UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

  Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 OF THE

 

SECURITIES EXCHANGE ACT OF 1934

 

For the month of November 2007

 

Commission File Number: 001-33068

 

ULTRAPETROL (BAHAMAS) LIMITED

 (Translation of registrant’s name into English)

 

Ocean Centre, Montagu Foreshore

East Bay St.

Nassau, Bahamas

P.O. Box SS-19084

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports

under cover of Form 20-F or Form 40-F.

 

Form 20-F [X] Form 40-F [ ]

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as

permitted by Regulation S-T Rule 101(b)(1): ___

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)7: ___

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes [_] No [X]

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

 

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On March 11, 2007, we signed an agreement with Maritima SIPSA S.A. through which we postponed the date for exercising our repurchase option of the Princess Marina until September 25, 2007.

On March 19, 2007, we paid $8.7 million corresponding to the first installment under the building contracts of the two PSVs under construction in India.

 

On April 3, 2007, the Miranda I was dry docked in Buenos Aires to begin its conversion to double hull.

 

On April 19, 2007, we successfully completed a follow-on offering of 12,650,000 shares of our common stock priced at $19.00 per share. The offering included 5,903,922 shares offered by existing shareholders and 5,096,078 shares issued by us. It also included the exercise of an over-allotment option by the underwriters of the offering comprising 1,650,000 shares from one of the selling shareholders. We did not receive any of the proceeds from any sale of common stock by the selling shareholders. The offering raised approximately $92 million in primary gross proceeds for us.

 

On May 9, 2007, we entered into a Forward Freight Agreement (“FFA”) whereby a subsidiary of ours contracted via BNP Paribas Commodity Futures Limited (“BNP Paribas”) with LCH Clearnet (“LCH”), a London clearing house, to pay LCH the average time charter rate for the 4 Capesize Time Charter Routes (C4TC) for a total of 180 days (15 days per month from January 2008 up to December 2008 both inclusive) in exchange for a fixed rate of $80,000 (eighty thousand U.S. Dollars) per day.

 

On May 10, 2007, we entered into a second FFA whereby a subsidiary of ours contracted via BNP Paribas with LCH to pay LCH the average time charter rate for the 4 Capesize Time Charter Routes (C4TC) for a total of 180 days (15 days per month from January 2008 up to December 2008 both inclusive) in exchange for a fixed rate of $79,500 (seventy nine thousand and five hundred U.S. Dollars) per day.

 

On May 15, 2007, we entered into a third FFA whereby a subsidiary of ours contracted via BNP Paribas with LCH to pay LCH the average time charter rate for the 4 Capesize Time Charter Routes (C4TC) for a total of 366 days (every calendar month from January 2008 up to December 2008 both inclusive) in exchange for a fixed rate of $77,250 (seventy seven thousand two hundred and fifty U.S. Dollars) per day.  On that same day, we took delivery of the fifth PSV in our Offshore Supply Business fleet, UP Diamante, from EISA - Estaleiro Ilha S.A. in Rio de Janeiro, Brazil.

 

On May 23, 2007, we entered into a fourth FFA whereby a subsidiary of ours contracted via BNP Paribas with LCH to pay LCH the average time charter rate for the 4 Capesize Time Charter Routes (C4TC) for a total of 180 days (15 days per month from January 2009 up to December 2009 both inclusive) in exchange for a fixed rate of $51,000 (fifty one thousand U.S. Dollars) per day. On the same day, we entered into a fifth FFA whereby a subsidiary of ours contracted via BNP Paribas with LCH to pay LCH the average time charter rate for the 4 Capesize Time Charter Routes (C4TC) for a total of 46 days (16 days in October 2007 and 15 days in each of November and December 2007) in exchange for a fixed rate of $85,000 (eighty five thousand U.S. Dollars) per day.

 

On June 13, 2007, we entered into a sixth FFA whereby a subsidiary of ours contracted via BNP Paribas with LCH to pay LCH the average time charter rate for the 4 Capesize Time Charter Routes (C4TC) for a total of 45 days (15 days per month in July, August and September 2007) in exchange for a fixed rate of $74,750 (seventy four thousand seven hundred and fifty U.S. Dollars) per day.

 

On June 13, 2007, we exercised the option to build two further PSVs in India with deliveries in March and July 2010.

 

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On June 14, 2007, we entered into various purchase agreements to acquire 33 Mississippi barges and one 3,950 HP pushboat in the United States. This equipment was loaded on a semi submersible vessel, and arrived in the Hidrovia on July 24, 2007. The total cost of the load-out operation (which includes amongst other things: purchase price of the equipment, loading, transport and unloading costs, etc.) was approximately $13.8 million.

Contract of Affreightment (COA)

 

•	We derive revenue from a rate based on tonnage shipped expressed in dollars per metric ton of cargo, and
•	We pay for all voyage expenses, including fuel and port charges.

 

Our ships on time charters generate both lower revenues and lower expenses for us than those under COAs. At comparable price levels both time charters and COAs result in approximately the same operating income, although the operating margin as a percentage of revenues may differ significantly.

 

One of our passenger vessels has been chartered to a European tour operator who guarantees a minimum number of passengers and pays for fuel and port expenses.  Our other passenger vessel operates in 3, 4 and 7-day cruises in Greece, Turkey and Israel on a full ticket revenue basis; we pay for fuel and port expenses and there is no guaranteed minimum number of passengers.   In this sense, the earnings of this vessel are similar in nature to a COA.

 

Time charter revenues accounted for 52% of the total revenues from our businesses for the first nine months of 2007, while COA revenues accounted for 48%. With respect to COA revenues in the first nine months of 2007, 79% were in respect of repetitive voyages for our regular customers and 21% in respect of single voyages for occasional customers.

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In our River Business, demand for our services is driven by agricultural, mining and forestry activities in the Hidrovia Region. Droughts and other adverse weather conditions, such as floods, could result in a decline in production of the agricultural products we transport, which would likely result in a reduction in demand for our services. Further, most of the operation in our River Business occurs in the Parana and Paraguay Rivers, and any changes adversely affecting either of these rivers, such as low water levels, could reduce or limit our ability to effectively transport cargo on the rivers.

 

In our Ocean Business, we employed a significant part of our ocean fleet on time charter to different customers during the nine months ended September 30, 2007. During the first nine months of 2007 the international dry bulk freight market was on average higher than it was in the first nine months of 2006.

 

In our Passenger Business, demand for our services is driven primarily by movements of tourists during the European summer cruise season.

 

Expenses

 

Our operating expenses generally include the cost of all vessel management, crewing, spares and stores, insurance, lubricants, repairs and maintenance. Generally, the most significant of these expenses are repairs and maintenance, wages paid to marine personnel, catering and marine insurance costs. However, there are significant differences in the manner in which these expenses are recognized in the different segments in which we operate.

 

In addition to vessels’ operating expenses, our other primary sources of operating expenses in 2007 included general and administrative expenses.

 

In our River Business, our voyage expenses include port expenses and fuel as well as charter hire paid to third parties.

 

In our Offshore Supply Business, voyage expenses include offshore and brokerage commissions paid by us to third parties which provide brokerage services.

 

In our Passenger Business, operating expenses include all vessel management, crewing, stores, insurance, lubricants, repairs and maintenance and may include catering, housekeeping and entertainment staff if the employment so specifies. Voyage expenses may include port expenses and bunkers if such services are for our account. Similarly, they may include the cost of food and beverages for passengers if such amounts are for our account under the employment agreement.

 

Through our River Business, we own a dry dock and a repair facility for our River Business fleet at Pueblo Esther, Argentina, land for the construction of two terminals and a shipyard in Argentina and 50% joint venture participations in two grain loading terminals in Paraguay. UABL also rents offices in Asuncion (Paraguay) and Buenos Aires (Argentina) and a repair and shipbuilding facility in Ramallo (Argentina).

