Cyprus SPV, to own the chemical tanker.  The equity of Anthos was to be assigned to Kronos upon repayment of the loan, retirement of the bank guarantee and payment of all fees due to the Schulte Group.  Kronos was not formed at the time the MOA was signed; therefore, the chemical tanker transaction was undertaken through an affiliate of IMS Holdings, IMS Capital Partners, LLC (“IMS Capital Partners”) on behalf of Kronos.
 
Effective April 2009, we entered into an agreement whereby all of the rights retained by IMS Capital Partners and IMS Holdings with respect to the chemical tanker pursuant to the MOA between IMS Holdings and Schulte Group were transferred to Kronos, the new obligor under an amended version of the MOA between Kronos and Conway Shipping I, Ltd (“Amended MOA”).  As consideration for and to give effect to this transfer, we assigned the receivables from IMS Holdings, through which the transaction was undertaken, to IMS Capital Partners in exchange for the consent of IMS Capital Partners to the execution of the Amended MOA.  This amount was credited by Kronos as additional paid in capital, and Kronos accepted the rights to the chemical tanker pursuant to the Amended MOA.  The outcome left Kronos as the sole holder of all rights and obligations with respect to the potential acquisition of the chemical tanker and resulted in IMS Capital Partners and IMS Holdings each holding directly offsetting note obligations.  By entering into a Note Cancellation Agreement, the note obligations between IMS Holdings and IMS Capital Partners were terminated.

 
19

 

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

In light of the global downturn in the economy and the resulting decrease in charter rates for chemical tankers and decreases in the value of similar vessels, on April 9, 2010, we elected to abandon our option to purchase the chemical tanker.  We recognized an impairment to the deposit on asset acquisition on our balance sheet as of December 31, 2009 to reduce the carrying value of this asset, resulting in the recognition of a loss on impairment of $9,874,907.  On April 9, 2010, we abandoned our option to acquire the tanker, and under the terms of the Amended MOA, we became subject to the $3,000,000 in liquidated damages and the principal balance of $5,300,000 due under the facility was extinguished, and we therefore recognized a gain on the extinguishment of debt of $5,300,000.  The result is a net loss between these two events of approximately $4,574,907, which in the end represents liquidating damages of $3,000,000, plus the loss of our capitalized costs approximating $1,574,907.  In addition, we recognized interest expense on the Schulte Group Facility for the period ended September 30, 2010 totaling $62,946.

Since that time, we have undertaken a review of the Schulte Group’s role in the acquisition of the tanker.  This review includes a review of their contractual responsibilities with respect to efforts to achieve pricing for the tanker consistent with market fluctuations, and their construction oversight for our vessels and the other pool vessels to assure that the shipyard was in a position to timely fulfill its responsibilities under the shipbuilding contracts, among other items.  Management is reviewing all options available to us should we determine that further action is required against either the Schulte Group, Conway Shipping I, Ltd, or the Hanseatic Tanker Pool.

4.      Investment in Unconsolidated Entities

During 2007, we purchased a 49% interest in two additional SPVs, Hesse Schiffahrts GmbH & Co. MS “Markasit” KG and ATL Reederei GmbH & Co. MS “Larensediep” KG, each holding a single mini-bulker.  The equity investment made in each SPV was $2,022,450 (EUR 1,500,000) and $2,161,650 (EUR 1,500,000), respectively, at the exchange rate on the date the commitments were funded.  Permanent financing at the SPV level amounting to approximately 70% of the vessel cost for each vessel was put in place upon vessel delivery.  The mini-bulkers are merchant ships specially designed to transport bulk cargo such as grains, fertilizer, quick lime, soda ash, forest and paper products and cement in their cargo holds.  The mini-bulkers began operations in August and December 2007, respectively, and currently operate in liner services between the Baltic area and Northern Spain, Portugal, Mediterranean Sea, Greece, Turkey and Israel where the operator has established long-term partners.

These investments are accounted for under the equity method.  As such, assets, liabilities and results of operations are not consolidated with our operations.  Rather, the net investment in the mini-bulker SPVs is presented on our consolidated balance sheet in investment in unconsolidated entities as a single line item and includes our equity contributions, distributions and interest in the income or loss of each SPV.  The results of operations for the mini-bulkers SPVs for the given period are presented on our consolidated statements of operations in equity in loss of unconsolidated entities.

 
20

 

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

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

   
September 30,
   
December 31,
             
   
2010
   
2009
             
                         
Assets
  $ 24,680,218     $ 24,901,430                  
                                 
Liabilities
  $ 20,028,355     $ 18,722,777                  
Equity
    4,651,863       6,178,653                  
Total liabilities and equity
  $ 24,680,218     $ 24,901,430                  

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
For the Period
                       
Revenue
  $ 980,351     $ 1,909,989     $ 5,470,367     $ 4,944,435  
Expenses
    (1,567,139 )     (2,491,411 )     (6,646,775 )     (6,156,529 )
Net loss
  $ (586,788 )   $ (581,422 )   $ (1,176,408 )   $ (1,212,094 )
                                 
Interest in net loss of unconsolidated entities
  $ (287,570 )   $ (284,897 )   $ (576,484 )   $ (593,926 )

The functional currency of the mini-bulker SPVs is the EUR.  The financial statements above were translated from EUR to USD with the balance sheet translated at the exchange rate at the balance sheet date and the income statement translated at the weighted-average exchange rate for the period.  The equity accounts were translated at historical rates.  The investment in unconsolidated entities on our consolidated balance sheet was translated at the exchange rate at the balance sheet date.

