AMENDMENT NO. 4 TO FORM F-4
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As filed with the Securities and Exchange Commission on February 3, 2006
File No. 333-129144


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
TO
FORM F-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
EUROSEAS LTD.
(Exact name of registrant as specified in its charter)
         
Republic of the
Marshall Islands
 
4412
 
Not Applicable
         
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)
Aethrion Center
40 Ag. Konstantinou Street
151 24 Maroussi, Greece
011 30 210 6105110
 
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Seward & Kissel LLP
Attention: Lawrence Rutkowski, Esq.
One Battery Park Plaza
New York, New York 10004
Telephone: (212) 574-1200
Facsimile: (212) 480-8421
 
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
     
Lawrence Rutkowski, Esq.
  Leib Orlanski, Esq.
Seward & Kissel LLP
  Kirkpatrick & Lockhart
One Battery Park Plaza
  Nicholson Graham, LLP
New York, New York 10004
  10100 Santa Monica Boulevard
Telephone: (212) 574-1200
  Los Angeles, California 90067
Facsimile: (212) 480-8421
  Telephone: (310) 552-5000
    Facsimile: (310) 552-5001
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
     If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
     The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.



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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state in which the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED FEBRUARY 3, 2006
JOINT INFORMATION STATEMENT/ PROSPECTUS
PROPOSED MERGER — WE ARE NOT ASKING YOU FOR A VOTE OR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
COVE APPAREL, INC.
NOTICE OF ACTION TAKEN BY WRITTEN CONSENT OF
MAJORITY STOCKHOLDERS
NO ACTION IS REQUIRED BY YOU. THE ACCOMPANYING INFORMATION STATEMENT IS FURNISHED ONLY TO INFORM STOCKHOLDERS OF ACTION DESCRIBED ABOVE BEFORE IT TAKES EFFECT IN ACCORDANCE WITH RULE 14c-2
Dear Cove Stockholders:
      The Board of Directors of Cove Apparel, Inc., a Nevada corporation (“Cove”), has unanimously approved an agreement and plan of merger, as amended (the “Merger Agreement”), providing for the merger (“Merger”) of Cove with and into Euroseas Acquisition Company Inc., a corporation organized under the laws of the State of Delaware (“EuroSub”). EuroSub is a wholly-owned subsidiary of Euroseas Ltd., a corporation organized under the laws of the Republic of the Marshall Islands (“Euroseas”). If the Merger is completed, Cove will be merged out of existence and EuroSub will be the surviving corporation and will change its name to Cove Apparel, Inc. (the “Surviving Corporation”). Pursuant to the Merger Agreement, each outstanding share of Cove common stock will be converted into the right to receive 0.102969 shares of Euroseas common stock. The proposed Merger is more fully described in this joint Information Statement/ prospectus. The joint Information Statement/ prospectus constitutes an Information Statement of Cove and a prospectus of Euroseas for shares that Euroseas will issue to stockholders of Cove.
      Euroseas common stock is not currently listed on any United States of America national stock exchange or the Nasdaq Stock Market. It is anticipated that Euroseas shares, including those exchanged for Cove shares in the Merger, will initially trade on the OTC Bulletin Board. Euroseas has applied to obtain a listing on the Nasdaq National Market and has reserved the symbol “ESEA,” but no assurance can be given that Euroseas will be able to obtain such listing. If Euroseas cannot obtain such listing, it will seek to list its common stock on the OTC Bulletin Board or another exchange.
      Since more than a majority of Cove’s stockholders have already approved the Merger Agreement, Cove is not asking you for a vote or a proxy and you are not requested to send Cove a proxy. Cove will not hold a special meeting of its stockholders to vote on the Merger. Cove cannot complete the Merger until 20 days after the mailing of this joint Information Statement/ prospectus to the Cove stockholders. We encourage you to read this joint Information Statement/ prospectus carefully because it explains the proposed Merger, the agreements entered into in connection with the Merger and other related matters.
      If you are not in favor of the Merger, Nevada law provides that the holders of shares of Cove common stock who have not approved the Merger and who otherwise strictly comply with the applicable requirements of Sections 92A.300 — 92A.500 of the Nevada Revised Statutes (“NRS”) are entitled to dissent from the Merger and demand payment of the fair value of their shares. Holders of shares who wish to assert dissenters’ rights should comply with the procedures detailed in Sections 92A.300 — 92A.500, a copy of which is attached as Appendix B to this joint Information Statement/ prospectus. This joint Information Statement/ prospectus constitutes notice of dissenters’ rights pursuant to Sections 92A.300 — 92A.500 of the NRS.
       We encourage you to read this joint Information Statement/ prospectus carefully. In particular, you should review the matters discussed under the caption “RISK FACTORS” beginning on page 17 for a discussion of matters relating to the proposed Merger and ownership in Euroseas.
 