 

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Supplemental Information

 

The following table reconciles our EBITDA to our net income:

 

($000)				Nine Months Ended September 30,
				2007				2006
Net Income (loss)				$	(1,830	)		$	13,278
Plus
Financial expense					14,639				15,344
Income taxes					5,032				398
Depreciation and amortization					25,430				20,302
EBITDA(1)				$	43,271			$	49,322

 

The following tables reconcile our EBITDA to our Operating profit (loss) for the nine months ended September 30, 2007 and 2006, on a consolidated and a per segment basis:

($000)				Nine Months Ended September 30, 2007
				River				Offshore Supply				Ocean				Passenger				TOTAL
Segment operating profit (loss)				$	9,262			$	13,076			$	11,040			$	(1,149	)		$	32,229
Depreciation and amortization					7,134				3,175				10,968				4,153				25,430
Investment in affiliates / Minority interest					(72	)			(519	)			542								(49	)
Other, net(3)					(415	)			16				27				(28	)			(400	)
Net income (loss) on FFAs													(16,235	)							(16,235	)
Segment EBITDA				$	15,909			$	15,748			$	6,342			$	2,976			$	40,975
Items not included in segment EBITDA
Financial income																					2,296
Consolidated EBITDA(2)																				$	43,271

 

($000)				Nine Months Ended September 30, 2006
				River				Offshore Supply				Ocean				Passenger				TOTAL
Operating profit (loss)				$	9,788			$	7,914			$	6,042			$	4,593			$	28,337
Depreciation and amortization					5,879				1,400				10,792				2,231				20,302
Investment in affiliates / Minority interest					(317	)			(171	)			152								(336	)
Other, net(3)					(138	)			69				812								743
Segment EBITDA				$	15,212			$	9,212			$	17,798			$	6,824			$	49,046
Items not included in segment EBITDA
Financial income																					276

Consolidated EBITDA(2)					$49,322

 

(1) EBITDA consists of net income (loss) prior to deductions for interest expense and other financial gains and losses, income taxes, depreciation and amortization of dry dock expense and financial gain (loss) on extinguishment of debt. We believe that EBITDA is intended to exclude all items that affect results relating to financing activities. The gains and losses associated with extinguishment of debt are a direct financing item that affects our results, and therefore should not be included in EBITDA. We do not intend for EBITDA to represent cash flows from operations, as defined by GAAP (on the date of calculation), and should not be considered as an alternative to net income (loss) as an indicator of our operating performance or to cash flows from operations as a measure of liquidity. This definition of EBITDA may not be comparable to similarly titled measures disclosed by other companies. We have provided EBITDA in this filing because we believe it provides useful information to investors to measure our performance and evaluate our ability to incur and service indebtedness.

 

(2) The reconciliation of our consolidated EBITDA to our Net income (loss) is set forth in the first table shown under section “Supplemental Information” in this filing.

 

(3) Individually not significant.

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

Condensed Consolidated Financial Statements at September 30, 2007

      

          

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

TABLE OF CONTENTS TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS		PAGE
Ÿ  Financial statements
–  Condensed consolidated balance sheets at September 30, 2007 (unaudited) and     December 31, 2006		- 1 -
–  Condensed consolidated statements of income for the nine-month periods     ended September 30, 2007 and 2006 (unaudited)		- 2 -
–  Condensed consolidated statements of changes in shareholders’ equity for the     nine-month periods ended September 30, 2007 and 2006 (unaudited)		- 3 -
–  Condensed consolidated statements of cash flows for the nine-month periods     ended September 30, 2007 and 2006 (unaudited)		- 4 -
–  Notes to condensed consolidated financial statements		- 5 -

      

           

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        - 1 -       

      

        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

                        

CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in thousands of U.S. dollars, except per value and share amounts)

		At September 30, 2007 (Unaudited)				At December 31, 2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	59,144			$	20,648
Accounts receivable, net of allowance for doubtful accounts of $244 and $709     in 2007 and 2006, respectively			16,051				17,333
Receivables from related parties			4,064				3,322
Marine and river operating supplies			3,115				3,020
Prepaid expenses			4,983				2,530
Other receivables			10,425				7,917
Total current assets			97,782				54,770
NONCURRENT ASSETS
Other receivables			4,980				6,368
Receivables from related parties			1,995				2,280
Restricted cash			9,636				1,088
Vessels and equipment, net			418,860				333,191
Dry dock			8,963				9,673
Investment in affiliates			2,739				2,285
Intangible assets			3,159				3,748
Goodwill			5,015				5,015
Other assets			5,659				6,014
Deferred tax assets			2,191				1,947
Total noncurrent assets			463,197				371,609
Total assets		$	560,979			$	426,379
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	15,984			$	13,491
Payable to related parties			-				420
Accrued interest			5,977				1,691
Current portion of long-term financial debt			7,108				4,700
Other payables			3,606				2,469
Total current liabilities			32,675				22,771
NONCURRENT LIABILITIES
Long-term debt			180,000				180,000
Financial debt, net of current portion			83,726				34,294
Deferred tax liability			10,091				6,544
Other payables			-				250
Total noncurrent liabilities			273,817				221,088
Total liabilities			306,492				243,859
MINORITY INTEREST			3,506				3,091
SHAREHOLDERS’ EQUITY
Common stock, $.01 par value:  100,000,000 authorized shares; 33,443,030 and 28,346,952 shares issued and outstanding in 2007 and 2006, respectively			334				283
Additional paid-in capital			266,243				173,826
Accumulated earnings (losses)			3,401				5,231
Accumulated other comprehensive income (loss)			(18,997	)			89
Total shareholders’ equity			250,981				179,429
Total liabilities, minority interest and shareholders’ equity		$	560,979			$	426,379

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

      

         

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    - 2 -          

      

        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

                       

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Stated in thousands of U.S. dollars, except share and per share data)

		For the nine-month periods ended September 30,
		2007				2006
REVENUES
Revenues from third parties		$	160,990			$	125,010
Revenues from related parties			2,952				2,700
Total revenues			163,942				127,710
OPERATING EXPENSES
Voyage expenses			(38,857	)			(32,728	)
Running costs			(53,579	)			(37,475	)
Amortization of dry docking			(5,450	)			(5,993	)
Depreciation of vessels and equipment			(19,391	)			(13,916	)
Management fees to related parties			-				(511	)
Amortization of intangible assets			(589	)			(393	)
Administrative and commercial expenses			(14,425	)			(8,357	)
Other operating income			578				-
			(131,713	)			(99,373	)
Operating profit			32,229				28,337
OTHER INCOME (EXPENSES)
Financial expense			(14,639	)			(15,344	)
Net loss on FFAs			(16,235	)			-
Financial income			2,296				276
Investment in affiliates			454				674
Other, net			(400	)			743
Total other expenses			(28,524	)			(13,651	)
Income before income taxes and minority interest			3,705				14,686
Income taxes			(5,032	)			(398	)
Minority interest			(503	)			(1,010	)
Net (loss) income		$	(1,830	)		$	13,278
Basic net (loss) income per share		$	(0.06	)		$	0.86
Diluted net (loss) income per share		$	(0.06	)		$	0.85
Basic weighted average number of shares			31,061,380				15,500,000
Diluted weighted average number of shares			31,061,380				15,555,475

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

      

            

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

                        

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(Stated in thousands of U.S. dollars, except share data)