The difference of $47,588 between the amount at which the investment is reflected on our consolidated balance sheet as of September 30, 2010, $2,231,825, and 49% of the equity shown on the financial information above, $2,279,413, is related to the difference in the rates utilized to translate the equity accounts and the investment in unconsolidated entities on our consolidated balance sheet at September 30, 2010.

For the period ended December 31, 2009, the difference of $50,108 between the amount at which the investment is reflected on our consolidated balance sheet as of December 31, 2009, $2,977,432, and 49% of the equity shown on the financial information above, $3,027,540, is related to the difference in the rates utilized to translate the equity accounts and the investment in unconsolidated entities on our consolidated balance sheet at December 31, 2009.

 
21

 

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

5.      Long-Term Debt

   
September 30,
   
December 31,
 
   
2010
   
2009
 
             
RHKG Loan Agreements
  $ 31,008,136     $ 7,617,990  
Hartmann Loan Agreement
    9,011,144       -  
Hartmann Asia Agreement
    6,414,199       -  
Nord/LB Facility
    408,885,806       145,468,080  
Schulte Group Facility
    -       5,300,000  
Total debt
    455,319,285       158,386,070  
Current portion of long-term debt
    (35,779,986 )     (17,858,391 )
Total debt classified as long-term
  $ 419,539,299     $ 140,527,679  

German Subsidiary Loans
RHKG Loan Agreements

In late January 2010 and in March 2010, our German Subsidiary entered into four loan agreements with Reederei Hartmann, which is the primary non-controlling interest holder of our AHTS SPVs (the “RHKG Loan Agreements”).  Each of the individual agreements is separately related to a corresponding AHTS SPV, and provides for loans (“RHKG Loans”) equal to the remaining amount of capital outstanding from our German Subsidiary to the AHTS SPV to which the agreement relates.  The execution of the agreements and the subsequent recognition of the contribution of capital by the AHTS SPV results in our satisfying the capital contribution in the full amount called for under the company agreement of the respective AHTS SPVs.

The loan agreement for the AHTS SPV Isle of Baltrum differs slightly from the others in that the event giving rise to our liability is the assumption of the AHTS SPV’s liability to Reederei Hartmann in the amount of $7,752,459 (EUR 5,315,000) as of October 2, 2009, in exchange for being credited with making a capital contribution to Isle of Baltrum in such amount.  The original proceeds are stated below:

Borrower
 
AHTS SPV
Associated with
Loan
 
Date of Loan
 
EUR
   
Rate
   
USD
 
SCMP GmbH
 
Isle of Baltrum
 
October 2, 2009
    5,315,000       1.45860     $ 7,752,459  
SCMP GmbH
 
Isle of Langeoog
 
February 10, 2010
    5,350,000       1.37180       7,339,130  
SCMP GmbH
 
Isle of Amrum
 
March 5, 2010
    6,050,000       1.36300       8,246,150  
SCMP GmbH
 
Isle of Wangerooge
 
March 5, 2010
    6,065,000       1.36300       8,266,595  
              22,780,000             $ 31,604,334  

The RHKG Loan Agreements mature five years from the date of signing.  The agreements call for interest to be calculated at 6% per annum, due annually at each anniversary date of signing.  There is no penalty for pre-payment of all or any portion of the loans prior to the end of the respective loan periods.  The terms of the agreements include the granting of a security interest in our ownership interest in the corresponding AHTS SPV, and in the dividends from the AHTS SPV arising from the pro-rata percentage of the loan amount as compared to our total share capital.

 
22

 

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

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

In connection with each of the loans from RHKG with respect Isle of Langeoog, Isle of Amrum, and Isle of Wangerooge, RHKG obtained the funds for their loan to our German Subsidiary pursuant to a loan on nearly identical terms from Fincantieri, the shipyard constructing the vessels.

During the three and nine months ended September 30, 2010, we incurred interest expense of $451,801 (EUR 350,179) and $1,146,718 (EUR 870,705), respectively, related to the RHKG Loan Agreements.  Accrued interest of $1,293,725 (EUR 950,430) was outstanding at September 30, 2010.

Hartmann Loan

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

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

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

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

During the three and nine months ended September 30, 2010, we incurred interest expense of $130,964 (EUR 101,507) and $152,574 (EUR115,850).  Accrued interest of $157,695 (EUR 115,850) was outstanding at September 30, 2010.

