2017 Management Report

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I.��������� Review of Business and Strategy

Fleet Changes

In 2017, we have taken delivery of 11 new vessels, bareboat chartered in 1 vessel and manage 1 more vessel. At the same time, we also disposed 3 owned vessels. Our total fleet changed from 114 to 124 in 2017. As at the end of 2017, the average ship age of our fleet is 6.2 years.

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Business Overview

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Since the dry bulk shipping market fell to its bottom in early 2016, the market has gradually recovered. The recovery is slow but relatively steady. The oversupply of ships was ameliorated. The new building order book has reduced significantly over the past 2-3 years largely due to the recessed market. Another factor suppressing new building order could be attributable to the new environmental conventions that increased ship building costs, such as SOx, NOx and ballast water treatment. Despite the postponed implementation of ballast water treatment convention, the United States has maintained its own implementation schedule. This has increased the operational limits to the older vessels.

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While the market condition has reduced shipowner's earning power, the new environmental rules increase the operation costs and capital requirements for the shipping industry. The steady recovery has taken the freight to a relatively healthy level but the asset price remain slow to pick up. A trend of speculative over-investment has not been a part of this recovery. This development gave us more confidence on the sustainability of recovery.

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Financial Performances

Taking advantage of the recovered market, we have secured profitable employment for the new buildings delivered in 2017. The average margin was higher than 30%. The contract renewal also gave us better outcome than before. From April to the end of 2017, we have seen our monthly operation margin increased from about 10.7% to about 23.9%. The improvement was significant.

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Despite the improvement in operation, we did not have other material other income. The sale of vessel was slow and unprofitable. We further recognized loss from investment in office building and loss from unamortized interests and expense of the CB put back. As a result, our annual net income has dropped to about USD13.7M. But as our revenue and operational income are both increasing, the over trend in 2018 should be positive.

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Prospect for 2018

We expect to take delivery of 7~9 vessels in 2018. Presently we have been able to take advantage of favorable market condition and secure profitable employments. As the freight market is still maintaining a healthy upward trend, in general we expect a better operation result in 2018 compared to 2017 both in terms of revenue and margin.

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With the mild recovery, we also expect to dispose some older vessels in an improved sale and purchase market when the price is more favorable to sellers.

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Strategy

While the market rate is generally profitable, we would be looking at fixing for longer term charters to ensure stable cash flow. As we routinely renew expiring contracts, we can still benefit if the market keeps the upward momentum.

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We also aim to resume our investment in new building, in particular the environment friendly ships. With the relevant conventions coming into force, we expect there would be a gap in qualified new ships for a certain period of time and we want to ensure our competitive position. As the market recovers, the mildly increasing asset price has enabled the good shipyards to seek orders from close partners including Wisdom. And we can take advantage of our position to build at an early stage.

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At the same time, we are also looking at selling our current ships as a part of fleet rejuvenation project. By doing so, we can rationalize our fleet size and composition as well as strengthening cash position and deleveraging to reduce interest rate risks.

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II.�������� Risk Factors

Market Risks

We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter hire rates. The bulk and break-bulk shipping industry is cyclical with high volatility in charter hire rates and profitability. The degree of charter hire rate volatility among different types of bulk vessels has varied widely. Fluctuations in charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand for the major commodities carried by water internationally. Because the factors affecting the supply and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are also unpredictable. As a shipping company, we face volatile shipping market conditions.

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This volatility in the charter hire rates may result in volatility in our operating results to the extent that we enter into new charter agreements or renew existing agreements during a time when charter rates are weaker, which may result in a decrease in our profitability and adversely affect our results of operations. Our ability to recharter our dry bulk vessels upon the expiration or termination of their current time charters and charter new vessels as they are delivered to us, and the charter rates payable under any renewal or replacement charters will depend upon, among other things, the current state of the dry bulk shipping market. We are exposed to changes in spot market rates for drybulk carriers at the time of entering into charter contracts. If the dry bulk shipping market is in a period of depression when our vessels' charters expire, we may be forced to re-charter them at reduced rates or even possibly at a rate whereby we incur a loss, which may reduce our

earnings or make our earnings volatile.