Balance		Shares amount				Common stock				Additional paid-in capital				Accumulated earnings (losses)				Accumulated other comprehensive income (loss)				Total
December 31, 2005			15,500,000			$	155			$	48,418			$	(5,295	)		$	196			$	43,474
Comprehensive income:
–  Net income			-				-				-				13,278				-				13,278
–  Net loss on EURO hedge            agreement designated as cash            flow hedge			-				-				-				-				(6	)			(6	)
Total comprehensive income																							13,272
September 30, 2006			15,500,000			$	155			$	48,418			$	7,983			$	190			$	56,746
December 31, 2006			28,346,952			$	283			$	173,826			$	5,231			$	89			$	179,429
Issuance of common stock			5,096,078				51				96,774				-				-				96,825
Underwriting fees and issuance expenses			-				-				(5,731	)			-				-				(5,731	)
Compensation related to options   and restricted stock granted			-				-				1,374				-				-				1,374
Comprehensive loss:
–  Net loss			-				-				-				(1,830	)			-				(1,830	)
–  Net loss on EURO hedge            agreement designated as cash         flow hedge			-				-				-				-				(6	)			(6	)
–  Net income on forward fuel          purchase agreements          designated as cash flow hedge			-				-				-				-				98				98
–  Net loss on FFAs designated          as cash flow hedge			-				-				-				-				(19,178	)			(19,178	)
Total comprehensive loss																							(20,916	)
September 30, 2007			33,443,030			$	334			$	266,243			$	3,401			$	(18,997	)		$	250,981

 

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

      

          

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

                        

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Stated in thousands of U.S. dollars)

		For the nine-month periods ended September 30,
		2007				2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income		$	(1,830	)		$	13,278
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation of vessels and equipment			19,391				13,916
Amortization of dry docking			5,450				5,993
Expenditure for dry docking			(4,740	)			(1,188	)
Net loss on FFAs			16,235				-
Amortization of intangible assets			589				393
Share-based compensation			1,374				-
Note issuance expenses amortization			750				811
Minority interest in equity of subsidiaries			503				1,010
Net (gain) from investment in affiliates			(454	)			(674	)
Allowance for doubtful accounts			142				417
(Gain) on disposal of assets			-				(630	)
Changes in assets and liabilities net of effects from purchase of Otto Candies in 2007 and UP Offshore (Bahamas) and Ravenscroft in 2006:
Decrease (increase) in assets:
Accounts receivable			1,219				(7,240	)
Receivable from related parties			(457	)			(626	)
Marine and river operating supplies			(95	)			(674	)
Prepaid expenses			(2,438	)			(1,648	)
Other receivables			(1,293	)			(3,005	)
Other			466				(264	)
Increase (decrease) in liabilities:
Accounts payable			2,144				3,184
Payable to related parties			(420	)			(770	)
Other			6,136				3,937
Net cash provided by operating activities			42,672				26,220
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of vessels and equipment ($16,277 and $4,401 in 2007 and 2006 for vessels in construction)			(89,879	)			(21,293	)
Purchase of Otto Candies, net of cash acquired			(13,772	)			-
Funding cash collateral of FFAs			(41,992	)			-
Cash settlements of FFAs			(935	)			-
Decrease in loans to related parties			-				11,391
Proceeds from disposal of assets			-				2,630
Other			-				139
Net cash (used in) investing activities			(146,578	)			(7,133	)
CASH FLOWS FROM FINANCING ACTIVITIES
Scheduled repayments of long-term financial debt			(5,104	)			(6,184	)
Early repayment of long-term financial debt			(25,300	)			-
Payments of deferred costs related to shares public offering			-				(1,586	)
Proceeds from common shares public offering, net of issuance costs			91,094				-
Proceeds from long-term financial debt			82,244				-
Other			(532	)			(563	)
Net cash provided by (used in) financing activities			142,402				(8,333	)
Net increase in cash and cash equivalents			38,496				10,754
Cash and cash equivalents at the beginning of year		$	20,648			$	7,914
Cash and cash equivalents at the end of period		$	59,144			$	18,668

 

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

      

          

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

                        

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in thousands of U.S. dollars, except per share data and otherwise indicated)

(Information pertaining to the nine-month periods ended September 30, 2007 and 2006 is unaudited)

 

1.	NATURE OF OPERATIONS AND CORPORATE ORGANIZATION

Nature of operations

Ultrapetrol (Bahamas) Limited (“Ultrapetrol Bahamas”, “Ultrapetrol”, “the Company”, “us” or “we”) is a company organized and registered as a Bahamas Corporation since December 1997.

We are a shipping transportation company serving the marine transportation needs of our clients in the markets on which we focus.  We serve the shipping markets for grain, forest products, minerals, crude oil, petroleum, and refined petroleum products, as well as the offshore oil platform supply market, and the leisure passenger cruise market through our operations in the following four segments of the marine transportation industry.  In our Ocean Business, we are an owner and operator of oceangoing vessels that transport petroleum products and dry cargo. In our Passenger Business, we are an owner of cruise vessels that transport passengers primarily cruising the Mediterranean and Black Sea.  In our River Business we are an owner and operator of river barges and pushboats in the Hidrovia region of South America, a region of navigable waters on the Parana, Paraguay and Uruguay Rivers and part of the River Plate, which flow through Brazil, Bolivia, Uruguay, Paraguay and Argentina.  In our Offshore Supply Business we own and operate vessels that provide logistical and transportation services for offshore petroleum exploration and production companies, primarily in the North Sea and the coastal waters of Brazil.

2.	SIGNIFICANT ACCOUNTING POLICIES

a)	Basis of presentation and principles of consolidation

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information.  The consolidated balance sheet at December 31, 2006, has been derived from the audited financial statement at that date.  The unaudited condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements.  All adjustments which, in the opinion of the management of the Company, are considered necessary for a fair presentation of the results of operations for the periods shown are of a normal, recurring nature and have been reflected in the unaudited condensed consolidated financial statements.  When a cost that is expensed for annual reporting purposes clearly benefits two or more interim periods, each interim period is charged for an appropriate portion of the annual cost by the use of deferrals. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year or for any future period.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, both majority and wholly owned.  Significant intercompany accounts and transactions have been eliminated in this consolidation. Investments in 50% or less owned affiliates, in which the Company exercises significant influence, are accounted for by the equity method.

      

           

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- 6 -
            

        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

b)	Earnings per share:

In accordance with Statement of Financial Accounting Standards No. 128, Earnings per share (“SFAS 128”) basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the relevant periods. Diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common shares result in the issuance of such shares. In determining dilutive shares for this purpose the Company assumes, through the application of the treasury stock method, all restricted stock grants have vested, all common shares have been issued pursuant to the exercise of all outstanding stock options and all common shares have been issued pursuant to the issuance of all outstanding warrants.

Antidilutive instruments are excluded from net income (loss) per share calculations in all periods for which they are antidilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share:

		For the nine-month periods ended September 30,
		2007				2006
Net (loss) income		$	(1,830	)		$	13,278
Basic weighted average number of shares			31,061,380				15,500,000
Effect on dilutive shares:
Options and restricted stock			-				-
Warrants issued			-				55,475
Diluted weighted average number of shares			31,061,380				15,555,475
Basic net (loss) income per share		$	(0.06	)		$	0.86
Diluted net (loss) income per share		$	(0.06	)		$	0.85

3.	ACQUISITION OF 100% OF OTTO CANDIES

On March 7, 2007, the Company through its subsidiaries in the River Business acquired all of the issued and outstanding shares of Candies Paraguayan Ventures LLC and Compañía Paraguaya de Transporte Fluvial S.A. (the “Otto Candies acquisition”) for $13,797 in cash.  At time of acquisition, Otto Candies owned 12 river barges and 1 pushboat valued at $13,679 and had cash of $25, other current assets of $442 and outstanding current liabilities of $349.

The results of the Otto Candies acquisition are included in the unaudited condensed consolidated financial statements since the date of acquisition.

Due to immateriality, the Company has not prepared pro forma information related to this acquisition.