 
  Kevin Peterson
  Director
      Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in the Merger or passed upon the adequacy or accuracy of this joint Information Statement/ prospectus. Any representation to the contrary is a criminal offense.
Joint Information Statement/ Prospectus dated [                    ], 2006
and first mailed to stockholders on or about [                    ], 2006


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INFORMATION STATEMENT REGARDING ACTION TAKEN BY WRITTEN CONSENT OF MAJORITY OF COVE STOCKHOLDERS
      Cove is furnishing this stockholder Information Statement to you to provide you with information and a description of an action taken by written consent of Cove’s majority stockholders, on September 26, 2005, in accordance with the relevant Sections of the NRS to approve the Merger. This action was taken by Seward Ave Partners, LLC, Olive Grove LLC, Jonathan Spanier and Blue Star Investors, Ltd. who own in excess of the required majority of Cove outstanding common stock necessary for the adoption of the actions.
      COVE IS NOT ASKING YOU FOR A PROXY OR A VOTE AND YOU ARE REQUESTED NOT TO SEND COVE A PROXY.
      This Information Statement is being mailed on or about [                    ], 2006 to stockholders of Cove of record on the date hereof. The Information Statement is being delivered only to inform you of the corporate action described herein before it takes effect in accordance with Rule 14c-2 promulgated under the Securities Exchange Act of 1934, as amended.
      Cove has asked brokers and other custodians, nominees and fiduciaries to forward this Information Statement to the beneficial owners of the common stock held of record by such persons and will reimburse such person for out-of-pocket expenses incurred in forwarding such material.
      THIS IS NOT A NOTICE OF A MEETING OF COVE STOCKHOLDERS AND NO COVE STOCKHOLDERS’ MEETING WILL BE HELD TO CONSIDER ANY MATTER DESCRIBED HEREIN.
      PLEASE NOTE THAT COVE’S CONTROLLING STOCKHOLDERS HAVE VOTED TO APPROVE THE MERGER. THE NUMBER OF VOTES HELD BY THE CONTROLLING STOCKHOLDERS IS SUFFICIENT TO SATISFY THE STOCKHOLDER VOTE REQUIREMENT FOR THE MERGER AND NO ADDITIONAL VOTES WILL CONSEQUENTLY BE NEEDED TO APPROVE THESE ACTIONS.


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COVE APPAREL, INC.
1003 Dormador, Suite 21
San Clemente, California 92672
To the Cove Stockholders:
      Since more than a majority of Cove’s stockholders have already approved the Merger Agreement, Cove is not asking you for a vote or a proxy and you are not requested to send Cove a proxy.
      Cove stockholders who do not wish to accept the Merger consideration for their shares of Cove common stock may dissent from the Merger and exercise their dissenters’ rights, subject to the requirements of the NRS. The right of any such stockholder to exercise any dissenters’ rights is contingent upon consummation of the Merger and upon strict compliance with the requirements of Sections 92A.300 — 92A.500 of the NRS.
      The full text of Sections 92A.300 — 92A.500 of the NRS is attached as Appendix B to this joint Information Statement/ prospectus. For a summary of these requirements, see “The Merger Agreement — Dissenters’ Rights” and “Dissenters’ Rights” in this joint Information Statement/ prospectus.
      Cove’s Board of Directors unanimously approved the Merger Agreement on July 26, 2005.
  By order of the Board of Directors,
 
 
 
  Kevin Peterson
  Director
San Clemente, California
[insert date], 2005


 

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 EX-23.3: CONSENT OF DELOITTE, HADJPAVLOU, SOFIANOS & CAMBANIS S.A.
 EX-23.4: CONSENT OF HALL AND COMPANY
 EX-23.5: CONSENT OF STONEFIELD JOSEPHSON, INC


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QUESTIONS AND ANSWERS ABOUT THE COVE MERGER WITH EUROSUB
Q: What is the purpose of this document?
 
A: This document serves as Cove’s Information Statement and as the prospectus of Euroseas. As an Information Statement, this document is being provided to Cove stockholders in compliance with Rule 14c-2 as notification of consent of action taken without a meeting by the majority stockholders of Cove on September 26, 2005 approving the Merger. As a prospectus, Euroseas is providing this document to Cove stockholders because Euroseas is offering its shares of common stock in exchange for shares of Cove common stock in the Merger.
 
Q: Could you tell me more about Euroseas?
 
A: Euroseas is a privately-held, independent commercial shipping company that operates in the drybulk and container shipping markets through its wholly-owned subsidiaries. Euroseas owns and operates eight vessels through these subsidiaries. Euroseas was formed on May 5, 2005 under the laws of the Republic of the Marshall Islands. Its principal offices are located in Maroussi, Greece.
 
Q: What was the required vote to approve the Merger Agreement?
 
A: Pursuant to the Merger Agreement, Cove will merge with and into EuroSub, the separate corporate existence of Cove will cease and EuroSub will be the Surviving Corporation and will change its name to Cove Apparel, Inc. Cove cannot complete the Merger unless the holders of at least a majority of the issued and outstanding shares of Cove common stock approve the Merger Agreement. On September 26, 2005, four stockholders of Cove representing 67.25% of the outstanding shares of Cove common stock took action by written consent approving the Merger. Each share of Cove common stock was entitled to one vote per share.
 