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Default Risk

The ability and willingness of each of our counterparties to perform its obligations under a period time charter agreement with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the drybulk shipping industry and the overall financial condition of the counterparties. If we enter into period time charters with charterers when charter rates are high and charter rates subsequently fall significantly, charterers may seek to renegotiate financial terms or may default on their obligations. Additionally, charterers may attempt to bring claims against us based on vessel performance or cargo loading or unloading operations, and seek to renegotiate financial terms or avoid payments. Also, our charterers may experience financial difficulties and even file bankruptcy due to prevailing economic conditions or for other reasons, and as a result may default on their obligations.

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If a charterer defaults on a charter, we will, to the extent commercially reasonable, seek the remedies available to us, which may include arbitration or litigation to enforce the contract. Should a charterer default on a period time charter, we may have to enter into a charter at a lower charter rate, which would reduce our revenues. If we cannot enter into a new period time charter, we may have to secure a charter in the spot market, where charter rates are volatile and revenues are less predictable. It is also possible that we would be unable to secure a charter at all, which would also reduce our revenues, and could have a material adverse effect on our business, financial condition, results of operations, loan and credit facility covenants and cash flows.

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Operation Risk

Our operation has certain unique risks. With a bulk carrier, the cargo itself and its interaction with the vessel can be an operational risk. By their nature, bulk cargoes are often heavy, dense, easily shifted, and react badly to water exposure. In addition, bulk carriers are often subjected to battering treatment during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold) and small bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment during unloading procedures may be more susceptible to breach to the sea. Hull breaches in bulk carriers may lead to the flooding of the vessels' holds. If a bulk carrier suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel's bulkheads leading to the loss of a vessel. If we are unable to adequately maintain our vessels we may be unable to prevent these events. Any of these circumstances or events could negatively impact our business, financial condition and results of operations.

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In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator. Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, mechanical failures, human error, environmental accidents, war, terrorism, piracy and other circumstances or events. In addition, transporting cargoes across a wide variety of international jurisdictions creates a risk of business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts, the potential for changes in tax rates or policies, and the potential for government expropriation of our vessels. Any of these events may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.

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In the event of a casualty to a vessel or other catastrophic event, we will rely on our insurance to pay the insured value of the vessel or the damages incurred. We cannot assure you that we will be adequately insured against all risks or that we will be able to obtain adequate insurance coverage at reasonable rates for our vessels in the future.

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Financial Risk

We generate substantially all of our revenues in U.S. dollars. In the future, we may enter into new credit facilities or newbuilding contracts that are denominated in or permit conversion into currencies other than the U.S. dollar. The use of different currencies could lead to fluctuations in our net income due to changes in the value of the U.S. dollar relative to other currencies, particularly the Japanese yen.

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We selectively engage in foreign exchange hedging transactions, such as forward contracts and options, designed to minimize our exposure to foreign exchange rate fluctuations. We regularly review the hedging program and will make adjustments as necessary, including suspending or accelerating hedging activities based on our judgment of the efficacy of such programs under anticipated market and economic conditions. However, there can be no assurance that our foreign currency management strategy will adequately protect our financial condition or results of operations from the effects of future exchange rate fluctuations. In addition, such hedges and strategies themselves present some risk, including potential trading losses as a result of unexpected appreciations of other currencies against the US dollar, which would negatively impact our result of operations.

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Additionally, an increase in prevailing interest rates would have an effect on the interest rates charged on our variable rate debt, which rise and fall upon changes in interest rates. If the prevailing interest rates or other factors result in higher interest rates, the increased interest expense would adversely affect our cash flow and our ability to service our debt. If interest rates are higher when our debt becomes due, we may be forced to borrow at the higher rates.

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The impact of future exchange rate and interest rate fluctuations on our results of operations and financial condition cannot be accurately predicted, and there can be no assurance that our attempt to mitigate the adverse effects of exchange rate and interest rate fluctuations will be successful or that such fluctuations will not in the future have a material adverse effect on our results of operations and financial condition.

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