 

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

4.	VESSELS AND EQUIPMENT, NET

The capitalized cost of the vessels and equipment, and the related accumulated depreciation at September 30, 2007 and December 31, 2006 were as follows:

 

		At September 30, 2007				At December 31, 2006
Ocean-going vessels		$	184,680			$	152,122
River barges and pushboats			172,718				125,172
PSVs			113,578				87,599
Construction of PSVs in progress			17,743				34,943
Advance for PSVs construction			9,120				-
Passenger vessels			41,127				38,321
Furniture and equipment			6,583				7,571
Building, land and operating base			13,847				8,782
Total original book value			559,396				454,510
Accumulated depreciation			(140,536	)			(121,319	)
Net book value		$	418,860			$	333,191

At September 30, 2007, the net book value of the assets pledged as a guarantee of the debt was approximately $227,400.

-	PSVs Construction

On July 25, 2007, UP Offshore (Bahamas) Ltd. reached an agreement with a shipyard in China upon the main terms to construct two PSVs with deliveries commencing in second half 2009 with an option for two more PSVs.  The price for each new PSV to be constructed in China is $25,000 to be paid in five installments of 20% of the contract price each, prior to delivery.  The effectiveness of this agreement is contingent upon the shipyard providing a refund guarantee for this contract.

On February 21, 2007, UP Offshore (Bahamas) Ltd. signed a shipbuilding contract with a shipyard in India for construction of two PSVs with a combined cost of $43,300, with the delivery schedule beginning in 2009.  The purchase price will be paid in five installments of 20% of the purchase price each, prior to delivery.  At September 30, 2007, UP Offshore (Bahamas) Ltd. paid the first installment of $8,660 which is recorded under Advance for PSVs construction.

On June 13, 2007 UP Offshore (Bahamas) Ltd. exercised the option to acquire two additional PSVs which will be delivered in March and July 2010 for a total cost of $ 43,300.  At September 30, 2007 no advances had been made.

In June 2003, UP Offshore Apoio Maritimo Ltda. (our Brazilian subsidiary in the Offshore Supply Business) signed shipbuilding contracts for construction of four PSVs with EISA Estaleiro Ilha S/A (EISA), a Brazilian corporation. During November 2005 UP Offshore Apoio Maritimo Ltda. and EISA amended some conditions of the shipbuilding contracts, including the purchase price and the delivery dates.

The four PSVs were to be built by EISA at a combined cost of $69,750. Two of the four PSVs, were delivered in 2006 and the third one in May 2007.  The total remaining commitment at September 30, 2007 for the last PSV cost is approximately $7,700, which includes the minimum contractual obligation with the shipyard and the remaining necessary expenditure to commission the PSV in service.

 

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

 

-	Delivery of Alejandrina

On January 5, 2007 the Company took delivery of the Alejandrina and paid the balance of the purchase price of $15,300.

-	Acquisition of 33 river barges and a push boat

On June 14, 2007 the Company, through its subsidiaries in the River Business, purchased 33 river barges and a push boat for a total contract price of $7,852. The Company had also incurred $5,949 in additional costs relating to the acquisition of the barges.

-	Sale of Princess Marina

On July 10, 2007, we signed a memorandum of Agreement (MOA) to sell our Aframax vessel Princess Marina, for a total purchase price of $18,100 net of commissions and was delivered to her new owners on October 11, 2007.  Her carrying value at September 30, 2007, amounted to $7,527.

-	Acquisition of engines in the River Business

On July 10, 2007, we contracted to purchase 18 new heavy fuel engines for some of our large and medium sized pushboats in our River Business.  The total purchase price of the engines is approximately €15,600 with deliveries ranging between March and December 2009. As of September 30, 2007 we had paid €3,100 as advance under these contracts.

-	Acquisition of 12 river barges

On September 26, 2007, the Company, through its subsidiaries in the River Business purchased 12 river barges.

5.	LONG-TERM DEBT AND OTHER FINANCIAL DEBT

Balances of long-term debt and other financial debt at September 30, 2007 and December 31, 2006:

		Financial institution /				Nominal value						Nominal annual
		Other		Due-year		Current		Noncurrent		Total		interest rate
Ultrapetrol (Bahamas) Ltd.		Private Investors Notes)		2014		$           -		$    180,000		$     180,000		9.000%
UP Offshore (Bahamas) Ltd.		DVB  AG		Through 2016		4,633		53,197		57,830		Libor + 1.200%
UP Offshore Apoio		DVB AG Tranche A		Through 2016		900		10,675		11,575		Libor + 1.200%
UP Offshore Apoio		DVB AG Tranche B		Through 2009		667		278		945		Libor + 1.200%
Stanyan Shipping Inc.		Natixis		Through 2017		908		12,254		13,162		6.380%
Danube Maritime Inc.		BNP Paribas		Through 2009		-		7,322		7,322		Libor + 0.750%
At September 30, 2007						$   7,108		$    263,726		$     270,834
At December 31, 2006						$   4,700		$    214,294		$     218,994

a)	Loan with DVB Bank AG (DVB AG) of up to $61,306

On December 28, 2006 UP Offshore (Bahamas) Ltd. (our subsidiary in the Offshore Supply Business) as Borrower, Packet Maritime Inc., Padow Shipping Inc. and UP Offshore Apoio Maritimo Ltda. (collectively the owners of our PSVs UP Safira, UP Esmeralda, UP Agua Marinha and UP Topazio) and Ultrapetrol (Bahamas) Limited as Guarantors entered into a $61,306 loan agreement with DVB AG for the purposes of providing post delivery re-financing of our Panamanian registered PSVs named UP Safira and UP Esmeralda and the Brazilian registered PSV UP Topazio.

 

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

The loan bears interest at LIBOR rate plus 1.20% per annum with quarterly principal and interest payments and maturing through December 2016. Beginning in March 2007, the principal payments equal to the regularly scheduled quarterly principal payments ranging from $1,075 to $1,325 with a balloon installment of $16,000 in December 2016. If a PSV is sold or becomes a total loss, the Borrower shall prepay the loan in an amount equal to the stipulated value of such PSV, which is initially stipulated in $18,750 and shall be reduced in the amount of $387.5 on each repayment date.

The loan is secured by a first priority mortgage on the UP Safira, UP Esmeralda and UP Topazio and by a second priority mortgage on the UP Agua - Marinha and is jointly and severally irrevocably and unconditionally guaranteed by Packet Maritime Inc., Padow Shipping Inc., UP Offshore Apoio Marítimo Ltd. and Ultrapetrol (Bahamas) Limited.  The loan also contains customary covenants that limit, among other things, the Borrower’s ability to incur additional indebtedness, grant liens over their assets, sell assets, pay dividends, repay indebtedness, merge or consolidate, change lines of business and amend the terms of subordinated debt.  The agreement governing the facility also contains customary events of default. If an event of default occurs and is continuing, DVB AG may require the entire amount of the loan be immediately repaid in full.  Further, the loan agreement requires until December 2009 that the PSVs pledged as security have an aggregate market value of at least 117.6% of the value of the loan amount and at all times thereafter an aggregate market value of at least 133.3% of the value of the loan.

During the period we drew down the full amount of the loan.  At September 30, 2007 the principal outstanding balance was $57,830.

b)	Loan with Natixis of up to $13,616

On January 29, 2007 Stanyan Shipping Inc. (our wholly owned subsidiary in the Ocean Business and the owner of the M/V Alejandrina) drew down an amount of $13,616 under a loan agreement with Natixis to provide post-delivery finance secured on the Alejandrina. The loan shall be repaid by 40 equal consecutive quarterly installments of $227 each together with a balloon installment of $4,536 payable with the final installment and maturing through January 2017. The loan accrues interest at 6.38% per annum for the first five years of the loan and LIBOR plus 1.25% per annum thereafter.