Q: Has the Board of Directors of Cove voted in favor of the Merger?
 
A: Yes. Cove’s Board of Directors has unanimously voted for the approval of the Merger Agreement at a special meeting on July 26, 2005. You should read the “Background and Reasons For The Merger — Recommendations of the Boards of Directors and Reasons for the Merger” section of this joint Information Statement/ prospectus for a discussion of the factors that the Cove Board of Directors considered in deciding to vote in favor of the Merger.
 
Q: What will I receive in the Merger?
 
A: Pursuant to the Merger Agreement, each outstanding share of Cove common stock will be converted into the right to receive 0.102969 shares of Euroseas common stock, subject to adjustment for any stock split by Euroseas prior to the Merger.
 
Q: What are the tax consequences of the Merger to me?
 
A. It is a condition to the completion of the Merger, unless waived by the parties in writing, that Euroseas receive a legal opinion from Kirkpatrick & Lockhart Nicholson Graham LLP to the effect that the Merger should be treated as a “reorganization” for United States federal income tax purposes. Assuming the Merger qualifies as a “reorganization,” the Merger will generally be tax-free to Cove shareholders for United States federal income tax purposes to the extent that they receive Euroseas common stock pursuant to the Merger. More specifically:
 
• Dissenting Cove shareholders who exchange their Cove common stock solely for cash will recognize gain or loss for federal income tax purposes.
 
• To the extent Cove shareholders exchange their Cove common stock for a combination of the $0.07 per share Euroseas dividend and cash in lieu of fractional shares of Euroseas common stock, they may recognize gain, but not loss, for federal income tax purposes in respect to the Cove common stock exchanged for cash.
 
The federal income tax consequences of the Merger are complicated and may differ between individual stockholders. We strongly urge each Cove stockholder to consult his or her own tax advisor regarding the

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federal income tax consequences of the Merger in light of his or her own personal tax situation and also as to any state, local, foreign or other tax consequences arising out of the Merger.
 
Q: Should I send in my stock certificates now?
 
A: No. After we complete the Merger, you will receive written instructions for returning your stock certificates. These instructions will tell you how and where to send in your stock certificates in order to receive the Merger consideration.
 
Q: What if I object to the Merger?
 
A: Under applicable Nevada law, Cove stockholders have the right to dissent from the Merger and demand payment of the fair value of their shares. See “The Merger Agreement-Dissenters’ Rights” and “Dissenters’ Rights.”
HOW TO OBTAIN ADDITIONAL INFORMATION
      The joint Information Statement/ prospectus constitutes an Information Statement of Cove and a prospectus of Euroseas for shares of common stock that Euroseas will issue to stockholders of Cove. This joint Information Statement/ prospectus incorporates important business and financial information about Cove and Euroseas that is not included in or delivered with the document. If you would like to receive this information or if you want additional copies of this document, such information is available without charge upon written or oral request. Please contact the following:
     
Cove Apparel, Inc.
1003 Dormador, Suite 21
San Clemente, California 92672
Attn: Kevin Peterson
Telephone: (949) 224-3040
  Euroseas Ltd.
Aethrion Center
40 Ag. Konstantinou Street
151 24 Maroussi
Greece
Attn: Aristides J. Pittas
Telephone: 011 30 210 6105110
    or
    Euroseas Ltd.
    Mr. Anastasios Aslidis
2693 Far View Drive
Mountainside, New Jersey 07092
Telephone: (908) 301-9091
      Please see “Where You Can Find Additional Information” to find out where you can find more information about Cove and Euroseas.
      You should only rely on the information contained in this joint Information Statement/ prospectus. Neither Cove nor Euroseas has authorized anyone to give any information or to make any representations other than those contained in this joint Information Statement/ prospectus. Do not rely upon any information or representations made outside of this joint Information Statement/ prospectus. The information contained in this joint Information Statement/ prospectus may change after the date of this joint Information Statement/ prospectus. Do not assume after the date of this joint Information Statement/ prospectus that the information contained in this joint Information Statement/ prospectus is still correct.

