Euroseas Nine Months, Quarter Ended Report

Euroseas Ltd. (NASDAQ: ESEA), an owner and operator of drybulk and container carrier vessels and provider of seaborne transportation for drybulk and containerized cargoes, announced its results for the three and nine month periods ended September 30, 2009.

Third Quarter 2009 Highlights:
- Net income of $2.2 million or $0.07 per share basic and diluted on total net revenues of $17.2 million. Excluding the effect of unrealized gain on derivatives, unrealized loss on trading securities and amortization of the fair value of charters acquired, the net loss for the period would have been $0.3 million, or $0.01 loss per share basic and diluted.

- Adjusted EBITDA was $5.0 million.

- An average of 16.79 vessels were owned and operated during the third quarter of 2009 earning an average time charter equivalent rate of $15,101 per day.

- Declared a quarterly dividend of $0.05 per share for the third quarter of 2009 payable on December 18, 2009 to shareholders of record on December 11, 2009. This is the seventeenth consecutive quarterly dividend declared.

First Nine Months 2009 Highlights:
- Net income of $0.7 million or $0.02 per share basic and diluted on total net revenues of $47.3 million. Excluding the effect of unrealized loss on derivatives, unrealized gain on trading securities and amortization of the fair value of charters acquired, the net income for the period would have been $2.1 million, or $0.07 per share basic and diluted.

- Adjusted EBITDA was $17.0 million. Please refer to a subsequent section of this Press Release for a reconciliation of adjusted EBITDA to net income.

- An average of 16.17 vessels were owned and operated during the first nine months of 2009 earning an average time charter equivalent rate of $13,632 per day.

- Declared three quarterly dividends for a total of $0.25 per share during the first nine months of 2009.

Aristides Pittas, Chairman and CEO of Euroseas commented: "During the third quarter of 2009 we took delivery of our third drybulk vessel for the year, The vessel came with a t/c attached at $25,200/day for 6 months and we subsequently re-chartered it for a further two years at $17,500 thus improving our earnings visibility. At the same time, we have been able to recharter all the containerships coming out of charter for varying firm periods of a few months to a year, albeit at rates slightly below operating costs. As a result our current charter coverage for 2010 is about 47%, without including optional periods, broken down as about 80% for our bulkers fleet and 29% for our containership fleet. Whilst we are skeptical about the outlook of the drybulk market for 2010 (hence our high charter coverage) we believe the container market has reached the bottom where it may stay for a while but eventually can only move upwards. Especially for vessels under 2000 teu, like ours, we expect the recovery to come sooner than for the larger vessels.

“We intend to continue taking advantage of low vessel prices in any sector we can find them to further renew and expand our fleet. As the opportunities we see emerging seem very attractive, we have decided to preserve cash for future investments and decrease our dividend towards the lowest level of the range the Board considers satisfactory. Thus, our Board elected to declare a dividend of $0.05/share which still yields about 5% p.a. based on the recent levels of our stock price."

Tasos Aslidis, Chief Financial Officer of Euroseas commented: "The results of the third quarter of 2009, as expected, reflect the lower level of the charter markets compared to the same period a year ago. Our results were positively influenced by non-cash gains mainly on FFA contracts despite some non-cash losses on interest rate swaps.

“Total daily vessel operating expenses, including management fees and general and administrative expenses, during the third quarter of 2009 reflect a decrease about 25% on a per vessel per day basis compared to the third quarter of 2008. Part of this decrease (about 11%) is due to the fact that three of our vessels were laid-up during the third quarter of 2009 and thus incurred significantly lower daily costs, but a significant part (about 14%) is associated with cost reductions. As always, cost control remains a key component of our strategy.

“As of September 30, 2009, our net debt position was about $26.4 million with our outstanding debt at $79.1 million versus restricted and unrestricted cash of about $52.7 million. We continue to enjoy our bankers' support and have been able to finance all three of our vessel purchases this year with about 50% debt."

Third Quarter 2009 Results:
For the third quarter of 2009, the company reported total net revenues of $17.2 million representing a 51.6% decrease over total net revenues of $35.5 million during the third quarter of 2008. The company reported net income for the period of $2.2 million as compared to net income of $14.5 million for the third quarter of 2008. The results for the third quarter of 2009 include a $2.0 million net unrealized gain on derivatives and trading securities as compared to $1.1 million unrealized loss on derivatives and trading securities for the same period of 2008. Depreciation expenses for the third quarter of 2009 were $5.1 million compared to $7.8 million during the same period of 2008. The decline was due to a change in estimates and the sale of M/V Nikolaos P and M/V Ioanna P, which contributed $2.0 million to the depreciation expenses in the third quarter of 2008, partly balanced by the depreciation of three vessels purchased in 2009. On average, 16.79 vessels were owned and operated during the third quarter of 2009 earning an average time charter equivalent rate of $15,101 per day compared to 16 vessels in the same period of 2008 earning on average $25,951 per day. Three of the company's containerships were laid-up throughout the third quarter of 2009.