The loan is secured by a mortgage on the M/V Alejandrina and is guaranteed by Ultrapetrol (Bahamas) Limited. The loan also contains customary covenants that limit, among other things, the Borrower’s and the Guarantors’ ability to incur additional indebtedness, grant liens over their assets, sell assets, pay dividends, repay indebtedness, merge or consolidate, change lines of business and amend the terms of subordinated debt. The agreement governing the facility also contains customary events of default.

During the period we drew down the full amount of the loan.  At September 30, 2007 the principal outstanding balance was $13,162.

c)	Loan with the DVB Bank America (DVB NV) of up $30,000:

On April 27, 2005 UP Offshore (Panama) S.A. (our subsidiary in the Offshore Supply Business) as Holding Company entered into a $30,000 loan agreement with DVB NV for the purpose of providing post delivery financing of two PSVs named UP Esmeralda and UP Safira, which were delivered in May and June 2005, and repaying existing financing shareholder loans.

 

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

In January 2007, the Company fully prepaid the outstanding principal balance of the loan of $25,300 with the proceeds of the loan with DVB Bank AG of up to $61,306 (see Note 5.a).

6.	COMMITMENTS AND CONTINGENCIES

The Company is subject to legal proceedings, claims and contingencies arising in the ordinary course of business. When such amounts can be estimated and the contingency is probable, management accrues the corresponding liability.  While the ultimate outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management does not believe the costs of such actions will have a material effect on the Company´s consolidated financial position or results of operations.

a)	Paraguayan Customs Dispute

On September 21, 2005 the local Customs Authority of Ciudad del Este, Paraguay issued a finding that certain UABL entities owe taxes to that authority in the amount of $2,200, together with a fine for non-payment of the taxes in the same amount, in respect of certain operations of our River Business for the prior three-year period. This matter was referred to the Central Customs Authority of Paraguay. We believe that this finding is erroneous and UABL has formally replied to the Paraguayan Customs Authority contesting all of the allegations upon which the finding was based.

After review of the entire case the Paraguayan Central Tax Authorities who have jurisdiction over the matter have confirmed the Company has no liability in respect of two of the three matters at issue, while they held a dissenting view on the third issue.  Through a Resolution which was notified to UABL on October 13, 2006 the Paraguayan Undersecretary for Taxation has confirmed that, in his opinion, the Company is liable for a total of approximately $539 and has applied a fine of 100% of this amount. On November 24, 2006, the court confirmed that UABL is not liable for the first two issues.  The Company has entered a plea with the respective court contending the interpretation on the third issue where the Company claims to be equally non-liable.

We have been advised by UABL’s counsel in the case that they believe that there is only a remote possibility that a court would find UABL liable for any of these taxes or fines.

b)	Tax claim in Bolivia

On November 3, 2006 and April 25, 2007, the Bolivian Tax Authority (Departamento de Inteligencia Fiscal de la Gerencia Nacional de Fiscalización) issued a notice informing that UABL International S.A. (a Panamanian subsidiary of the Company in the River Business) would owe taxes to that authority in the amount of approximately $2,500 (including interest) together with certain fines that have not been determined yet.  On June 18, 2007 our legal counsel in Bolivia submitted points of defense to the Bolivian tax authorities.

We have been advised by our local counsel in the case that there is only a remote possibility that UABL International S.A. would be found liable for any of these taxes or fines.

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

7.	FORWARD FREIGHT AGREEMENTS

During the second quarter of 2007 the Company entered into Forward Freight Agreements (“FFAs”) with an objective to utilize them as economic hedging instruments that reduce its exposure to changes in the spot market rates earned by certain of its vessels in the normal course of its Ocean Business. These FFAs involve a contract to provide a fixed number of days at fixed rates. These contracts are going to be net settled each month with the Company receiving a fixed rate per day and paying a floating amount based on the average of the 4 Capesize Time Charter Routes (“C4TC”).

We entered into FFAs via BNP Paribas Commodity Futures Limited ("BNP Paribas") to LCH.Clearnet ("LCH"), a London clearing house.

At September 30, 2007 the outstanding FFAs entered by the Company were as follows:

Days		Fixed rate Received ($/Day)		Floating rate paid		Nominal amount		Settlement date
46		85.000		C4TC		3,910		October to December 2007
366		77.250		C4TC		28,273		January to December 2008
180		80.000		C4TC		14,400		January to December 2008
180		79.500		C4TC		14,310		January to December 2008
180		51.000		C4TC		9,180		January to December 2009
						$     70,073

Certain FFAs qualified as cash flow hedges for accounting purposes at September 30, 2007 with the change in fair value of the effective portions being recorded in accumulated other comprehensive income (loss) as a loss amounting to $19,178.  The qualification of a cash flow hedge for accounting purposes may depend upon the predicted routes of some of our vessels matching those taken into consideration in calculating the value of the FFAs we have entered into as economic hedge instruments.  A significant difference between both may result in amounts accounted for as other comprehensive income (loss) becoming unrealized profits or losses in the Company’s statement of income at that time.  All qualifying hedges together with FFAs that do not qualify for hedge accounting are shown at fair value in the balance sheet.

At September 30, 2007 the fair market value of the FFAs, resulted in a liability to the Company of $33,493 is offset against the cash collateral amounted to $41,992.  The Company recorded an aggregate net unrealized loss of $14,315 and a realized loss of $1,920 for the nine-month period ended September 30, 2007, which is reflected on the Company’s statement of income as Other income (expenses) – Net loss on FFAs for transactions involving FFAs, which have not been designated as hedges for accounting purposes and for the ineffective portion of the FFAs qualified as cash flow hedges for accounting purposes.

In connection with these FFAs, as of September 30, 2007, we had transferred $41,992 to cover the margin requirements for these transactions. We had utilized $7,322 under a credit facility of $9,000 we have with BNP Paribas to cover margin requirements. We pay interest of LIBOR plus 0.75% per annum on the amounts withdrawn under the BNP Paribas facility.

 

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

Although the use of a clearing house reduces the Company’s exposure to counterparty credit risk, the Company is exposed to credit loss in the event of non-performance by the counterparty to the FFAs; however, the Company does not currently expect non-performance by the counterparty.

8.	INCOME TAXES

The Company operates through its subsidiaries, which are subject to several tax jurisdictions, as follows:

a)

Bahamas

The earnings from shipping operations were derived from sources outside the Bahamas and such earnings were not subject to Bahamian taxes.

b)

Panama

The earnings from shipping operations were derived from sources outside Panama and such earnings were not subject to Panamanian taxes.

c)

Paraguay

Our subsidiaries, Parfina S.A., Oceanpar S.A., UABL Paraguay, Parabal S.A., Yataity, Riverpar and Compañía Paraguaya de Transporte Fluvial S.A. are subject to Paraguayan corporate income taxes.

d)

Argentina

Our subsidiaries, Ultrapetrol S.A., UABL S.A., Argenpar S.A. and Sernova S.A., are subject to Argentine corporate income taxes.

In Argentina, the tax on minimum presumed income (“TOMPI”), supplements income tax since it applies a minimum tax on the potential income from certain income generating-assets at a 1% tax rate.  The Company’s tax obligation in any given year will be the higher of these two tax amounts.  However, if in any given tax year TOMPI exceeds income tax, such excess may be computed as payment on account of any excess of income tax over TOMPI that may arise in any of the ten following years.

e)

Brazil

Our subsidiaries in the Offshore Supply Business, UP Offshore Apoio Maritimo Ltda. and Agriex Agenciamientos Afretamentos e Apoio Maritimo Ltda. are subject to Brazilian corporate income taxes.