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SUMMARY OF THE MERGER
      This summary highlights selected information from this joint Information Statement/ prospectus about the Merger but may not contain all of the information that may be important to you. Accordingly, we encourage you to read carefully this entire joint Information Statement/ prospectus, including the appendices hereto. We have attached the Merger Agreement, as amended, to this document as Appendix A. Please read that document carefully. It is the legal document that governs the Merger and your rights in the Merger. We have included page references in parentheses to direct you to a more detailed description of the items presented in this summary. Unless the context otherwise requires, references to “we,” “us” or “our” refers to both Cove and Euroseas.
The Parties to the Merger (page      )
Cove Apparel, Inc.
  Cove Apparel, Inc.
  1003 Dormador, Suite 21
  San Clemente, California 92672
  Tel: (949) 224-3040
      Cove is a surf apparel company specializing in casual apparel and accessories for men, women and juniors. Cove was incorporated in Nevada on December 13, 2001 as “Lisa Morrison, Inc.” On January 8, 2002, Cove changed its name to Cove Apparel, Inc.
Euroseas Ltd.
  Euroseas Ltd.
  Aethrion Center
  40 Ag. Konstantinou Street
  151 24 Maroussi
  Greece
  Telephone: 011 30 210 6105110
      Euroseas is a privately-held, independent commercial shipping company that operates in the drybulk and container shipping markets through its wholly-owned subsidiaries. Euroseas owns and operates eight vessels through these subsidiaries. Euroseas was formed on May 5, 2005 under the laws of the Republic of the Marshall Islands. Its principal offices are located in Maroussi, Greece.
The Merger (page      )
      Subject to the terms and conditions of the Merger Agreement, Cove will merge with and into EuroSub, the separate corporate existence of Cove will cease and EuroSub will be the Surviving Corporation and will change its name to Cove Apparel, Inc. The closing of the Merger is currently expected to occur approximately 20 days after the mailing of this joint Information Statement/ prospectus to the Cove stockholders.
Merger Consideration (page      )
      Pursuant to the Merger Agreement, each outstanding share of Cove common stock will be converted into the right to receive 0.102969 shares of Euroseas common stock, subject to adjustment for any stock split by Euroseas prior to the Merger.
Record Date for Receiving the Mailing of this Joint Information Statement/ Prospectus (page      )
      Only holders of record of shares of Cove common stock as of the close of business on the date hereof are entitled to receive this joint Information Statement/ prospectus. As of the date hereof, there were 10,480,500 shares of Cove common stock outstanding.

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Recommendations of the Boards of Directors and Reasons for the Merger (page      )
      Each of the Boards of Directors of Cove and Euroseas has determined, by a unanimous vote, that the Merger is in the best interests of each of their respective companies and stockholders, and each Board has unanimously approved the Merger Agreement.
Material U.S. Federal Income Tax Consequences (page      )
      It is a condition to the completion of the Merger, unless waived by the parties in writing, that Euroseas receive a legal opinion from Kirkpatrick & Lockhart Nicholson Graham LLP to the effect that the Merger should be treated as a “reorganization” for United States federal income tax purposes. Assuming the Merger qualifies as a “reorganization,” the Merger will generally be tax-free to Cove shareholders for United States federal income tax purposes to the extent that they receive Euroseas common stock pursuant to the Merger. More specifically:
  •  Dissenting Cove shareholders who exchange their Cove common stock solely for cash will recognize gain or loss for federal income tax purposes.
 
  •  To the extent Cove shareholders exchange their Cove common stock for a combination of the $0.07 per share Euroseas dividend and cash in lieu of fractional shares of Euroseas common stock, they may recognize gain, but not loss, for federal income tax purposes in respect to the Cove common stock exchanged for cash.
The federal income tax consequences of the Merger are complicated and may differ between individual stockholders. We strongly urge each Cove stockholder to consult his or her own tax advisor regarding the federal income tax consequences of the Merger in light of his or her own personal tax situation and also as to any state, local, foreign or other tax consequences arising out of the Merger.
Accounting Treatment (page      )
      On August 25, 2005, Euroseas raised approximately $21 million in gross proceeds from a private placement transaction (the “Private Placement”) of its securities to a number of institutional and accredited investors. Euroseas agreed in connection with the Private Placement to execute the Merger Agreement involving EuroSub and Cove. As such, Euroseas views the costs associated with the Merger with Cove as costs of the equity raised in the Private Placement. Accordingly, the excess of the fair value of the shares of Euroseas that would be exchanged for the shares of Cove at the consummation of the Merger over the fair value of the net assets of Cove acquired is recognized as reduction to equity.
Procedure for Receiving Merger Consideration (page      )
      Promptly after the effective time of the Merger, an exchange agent appointed by Euroseas will mail a letter of transmittal and instructions to Cove stockholders. The letter of transmittal and instructions will tell Cove stockholders how to surrender their stock certificate in exchange for the Merger consideration. Cove stockholders should not return their stock certificates to the exchange agent without a letter of transmittal.
Interests of Certain Persons in the Merger (page      )
      Cove’s sole director and member of senior management does not own any Cove common stock. He will resign from his positions at or prior to the effective time of the Merger and will not be a director or paid employee of Euroseas or the Surviving Corporation following consummation of the Merger. Jodi Hunter, one of Cove’s employees, owns Cove common stock and has agreed to remain after the Merger as an unpaid, at-will employee of the Surviving Corporation and to provide an office in the Cayman Islands at no cost or expense to Euroseas.
      As of the date that the Cove majority stockholders took action by consent without a meeting, certain of Cove’s officers and directors owned shares of Cove common stock. See “The Parties to the Merger-Cove Principal Stockholders.”