Adjusted EBITDA for the third quarter of 2009 was $5.0 million, a 76.3% decrease from $21.2 million achieved during the third quarter of 2008. Please see below for Adjusted EBITDA reconciliation to net income and cash flow provided by operating activities.

Basic and diluted earnings per share for the third quarter of 2009 was $0.07, calculated on 30,628,410 and 30,700,820, respectively weighted average number of shares outstanding, respectively, compared to basic and diluted earnings per share of $0.47 for the third quarter of 2008, calculated on 30,476,135 and 30,551,315 weighted average number of shares outstanding, respectively.

Excluding the effect on the earnings for the quarter of the unrealized gain on derivatives, unrealized loss on trading securities and amortization of the fair value of time charter contracts acquired, the loss per share for the quarter ended September 30, 2009 would have been $0.01 per share basic and diluted, and for the quarter ended September 30, 2008 the earnings would have been $0.47 per share basic and diluted. Usually, security analysts do not include the above items in their published estimates of earnings per share.

First nine months 2009 Results:
For the first nine months of 2009, the Company reported total net revenues of $47.3 million representing a 53.9% decrease over total net revenues of $102.7 million during the first nine months of 2008. The company reported net income for the period of $0.7 million as compared to net income of $43.7 million for the first nine months of 2008. The results for the first nine months of 2009 include a $2.5 million net unrealized loss on derivatives and trading securities as compared to a $0.7 million unrealized loss on derivatives and trading securities for the same period of 2008. Depreciation expenses for the first nine months of 2009 were $14.4 million compared to $22.6 million during the same period of 2008. The decline was due to a change in estimates and the sale of M/V Nikolaos P and M/V Ioanna P, which contributed $6.0 million to the depreciation expenses in the first nine months of 2008, partly balanced by the depreciation of three of the vessels purchased in 2009 that contributed to the depreciation expense for the first nine months. On average, 16.17 vessels were owned and operated during the first nine months of 2009 earning an average time charter equivalent rate of $13,632 per day compared to 15.48 vessels in the same period of 2008 earning on average $25,868 per day. One of the Company's vessels was laid up during the entire first nine months of 2009 and two more vessels were laid up for the second and third quarter of 2009.

Adjusted EBITDA for the first nine months of 2009 was $17.0 million, a 71.9% decrease from $60.6 million achieved during the first nine months of 2008. Please see below for Adjusted EBITDA reconciliation to net income and cash flow provided by operating activities.

Basic and diluted earnings per share for the first nine months of 2009 was $0.02, calculated on 30,593,401 basic and 30,642,954 diluted weighted average number of shares outstanding, respectively,compared to basic and diluted earnings per share of $1.44 and $1.43 per share, respectively, for the first nine months of 2008, calculated on 30,409,078 and 30,555,095 weighted average number of shares outstanding, respectively.

Excluding the effect on the earnings for the first nine months of 2009 of the unrealized loss on derivatives, unrealized gain on trading securities and amortization of the fair value of time charter contracts acquired, the earnings per share for the nine-month period ended September 30, 2009 would have been $0.07 per share basic and diluted, and for the same period in 2008, would have been $1.27 and $1.26 per share basic and diluted, respectively. Usually, security analysts do not include the above items in their published estimates of earnings per share.

Change in accounting principle and change in estimates:
Beginning with the first quarter of 2009, the company changed its accounting policy of drydocking costs from the deferral method, under which the company amortized drydocking costs over the estimated period of benefit between drydockings, to the direct expense method, under which the Company expenses all drydocking costs as incurred. The Company believes that the direct expense method is preferable as it eliminates the significant amount of time and subjectivity involved in determining which costs and activities related to drydocking qualify for the deferral method. When the accounting principle was retrospectively applied, net income for the three month and for the nine month periods ended September 30, 2008 decreased by $0.9 and $2.5 million, respectively, or, $0.03 and $0.08 per share, respectively, basic and diluted.

The company reflected this change as a change in accounting principle from an accepted accounting principle to a preferable accounting principle in accordance with FASB ASC 250-10 Accounting Changes and Error Corrections. The new accounting principle will be applied retrospectively to all periods presented in earnings releases and filings.

During the fourth quarter of 2008, the Company also changed its estimates of the scrap price and useful life of its containerships to better reflect the present market environment, industry practice and intended use. The effect of these changes increased net income for the three and nine month periods ended September 30, 2009 by $1.6 and $4.8 million, respectively, or $0.05 and $0.16 per share, respectively, basic and diluted.