UP Offshore Apoio Maritimo Ltda., has foreign currency exchange gains recognized for tax purposes only in the period the debt (including intercompany transactions) is extinguished.  A deferred tax liability is recognized in the period the foreign currency exchange rate changes equal to the future taxable income at the applicable tax rate.

f)

Chile

Our subsidiary in the Ocean Business, Corporación de Navegación Mundial S.A. (Cor.Na.Mu.S.A.) is subject to Chilean corporate income taxes.

 

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

g)	US federal income tax

Under the United Stated Internal Revenue Code of 1986, as amended, or the Code, 50% of the gross shipping income of our vessel owning or chartering subsidiaries attributable to transportation that begins or ends, but that does not both begin and end, in the U.S. are characterized as U.S. source shipping income.  Such income is subject to 4% U.S. federal income tax without allowance for deduction, unless our subsidiaries qualify for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.

For the nine-month periods ended September 30, 2007 and 2006 the Company and its subsidiaries did not derive any U.S. source shipping income.  Therefore our subsidiaries are not subject to any U.S. federal income taxes, except our ship management services provided by Ravenscroft.

h)	United Kingdom

UP Offshore (UK) Limited is not subject to corporate income tax in the United Kingdom, however, it qualifies under UK tonnage tax rules and pays a flat rate based on the NRT of the vessels operating out of the UK, instead of income taxes on trading profits.

9.	RELATED PARTY TRANSACTIONS

At September 30, 2007 and December 31, 2006, the balances of receivables from related parties, were as follows:

 

		At September 30, 2007				At December 31, 2006
Current:
Receivable from related parties
−  Maritima Sipsa S.A.		$	1,196			$	278
−  Puertos del Sur S.A. and O.T.S.			2,758				2,584
−  Other			110				460
		$	4,064			$	3,322
Noncurrent:
Receivable from related parties - Puertos del Sur S.A. (1)		$	1,995			$	2,280

(1)	This loan accrues interest at a nominal interest rate of 7% per year, payable semi-annually.  The principal will be repaid in 8 equal annual installments, beginning on June 30, 2008.

At September 30, 2007 and December 31, 2006 the balance of payable to related parties, were as follows:

		At September 30, 2007				At December 31, 2006
Payable to related parties --
Maritima Sipsa S.A.		$	-			$	420

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

Revenues from related parties

For the nine-month periods ended September 30, 2007 and 2006, the revenues derived from related parties were as follows:

 

		For the nine-month periods ended September 30,
		2007				2006
Maritima Sipsa S.A. (1)		$	2,764			$	2,625
Maritima Sipsa S.A. (2)			188				75
		$	2,952			$	2,700

(1)	Sale and repurchase of vessel Princess Marina

In 2003, the Company entered into certain transactions to sell, and repurchase in 2006, to and from Maritima Sipsa S.A., a 49% owned company, the vessel Princess Marina.  The combined effect of the sale at $15,100, repurchase at $7,700 and a loan granted to Maritima Sipsa S.A. for $7,400 resulted in no cash flow on a consolidated basis at the time of execution.  The loan is repaid to the Company on a quarterly basis over a three-year period ended June 2006.  In June 2006, the Company and Maritima Sipsa S.A. entered into an amended agreement to modify the delivery date of the vessel to February 2007 or at a later date if the charter was further extended, at a purchase price not exceeding $7,700.  In March 2007, the delivery date was postponed to September 2007 and the purchase price was reduced to $3,645.  On September 28, 2007 Marítima Sipsa S.A. delivered the vessel Princess Marina to us.  The transaction was recognized in the Company’s statements of income as a lease, reflecting quarterly payments as charter revenues while the vessel remains presented in the accompanying balance sheets as an asset.

(2)	Management fee billed by Ravenscroft

Since the date of acquisition of Ravenscroft we included the management fee billed by Ravenscroft to Maritima Sipsa S.A., a 49% owned company, for the ship management services for the vessel Princess Marina.  The stipulated fee is $21 and $12.5 per month during 2007 and 2006, respectively.

Management fee paid

For the nine-month periods ended September 30, 2007 and 2006, management fees were expensed with the following related parties:

		For the nine-month periods ended September 30,
		2007				2006
Oceanmarine		$	-			$	150
Ravenscroft Shipping Inc.			-				361
Total		$	-			$	511

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

We purchased Ravenscroft and hired the administrative personnel and purchased the administration related assets of Oceanmarine in March 2006; accordingly, after those acquisitions, we did not pay fees to these related parties, but directly incurred in-house all costs of ship management and administration.

Voyage expenses paid to related parties

For the nine-month periods ended September 30, 2007 and 2006, the voyage expenses paid to related parties were as follows:

		For the nine-month periods ended September 30,
		2007				2006
Bareboat charter paid (1)		$	-			$	2,640
Brokerage commissions (2)			-				319
Commercial commissions (3)			277				63
Total		$	277			$	3,022

(1)	Bareboat charter paid to related parties

Since the second quarter of 2005, through our subsidiary, Corporación de Navegación Mundial S.A., the Company entered into a bareboat charter with UP Offshore (Panama) S.A., a wholly owned subsidiary of UP Offshore (Bahamas) Limited, for the rental of the two PSVs named UP Safira and UP Esmeralda for a daily lease amount for each one. Since March 21, 2006, the date of UP Offshore additional acquisition, our unaudited condensed consolidated financial statements included the operations of UP Offshore (Panama) S.A., on a consolidated basis. Therefore, these transactions have been eliminated in the unaudited condensed consolidated financial statements since that date. Prior to the additional acquisition, the equity method was used.

(2)	Brokerage commissions

Ravenscroft from time to time acted as a broker in arranging charters for the Company’s oceangoing vessels for which Ravenscroft charged brokerage commissions of 1.25% on the freight, hire and demurrage of each such charter.

Since March 20, 2006, the date of Ravenscroft acquisition, our unaudited condensed consolidated financial statements included the operations of Ravenscroft, on a consolidated basis. Therefore, these transactions have been eliminated in the unaudited condensed consolidated financial statements since that date.

(3)	Commercial agreement with Comintra

On June 25, 2003, UP Offshore (Bahamas) Ltd. signed a commercial agreement with Comintra.

Under this agreement Comintra agrees to assist UP Offshore (Bahamas) Ltd. regarding the commercial activities of UP Offshore (Bahamas) Ltd.’s fleet of six PSVs with the Brazilian offshore oil industry.  Comintra’s responsibilities, among others, include marketing the PSVs in the Brazilian market and negotiating the time charters or other revenues contracts with prospective charterers of the PSVs.

The parties agreed that Comintra’s professional fees under this agreement shall be 2% of the gross time charters revenues from Brazilian charters collected by UP Offshore (Bahamas) Ltd. on a monthly basis.

During 2005 UP Offshore (Bahamas) Ltd. paid in advance to Comintra fees under this agreement in the amount of $1,500.  At September 30, 2007 the balance amounted to $1,090.

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

Operations in OTS S.A.’s terminal

UABL Paraguay, a subsidiary in the River Business, operates the terminal that pertains to Obras Terminales y Servicios S.A. (OTS S.A.), a related party.

For the nine-month periods ended September 30, 2007 and 2006, UABL Paraguay paid to OTS S.A. $554 and $507, respectively, for this operation.

10.	SHARE CAPITAL

Common shares and shareholders

On September 21, 2006, Inversiones Los Avellanos S.A., Hazels (Bahamas) Investments Inc. and Solimar Holdings Ltd. (collectively the “Original Shareholders”) signed a second amended and restated shareholders agreement.  The shares held directly by our Original Shareholders expressly entitle to seven votes per share and all other holders of our common stock entitle to one vote per share. The special voting rights of the Original Shareholders are not transferable.

On April 19, 2007 the Company closed on the sale of 5,096,078 new shares of our common stock at $19.00 per share through a public offering.  The proceeds of $96,825 were used:

•	to replace cash on hand of $13,800 used to fund the Otto Candies acquisition, and $8,660 used to fund the first advance of the construction costs of the two PSVs being built in India.