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      The officers and management of Euroseas will continue to be the same following consummation of the Merger. Immediately following the Merger, the Euroseas’ Board will consist of seven directors, at least four of whom shall be “independent.”
No Solicitation of Transactions (page      )
      The Merger Agreement contains restrictions on the ability of Cove and Euroseas to solicit, initiate, facilitate or encourage any merger, consolidation, other business combination or acquisition of all or any substantial portion of each of their respective assets or capital stock.
Comparison of Cove and Euroseas Stockholder Rights (page      )
      Cove is incorporated under the laws of the State of Nevada. Euroseas is incorporated under the laws of the Republic of the Marshall Islands. Upon consummation of the Merger, the stockholders of Cove will become shareholders of Euroseas. Euroseas’ articles of incorporation and bylaws will differ somewhat from the organizational documents governing the rights of the former Cove stockholders.
Conditions to the Merger (page      )
      The completion of the Merger is subject to the satisfaction or, if permissible, waiver of a number of conditions, including approval of the Merger Agreement by holders of a majority of the issued and outstanding shares of Cove common stock. We expect to complete the Merger shortly after all the conditions to the Merger have been satisfied or, if permissible, waived approximately 20 days after the joint Information Statement/ prospectus has been mailed to the Cove stockholders. We currently expect to complete the Merger in the fourth quarter of 2005, but we cannot be certain when or if the conditions will be satisfied or, if permissible, waived.
Costs Associated with the Merger
      Euroseas estimates that the total transaction costs associated with the Merger will be approximately $350,000 for Euroseas and $200,000 for Cove (borne directly by Cove), which include costs related to legal, accounting, printing and financial advisory expenses.
Termination of the Merger Agreement (page      )
      The Merger Agreement may be terminated at any time prior to the effective time of the Merger:
  •  by mutual consent in writing of Cove and Euroseas;
 
  •  unilaterally upon written notice by Cove to Euroseas upon the occurrence of a material adverse effect with respect to Euroseas, the likelihood of which was not previously disclosed to Cove in writing by Euroseas prior to the date of the Merger Agreement;
 
  •  unilaterally upon written notice by Euroseas to Cove upon the occurrence of a material adverse effect with respect to Cove, the likelihood of which was not previously disclosed to Euroseas in writing by Cove prior to the date of the Merger Agreement;
 
  •  unilaterally upon written notice by Cove to Euroseas in the event of a material breach of any material representation or warranty of Euroseas contained in the Merger Agreement (unless such breach shall have been cured within ten (10) days after the giving of notice by Cove), or the willful failure of Euroseas to comply with or satisfy any material covenant or condition of Euroseas contained in the Merger Agreement;
 
  •  unilaterally upon written notice by Euroseas to Cove in the event of a material breach of any material representation or warranty of Cove or the Cove Principals contained in the Merger Agreement (unless such breach shall have been cured by Cove within ten (10) days after the giving of notice by Euroseas), or Cove’s willful failure to comply with or satisfy any material covenant or condition of

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  Cove contained in the Merger Agreement, or if Cove fails to obtain its stockholders’ approval for the Merger; or
 
  •  unilaterally upon written notice by either Cove or Euroseas to the other if the Merger is not consummated for any reason by the close of business on February 28, 2006; provided however that no party may avail itself of this ground for termination if such failure to consummate the Merger is caused by such party either in breach of the Merger Agreement or by not proceeding in good faith towards the consummation of the Merger.
Dissenters’ Rights (page      and Appendix B)
      Under applicable Nevada law, Cove stockholders have the right to dissent from the Merger and demand payment of the fair value of their Cove common stock if the Merger is completed. However, Cove stockholders must follow the procedures under Nevada law explained in this joint Information Statement/ prospectus in order to do so.
Regulatory Approvals (page      )
      Cove and Euroseas do not expect that the Merger will be subject to any state or federal regulatory requirements. Should such state or federal regulatory requirements be applicable, Cove and Euroseas currently intend to comply with all such requirements. As a condition to the effectiveness of the Merger, Cove and Euroseas have agreed to each use its reasonable best efforts to file, at or before the effective time of the Merger, authorization for listing of the Euroseas shares either on the Nasdaq SmallCap Market, The American Stock Exchange Inc. or, if permissible, the Nasdaq National Market. Euroseas has applied to list its common stock on the Nasdaq National Market, but no assurance can be given that it will be able to obtain such listing. In addition, Euroseas has agreed to file a registration statement (the “Registration Statement”) under the Exchange Act and use its reasonable best efforts to cause the Securities and Exchange Commission (the “SEC”) to declare such Registration Statement effective with respect to the listing of the Euroseas shares issued in the Merger.
      Other than the filing of the Registration Statement, this joint Information Statement/ prospectus and certain other filings under applicable securities laws and the filing of certain merger documents with the Secretary of State of the State of Nevada and with the Secretary of State of the State of Delaware, we do not believe that, in connection with the completion of the Merger, any consent, approval, authorization or permit of, or filing with or notification to, any merger control authority will be required in any jurisdictions. Following the effective time of the Merger, we do not believe that any merger control filings will be required with any jurisdictions.