AHTS SPV Loans
Hartmann Asia Loan Agreement

On August 31, 2010, our AHTS SPV Isle of Usedom entered into a loan agreement (“Hartmann Asia Loan Agreement”) with Hartmann Asia Holding PTE Ltd (“Hartmann Asia”), a member of the Hartmann Group and an affiliate of the non-controlling interest holders of our AHTS SPVs.  Pursuant to the Hartmann Asia Loan Agreement, Hartmann Asia loaned a total of $6,000,000 to Usedom.  Related to the Hartmann Asia Loan Agreement, an inter-creditor agreement was also entered into between our AHTS SPV Isle of Usedom, Hartmann Asia, and Nord/LB on August 31, 2010, confirming the Hartmann Asia Loan Agreement as subordinate to the Senior Loan.  On September 27, 2010, Addendum No. 1 to the Hartmann Asia Loan Agreement was entered into, which increased the loan by $3,400,000, to a total of $9,400,000.

 
23

 

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

The loan proceeds will fund operating activities, including interest and redemption payments to Nord/LB, of the AHTS SPV Isle of Usedom, as well as providing funds for similar purposes to the other either AHTS SPVs via loans between the AHTS SPVs.  The agreement calls for interest to be calculated at 6% per annum.  There is no penalty for pre-payment of all or any portion of the loan prior to the end of the loan period.  See Note 11 for more information.

During the three and nine months ended September 30, 2010, we incurred interest expense of $30,472 (EUR 23,618).  Accrued interest of $32,149 (EUR 23,618) was outstanding at September 30, 2010.

Nord/LB Facility

On December 19, 2008, we entered into a $572,479,884 (EUR 420,570,000) Senior Loan with Nord/LB as administrative agent, with a term of 12 years from the delivery of each AHTS vessel.  The proceeds from the loan were initially to be used to fund preconstruction costs (“Pre-Delivery Facility”), outstanding balances due to the shipyard at delivery and working capital requirements of each AHTS SPV.  A post-delivery credit facility (“Revolving Credit Facility”) in the amount of $114,495,977 (EUR 84,114,000) can also be used to extend the Senior Loan from 12 to 15 years.  However, in no case can the total loans be in excess of 75% of the aggregate costs of all ships covered by the Senior Loan.

The Senior Loan is a fleet financing arrangement which covers all our AHTS vessels plus the three AHTS vessels purchased or being purchased by FLTC Fund I.  The 12 ships serve individually and collectively as the collateral for the Senior Loan, and the AHTS SPVs have joint and several liability.  In connection with the Senior Loan, a commitment fee of 0.20% to 0.45% is due semi-annually in arrears as determined by our bank internal rating class based on the unused Senior Loan balance and the elapsed days within the year.  An agency fee of $13,612 (EUR 10,000) per ship was due each year payable at the end of each quarter until the delivery of the applicable ship.  After the delivery of the applicable AHTS vessel, the agency fee, payable quarterly, is $6,806 (EUR 5,000) per year per vessel until the Senior Loan is paid in full.  There is also a financial guarantee for up to 70% of the loan balance issued by S.P.A. of Roma, Italy, which is the Italian export credit and reinsurance agency (“SACE”).

Interest on the borrowings is based upon the EURIBOR, the Euro Interbank Offered Rate.  For the portion of the Senior Loan not guaranteed by SACE, the applicable interest rate is EURIBOR plus 1.375% per annum plus a fixed funds cost to be determined prior to each drawdown.  For the portion of the Senior Loan that is guaranteed by SACE, the applicable interest rate is EURIBOR plus 1.375% per annum.  With respect to the Revolving Credit Facility, the applicable interest rate is (i) EURIBOR plus 1.600% per annum or (ii) the lenders’ funding costs, as conclusively to be agreed and determined by the lenders, plus 1.600% per annum.  Upon the fifth anniversary of the Senior Loan, each interest rate will be subject to renegotiation.  Interest incurred before the delivery of each AHTS vessel will be rolled into the loan balance of the corresponding tranche of the Senior Loan until ship delivery up to a maximum of $1,361,200 (EUR 1,000,000).  If interest incurred exceeds $1,361,200 (EUR 1,000,000), the excess interest will be due at each interest payment date which can be every three to six months.

On January 31, 2009, in order to comply with the conditions of the Senior Loan, we passed a Resolution increasing the total share capital of one of our AHTS SPVs, Isle of Usedom, from $17,378,550 (EUR 13,500,000) to $48,917,400 (EUR 38,000,000) based on the exchange rate at January 31, 2009.  This resulted in an increase in our capital commitment to Isle of Usedom from $13,782,150 (EUR 10,125,000) to $38,794,200 (EUR 28,500,000), based on current exchange rates.

 
24

 

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

The drawdowns on the Senior Loan to date as of September 30, 2010 are as follows:
 
AHTS SPV
 
AHTS Vessel
 
Date of Drawdown
 
Proceeds
 
MS Juist
 
UOS Atlantis
 
February 25, 2009
  $ 44,689,067  
MS Norderney
 
UOS Challenger
 
May 25, 2009
  $ 49,080,519  
Isle of Baltrum
 
UOS Columbia
 
October 2, 2009
  $ 51,120,284  
Isle of Langeoog
 
UOS Discovery
 
February 15, 2010
  $ 47,790,771  
Isle of Amrum
 
UOS Endeavour
 
March 10, 2010
  $ 47,629,553  
Isle of Wangerooge