•

to cancel underwriters fees and additional fees and incremental expenses amounted to $5,731, with the remaining $68,734 set aside $34,640 for funding the balance of the construction costs of the two PSVs being built in India, $12,000 to fund the expansion of the capacity of our shipyard in the Hidrovia Region for construction of new barges and $22,094 for general corporate purpose.

On the same date, one of the Original Shareholders sold 7,553,922 (include 1,650,000 shares for the exercise of the over-allotment option from the underwriters) shares of our common stock at $19.00 per share.  The Company did not receive any proceeds from the sale of any shares sold by one of the Original Shareholders.

At September 30, 2007, the issued and outstanding shares are 33,443,030 par value $.01 per share.

At September 30, 2007 and after this transaction our shareholders Solimar Holdings Ltd., Inversiones Los Avellanos S.A. and Hazels (Bahamas) Investments Inc. (a wholly owned subsidiary of Inversiones Los Avellanos S.A.) hold 3,124,073, 4,735,518 and 159 shares, respectively, which represent 9.30%, 14.10% and 0.0005%, respectively.  The joint voting power for these shares represents approximately 68% of the total voting power.

11.	BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION

The Company organizes its business and evaluates performance by its operating segments, Ocean, River, Offshore Supply and Passenger Business.  The accounting policies of the reportable segments are the same as those for the unaudited condensed consolidated financial statements. The Company does not have significant intersegment transactions.  These segments and their respective operations are as follows:

Ocean Business:  In our Ocean Business, we own and operate oceangoing vessels and semi-integrated oceangoing tug barge units under the trade name Ultrapetrol. Our Suezmax and Aframax vessels transport dry and liquid bulk goods on major trade routes around the globe. Major products carried include liquid cargo such as petroleum and petroleum derivatives, as well as dry cargo such as iron ore, coal and other bulk cargoes.

 

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

River Business:  In our River Business, we own and operate several dry and tanker barges, and push boats.  In addition, we use one barge from our ocean fleet, the Alianza G2, as a transfer station.  The dry barges transport basically agricultural and forestry products, iron ore and other cargoes, while the tanker barges carry petroleum products, vegetable oils and other liquids.

We operate our pushboats and barges on the navigable waters of Parana, Paraguay and Uruguay Rivers and part of the River Plate in South America, also known as the Hidrovia region.

Offshore Supply Business:  We operate our Offshore Supply Business, using PSVs of UP Offshore (Bahamas), two are employed in the spot market in the North Sea and three in the Brazilian market.  PSVs are designed to transport supplies such as containerized equipment, drill casing, pipes and heavy loads on deck, along with fuel, water, drilling fluids and bulk cement in under deck tanks and a variety of other supplies to drilling rigs and platforms.

Passenger Business:  We own two vessels purchased in 2005. Operations were concentrated in the Mediterranean, Black and Aegean Seas.

Ultrapetrol’s vessels operate on a worldwide basis and are not restricted to specific locations.  Accordingly, it is not possible to allocate the assets of these operations to specific countries.  In addition, the Company does not manage its operating profit on a geographic basis.

		For the nine-month periods ended September 30,
		2007				2006
Revenues (1)
−  South America		$	85,535			$	62,260
−  Europe			74,021				59,740
−  Asia			3,388				4,413
−  Other			998				1,297
		$	163,942			$	127,710
(1)  Classified by country of domicile of charterers.

Revenue by segment consists only of services provided to external customers, as reported in the unaudited condensed consolidated statement of income.  Resources are allocated based on segment profit or loss from operation, before interest and taxes.

Identifiable assets represent those assets used in the operations of each segment.

The following schedule presents segment information about the Company’s operations for the nine-month period ended September 30, 2007:

 

		Ocean Business				River Business				Passenger Business				Offshore Supply Business				Total
Revenues		$	39,237			$	69,665			$	24,887			$	30,153			$	163,942
Running and voyage expenses			12,231				48,444				21,117				10,644				92,436
Depreciation and amortization			10,968				7,134				4,153				3,175				25,430
Segment operating profit (loss)			11,040				9,262				(1,149	)			13,076				32,229
Segment assets			132,221				169,123				39,158				148,578				489,080
Investments in affiliates			875				1,864				-				-				2,739
Income (loss) from investment             in affiliates			526				(72	)			-				-				454
Additions to long-lived assets		$	32,721			$	38,075	(1)		$	2,806			$	16,277			$	89,879

(1) Does not include the 12 river barges and 1 pushboat acquired in the Otto Candies acquisition valued at $13,679.

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

Reconciliation of total assets of the segments to amount included in the unaudited condensed consolidated balance sheet as follow:

		At September 30, 2007
Total assets for reportable segments		$	489,080
Other assets			12,755
Corporate cash and cash equivalents			59,144
Consolidated total assets		$	560,979

The following schedule presents segment information about the Company’s operations for the nine-month period ended September 30, 2006:

		Ocean Business				River Business				Passenger Business				Offshore Supply Business				Total
Revenues		$	30,365			$	59,324			$	20,152			$	17,869			$	127,710
Running and voyage expenses			10,682				39,741				12,799				6,981				70,203
Depreciation and amortization			10,792				5,879				2,231				1,400				20,302
Segment operating profit			6,042				9,788				4,593				7,914				28,337
Income (loss) from investment in affiliates			396				(51	)			-				329				674
Additions to long-lived assets		$	971			$	6,030			$	9,891			$	4,401			$	21,293

12.	SUPPLEMENTAL GUARANTOR INFORMATION

On November 24, 2004, the Company issued $180,000 9% First Preferred Ship Mortgage Notes due 2014.

The 2014 Senior Notes are fully and unconditionally guaranteed on a joint and several senior basis by the majority of the Company’s subsidiaries directly involved in our Ocean, River and Passenger Business.

The Indenture provides that the 2014 Senior Notes and each of the guarantees granted by Subsidiaries, other than the Mortgage, are governed by, and construed in accordance with, the laws of the state of New York.  Each of the mortgaged vessels is registered under either the Panamanian flag, or another jurisdiction with similar procedures. All of the Subsidiary Guarantors are outside of the United States.

Supplemental condensed combining financial information for the Guarantor Subsidiaries for the 2014 Senior Notes is presented below.  This information is prepared in accordance with the Company’s accounting policies.  This supplemental financial disclosure should be read in conjunction with the unaudited condensed consolidated financial statements.

 

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET

AT SEPTEMBER 30, 2007 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Current assets
Receivables from related parties		$	260,592			$	44,508			$	6,268			$	(307,304	)		$	4,064
Other current assets			44,014				17,878				31,826				-				93,718
Total current assets			304,606				62,386				38,094				(307,304	)			97,782
Noncurrent assets
Vessels and equipment, net			-				136,751				283,301				(1,192	)			418,860
Investment in affiliates			128,678				-				2,739				(128,678	)			2,739
Other noncurrent assets			5,668				17,046				18,884				-				41,598
Total noncurrent assets			134,346				153,797				304,924				(129,870	)			463,197
Total assets		$	438,952			$	216,183			$	343,018			$	(437,174	)		$	560,979
Current liabilities
Payables to related parties		$	1,097			$	203,867			$	102,340			$	(307,304	)		$	-
Other financial debt			-				-				7,108				-				7,108
Other current liabilities			6,874				5,754				12,939				-				25,567
Total current liabilities			7,971				209,621				122,387				(307,304	)			32,675
Noncurrent liabilities
Long-term debt			180,000				-				-				-				180,000
Financial debt, net of current portion			-				7,322				76,404				-				83,726
Other payables			-				149				9,942				-				10,091
Total noncurrent liabilities			180,000				7,471				86,346				-				273,817
Total liabilities			187,971				217,092				208,733				(307,304	)			306,492
Minority interests			-				-				-				3,506				3,506
Shareholders’ equity			250,981				(909	)			134,285				(133,376	)			250,981
Total liabilities, minority interests and shareholders’ equity		$	438,952			$	216,183			$	343,018			$	(437,174	)		$	560,979