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SELECTED HISTORICAL FINANCIAL INFORMATION
      The following information is provided to assist you in analyzing the financial aspects of the Merger. This information shows selected historical financial data for Euroseas and Cove. We derived this information from Euroseas’ audited financial statements for the years ended December 31, 2002, 2003 and 2004 included in this prospectus, and its unaudited financial statements for the six months ended June 30, 2004 and 2005 and Cove’s audited financial statements for the years ended September 30, 2002, 2003, 2004 and 2005 and its unaudited financial statements for the nine months ended June 30, 2005 also included in this prospectus. The information is only a summary and should be read in conjunction with each company’s historical financial statements and related notes, and each company’s Management’s Discussion and Analysis of Financial Conditions and Results of Operations contained elsewhere herein. The historical results included below and elsewhere in this joint Information Statement/ prospectus are not indicative of the future performance of Euroseas, Cove or the combined company.
EUROSEAS HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
                                         
    Year Ended December 31,   Six Months Ended June 30,
         
Euroseas Ltd. — Summary Historical Financials(1)   2002   2003   2004   2004   2005
                     
    (All amounts in U.S. dollars)
Statement of Income Data
                                       
Voyage revenue
    15,291,761       25,951,023       45,718,006       21,321,769       23,833,736  
Commissions
    (420,959 )     (906,017 )     (2,215,197 )     (1,018,218 )     (1,340,228 )
Voyage expenses
    (531,936 )     (436,935 )     (370,345 )     (60,829 )     (131,903 )
Vessel operating expenses
    (7,164,271 )     (8,775,730 )     (8,906,252 )     (4,727,324 )     (4,270,787 )
Management fees
    (1,469,690 )     (1,722,800 )     (1,972,252 )     (1,007,771 )     (965,384 )
Amortization and depreciation(2)
    (4,053,049 )     (4,757,933 )     (3,461,678 )     (1,640,565 )     (1,824,322 )
Net gain on sale of vessel
                2,315,477       2,315,477        
Interest and finance cost
    (799,970 )     (793,257 )     (708,284 )     (297,916 )     (545,719 )
Derivative gain/(loss)
                27,029       11,000       (82,029 )
Foreign exchange gain/(loss)
    2,849       (690 )     (1,808 )     (3,734 )     312  
Interest income
    6,238       36,384       187,069       18,535       89,698  
Other income/(expenses), net
    (790,883 )     (757,563 )     (495,994 )     (272,115 )     (537,738 )
Equity in earnings/(losses)
    30,655       (167,433 )                  
Net income for the period
    891,628       8,426,612       30,611,765       14,910,424       14,763,374  
Balance Sheet Data (at period end)
                                       
Current Assets
    3,192,345       9,409,339       16,461,159       12,404,490       11,276,109  
Vessels, net book value
    45,254,226       41,096,067       34,171,164       35,434,642       32,978,300  
Deferred charges, net
    596,262       929,757       2,205,178       1,996,885       2,357,775  
Investment in associate
    1,216,289       22,856                    
Total assets
    50,259,121       51,458,019       52,837,501       49,836,017       46,612,184  
Current liabilities, including current portion of long-term debt
    10,878,488       8,481,773       13,764,846       10,332,710       18,341,155  
Long-term debt, including current portion
    23,845,000       20,595,000       13,990,000       15,126,220       41,400,000  
Common stock
    297,542       297,542       297,542       297,542       297,542  
Total shareholders’ equity
    21,285,634       27,486,246       31,112,655       30,634,170       1,651,029  

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    Year Ended December 31,   Six Months Ended June 30,
         
Euroseas Ltd. — Summary Historical Financials(1)   2002   2003   2004   2004   2005
                     
    (All amounts in U.S. dollars)
Other Financial Data
                                       
Net cash provided by operating activities
    5,631,343       10,956,132       34,208,693       13,382,837       8,157,781  
Net cash paid to (received from) related party
    (177,169 )     482,778       (3,541,236 )     (108,277 )     8,621,660  
Net cash from investing activities
    (17,036,079 )     214,832       6,756,242       6,722,524       (1,230,155 )
Net cash used in financing activities
    12,247,355       (4,778,000 )     (33,567,500 )     (17,231,280 )     (16,972,500 )
Earnings per share, basic and diluted
    0.03       0.28       1.03       0.50       0.50  
Cash Dividends/Return of capital, declared per common share
    0.02       0.04       0.91       0.40       1.49  
Weighted average number of shares outstanding during the period
    29,754,166       29,754,166       29,754,166       29,754,166       29,754,166  
Cash paid for common stock dividend declared/return of capital
    687,500       1,200,000       26,962,500       11,762,500       44,225,000 (3)
 
(1)  The Company has not included financial data for the years ended 2000 and 2001 since the Company was only recently formed in May 2005 and incurred significant expense in the preparation of its consolidated financial statements for 2002, 2003 and 2004. The Company believes that it would constitute “unreasonable effort or expense” for it to include the first two years of the Selected Consolidated Financial Data reflecting the discussion by the Staff of SEC in “International Reporting and Disclosure Issues in the Division of Corporation Finance,” dated October 1, 2003. The Company’s predecessor (which is the separate ship-owning entities that became wholly-owned by the Company subsequent to its formation) prepared financial statements for the years ended December 31, 2000 and 2001 on a basis different from the financial statements included in this prospectus. The Company believes that the effort and cost involved in converting such financial statements into a basis similar to those financial statements included in this prospectus would be unreasonably burdensome.
 