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET

AT DECEMBER 31, 2006

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Current assets
Receivables from related parties		$	198,033			$	26,615			$	13,158			$	(234,484	)		$	3,322
Other current assets			16,191				13,351				21,906				-				51,448
Total current assets			214,224				39,966				35,064				(234,484	)			54,770
Noncurrent assets
Vessels and equipment, net			-				130,666				205,990				(3,465	)			333,191
Investment in affiliates			142,759				-				2,285				(142,759	)			2,285
Other noncurrent assets			6,233				10,732				19,168				-				36,133
Total noncurrent assets			148,992				141,398				227,443				(146,224	)			371,609
Total assets		$	363,216			$	181,364			$	262,507			$	(380,708	)		$	426,379
Current liabilities
Payables to related parties		$	1,097			$	144,779			$	89,028			$	(234,484	)		$	420
Other financial debt			-				-				4,700				-				4,700
Other current liabilities			2,690				4,289				10,672				-				17,651
Total current liabilities			3,787				149,068				104,400				(234,484	)			22,771
Noncurrent liabilities
Long-term debt			180,000				-				-				-				180,000
Other financial debt, net of current portion			-				-				34,294				-				34,294
Other noncurrent liabilities			-				346				6,448				-				6,794
Total noncurrent liabilities			180,000				346				40,742				-				221,088
Total liabilities			183,787				149,414				145,142				(234,484	)			243,859
Minority interests			-				-				-				3,091				3,091
Shareholders’ equity			179,429				31,950				117,365				(149,315	)			179,429
Total liabilities, minority interests and shareholders’ equity		$	363,216			$	181,364			$	262,507			$	(380,708	)		$	426,379

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2007 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Revenues		$	-			$	63,546			$	104,711			$	(4,315	)		$	163,942
Operating expenses			(5,582	)			(49,095	)			(81,307	)			4,271				(131,713	)
Operating profit (loss)			(5,582	)			14,451				23,404				(44	)			32,229
Investment in affiliates			2,687				-				454				(2,687	)			454
Other income (expenses)			1,065				(28,498	)			(1,545	)			-				(28,978	)
Income (loss) before income taxes and minority interest			(1,830	)			(14,047	)			22,313				(2,731	)			3,705
Income taxes			-				366				(5,398	)			-				(5,032	)
Minority interest			-				-				-				(503	)			(503	)
Net income (loss)		$	(1,830	)		$	(13,681	)		$	16,915			$	(3,234	)		$	(1,830	)

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2006 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Revenues		$	-			$	70,501			$	71,500			$	(14,291	)		$	127,710
Operating expenses (income)			(1,395	)			(55,536	)			(56,690	)			14,248				(99,373	)
Operating profit (loss)			(1,395	)			14,965				14,810				(43	)			28,337
Investment in affiliates			15,276				-				674				(15,276	)			674
Other income (expenses)			(603	)			(11,530	)			(2,192	)			-				(14,325	)
Income (loss) before income taxes and minority interest			13,278				3,435				13,292				(15,319	)			14,686
Income taxes			-				(665	)			267				-				(398	)
Minority interest			-				-				-				(1,010	)			(1,010	)
Net income (loss)		$	13,278			$	2,770			$	13,559			$	(16,329	)		$	13,278

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2007 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Net income (loss)		$	(1,830	)		$	(13,681	)		$	16,915			$	(3,234	)		$	(1,830	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities			1,271				(2,030	)			42,027				3,234				44,502
Net cash (used in) provided by operating activities			(559	)			(15,711	)			58,942				-				42,672
Intercompany sources			(62,559	)			-				-				62,559				-
Non-subsidiary sources			-				(61,887	)			(84,691	)			-				(146,578	)
Net cash (used in) provided by investing activities			(62,559	)			(61,887	)			(84,691	)			62,559				(146,578	)
Intercompany sources			-				75,290				(12,731	)			(62,559	)			-
Non-subsidiary sources			91,006				7,322				44,074				-				142,402
Net cash provided by (used in) financing activities			91,006				82,612				31,343				(62,559	)			142,402
Net increase in cash and cash equivalents		$	27,888			$	5,014			$	5,594			$	-			$	38,496

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2006 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Net income (loss)		$	13,278			$	2,770			$	13,559			$	(16,329	)		$	13,278
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities			(12,864	)			22,015				(12,538	)			16,329				12,942
Net cash (used in) provided by operating activities			414				24,785				1,021				-				26,220
Intercompany sources			(3,132	)			-				-				3,132				-
Non-subsidiary sources			11,391				(13,952	)			(4,572	)			-				(7,133	)
Net cash provided by (used in) investing activities			8,259				(13,952	)			(4,572	)			3,132				(7,133	)
Intercompany sources			(2,000	)			(11,550	)			16,682				(3,132	)			-
Non-subsidiary sources			(1,698	)			-				(6,635	)			-				(8,333	)
Net cash provided by (used in) financing activities			(3,698	)			(11,550	)			10,047				(3,132	)			(8,333	)
Net increase (decrease) in cash and cash equivalents		$	4,975			$	(717	)		$	6,496			$	-			$	10,754

      

           

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        ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES      

          
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

    

13.	SUBSEQUENT EVENTS

-	Acquisition of vessel

On October 19, 2007, we entered into a Memorandum of Agreement (MOA) to purchase the Peace Glory (to be renamed Princess Marisol), a 166,000 dwt Capesize vessel, for a total purchase price of $57,000.  We expect to take delivery of the vessel during November 2007.

-	Sale of New Flamenco

On October 22, 2007, we entered into a MOA to sell our larger passenger vessel New Flamenco for a total purchase price of $24,250, before commissions. The vessel was delivered to her buyers on November 6, 2007. At September 30, 2007 her carrying value was $23,600.

-	New loan with DVB Bank AG of up to $25,000

On October 31, 2007 UP Offshore (Bahamas) Ltd. (our subsidiary in the Offshore Supply Business) as Borrower entered into a loan agreement relating to a senior secured term loan facility of up to $25,000 with DVB Bank AG for the purposes of providing post delivery re-financing of our Brazilian registered PSV named UP Diamante.

The loan bears interest at LIBOR rate plus 1.50% per annum with quarterly principal and interest payments and maturing through 2017.

The loan is secured by a first priority mortgage on the UP Diamante and is jointly and severally irrevocably and unconditionally guaranteed by our subsidiaries in the Offshore Supply Business and Ultrapetrol (Bahamas) Limited.  The loan also contains customary covenants and events of default.

On November 1, 2007, UP Offshore (Bahamas) Ltd. drew down the full amount of the loan.

-	New loan with Banco BICE of up to $25,000

On October 12, 2007, we entered into a three-year, $15,000, revolving non-secured credit agreement with Banco BICE. Our obligations under this credit agreement are guaranteed by three of our subsidiaries. This loan bears interest at LIBOR rate plus 1.625% per annum.

On October 31, 2007, we and three of our subsidiaries entered into an amendment to the BICE credit agreement (and the corresponding amendments to the guarantees), whereby the revolving line was temporarily extended by $10,000 (to $25,000) and we agreed further to enter (through a subsidiary of ours) into a four-year term secured loan with BICE for a post-delivery financing of the Princess Marisol by January 7, 2008. Upon the entering into the BICE term loan the revolving line will be set up to $10,000 (down from $25,000). This loan bears interest at LIBOR rate plus 2.25% per annum.

On October 29 and November 2, 2007, we drew down $15,000 and $10,000 under the amended BICE credit agreement.