(2)  In 2004, the estimated scrap value of the vessels was increased from $170 to $300 per light ton to better reflect market price developments in the scrap metal market. The effect of this change in estimate was to reduce 2004 depreciation expense by $1,400,010 and increase 2004 net income by the same amount. In addition, in 2004, the estimated useful life of the vessel m/v Ariel was extended from 28 years to 30 years since the vessel performed dry-docking in the current year and it is not expected to be sold until year 2007. M/ V Widar was sold in April 2004. Depreciation expense for m/v Widar for the year ended December 31, 2004 amounted to $136,384 compared to $409,149 in 2003.
 
(3)  This amount reflects a dividend in the amount of $27,525,000 and a return of capital in the amount of $16,700,000. The total payment to shareholders made in 2005 is in excess of previously retained earnings because the Company decided to distribute to its original shareholders in advance of going public most of the profits relating to the Company’s operations up to that time and to recapitalize the Company. This one-time dividend cannot be considered indicative of future dividend payments and the Company refers you to the other sections in this prospectus for a clearer understanding of the Company’s dividend policy.

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COVE HISTORICAL FINANCIAL INFORMATION
                                                   
    Year Ended   Year Ended   Year Ended   Year Ended   9 Months Ended   9 Months Ended
    September 30,   September 30,   September 30,   September 30,   June 30,   June 30,
    2002   2003   2004   2005   2004   2005
                         
Statement of Income Data
                                               
 
Revenues
  $ 6,000     $ 8,446     $ 6,500     $              
 
Selling, General and Administration
    42,699       51,568       83,228       232,538       45,827       116,306  
 
Loss Before Income Taxes
    36,699       (43,102 )     (76,728 )     (232,538 )     (45,827 )     (116,306 )
 
Provision for Income Taxes
                    800       800       800       800  
 
Net Loss
  $ 36,699     $ (43,102 )   $ (77,528 )   $ (233,338 )   $ (46,627 )   $ (117,106 )
                                                   
    Year Ended   Year Ended   Year Ended   Year Ended   9 Months Ended   9 Months Ended
    September 30,   September 30,   September 30,   September 30,   June 30,   June 30,
    2002   2003   2004   2005   2004   2005
                         
    (All amounts in U.S. dollars, except share amounts)
Balance Sheet Data:
                                               
Cash
  $ 1,571     $ 90,140     $ 15,186     $ 4,096     $ 34,207     $ 21,759  
Deposits
    5,000                                
Prepaid merchandise
          5,000                          
Accounts receivable, net
                6,500                    
Inventory and prepaid expenses
                            7,900        
Current Liabilities:
                                               
Account payable and accrued expenses
    8,037       15,858       21,497       74,480       13,252       95,911  
Due to related party
          5,500                          
Due to stockholder
          7,000                          
Accrued payroll and related expenses
                2,236                    
Loan from stockholders
                                  45,000  
Total Current Liabilities
    8,037       28,358       23,732       74,480       13,252       140,911  
Stockholder’s Equity/Deficit:
                                               
Preferred Stock, $0.001 par value, authorized shares
    5,000,000       5,000,000       5,000,000       5,000,000       5,000,000       5,000,000  
 
Issued and outstanding shares
    0       0       0       0       0       0  
Common Stock, $0.001 par value, authorized shares
    50,000,000       50,000,000       50,000,000       50,000,000       50,000,000       50,000,000  
 
Issued and outstanding shares
    2,600,000       10,480,500       10,480,500       10,480,500       10,480,500       10,480,500  
Additional paid-in capital
    32,633       136,102       144,802       309,802       144,802       144,802  
Deficit accumulated during the development stage
    (36,699 )     (79,801 )     (157,329 )     (390,667 )     (126,428 )     (274,435 )
Total stockholders’ equity/deficit
    (1,466 )     66,782       (2,046 )     (70,384 )     28,855       (119,152 )
Total liabilities and stockholders’ equity/deficit
  $ 6,571     $ 95,140     $ 21,686     $ 4,096     $ 42,107     $ 21,759  

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SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
      On August 25, 2005, Euroseas raised approximately $21 million in gross proceeds from the Private Placement of its securities to a number of institutional and accredited investors. In the Private Placement, Euroseas issued 7,026,993 shares of common stock at a price of $3.00 per share, as well as warrants to purchase an additional 1,756,743 shares of common stock.
      For every share of Euroseas common stock issued, the Private Placement investors received 0.25 warrants, with each warrant entitling its holder to purchase one share of Euroseas common stock at an exercise price of $3.60 per share (subject to certain adjustments) within a period of five years from the date of the issuance of the warrant. The issue price in the Private Placement for each share of Euroseas common stock with 0.25 warrant was $3.00. A Private Placement investor may sell the Euroseas common stock acquired in the Private Placement to third parties and the warrants remain with the initial Private Placement investor or its transferees and remain exercisable for the remainder of the five year period. The Private Placement investors may also sell or transfer the warrants separate from the related Euroseas common stock so long as such sale or transfer complies with applicable securities laws.
      As a condition to the Private Placement, Euroseas agreed to execute the Merger Agreement involving EuroSub and Cove. As such, Euroseas views the costs associated with the Merger with Cove as costs of the equity raised in the Private Placement. Accordingly, the excess of the fair value of the shares of Euroseas that would be exchanged for the shares of Cove at the consummation of the Merger over the fair value of the net assets of Cove acquired is recognized as reduction to equity.
      As discussed further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations, on August 25, 2005, Cove, the Cove Principals, EuroSub and Euroseas, signed the Merger Agreement, pursuant to which Euroseas, through its wholly-owned subsidiary, EuroSub, agreed to acquire Cove in exchange for shares of Euroseas common stock. The Cove Principal have agreed to pledge, or to cause their transferees to pledge, 475,000 of the shares of Euroseas, they or their transferees are to receive in the Merger, in exchange for their Cove shares as collateral for breach of the representations and warranties made by Cove to Euroseas in the Merger Agreement.
      The following unaudited pro forma condensed consolidated financial statements have been prepared by Euroseas’ management and are based on (a) the historical financial statements of (i) Euroseas and (ii) Cove as adjusted for the reporting period of Euroseas, which is December 31 each year and (b) the assumptions and adjustments described below. The unaudited pro forma condensed consolidated balance sheet at June 30, 2005 gives effect to the following transactions, as if such transactions had taken effect on June 30, 2005:
  •  The shares issued by Euroseas as part of the Private Placement and the payment of the related expenses of the transaction;
 
  •  The acquisition of Cove by EuroSub as described above; and
 
  •  The repayment of the loan from the stockholder and all liabilities of Cove as required by the Merger Agreement.
      The unaudited pro forma condensed consolidated financial statements do not purport to represent what Euroseas’ results of operations or its financial position will be for future periods.
      The unaudited pro forma condensed consolidated financial statements should be read together with the historical consolidated financial statements of Euroseas and Cove and the related notes, each included elsewhere herein and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
      The unaudited pro forma condensed consolidated financial statements are provided for illustrative purposes only and its inclusion in this joint Information Statement/ prospectus should not be regarded as an indication that it is an accurate prediction of future events, and it should not be relied on as such. Except as may be required by applicable securities laws, we do not intend to update or otherwise revise the unaudited pro forma condensed consolidated financial statements to reflect circumstances existing after the date when made or to reflect the occurrences of future events even if any or all of the assumptions are shown to be in error.

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      The following proforma financial statements assume the Private Placement and the Merger had been completed on January 1, 2004 and include Statements of Operations for Euroseas for six months ended June 30, 2005 and for the year ended December 31, 2004 and a proforma Balance Sheet as at June 30, 2005:
EUROSEAS LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 2005
                                 
    Euroseas Ltd.   Cove Apparel, Inc.   Adjustments   Pro Forma
                 
ASSETS
Current Assets
                               
Cash and cash equivalents
    5,452,608               18,430,979 (1)     23,883,587  
                      (350,000 )(1)     (350,000 )
              21,759       (11,759 )(2)     10,000  
                         
Total cash and cash equivalents
    5,452,608       21,759       18,069,220       23,543,587  
                         
Accounts receivable trade, net
    9,652                       9,652  
Prepaid expenses
    129,706                       129,706  
Claims and other receivables
    69,641                       69,641  
Due from related party
    3,995,602                       3,995,602  
Inventories
    319,765                       319,765  
Restricted cash
    1,299,135                       1,299,135  
                         
Total current assets
    11,276,109       21,759       18,069,220       29,367,088  
                         
Fixed Assets
                               
Vessels, net book value
    32,978,300                       32,978,300  
                         
Total fixed assets
    32,978,300                     32,978,300  
                         
Long-Term Assets
                               
Deferred charges, net
    2,357,775                       2,357,775  
                         
Total long-term assets
    2,357,775                     2,357,775  
                         
Total assets
    46,612,184       21,759       18,069,220       64,703,163  
                         
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
                               
Long-term debt, current portion
    14,780,000                       14,780,000  
Trade accounts payable
    946,760       95,911       (95,911 )(2)     946,760  
Accrued expenses
    437,570                       437,570  
Deferred income
    2,176,825                       2,176,825  
Loan from stockholder
          45,000       (45,000 )(2)      
                         
Total current liabilities
    18,341,155       140,911       (140,911 )     18,341,155  
                         
Long-Term Liabilities
                               
Long-term debt, net of current portion
    26,620,000                     26,620,000  
                         
Total long-term liabilities
    26,620,000                   26,620,000  
                         
Total liabilities
    44,961,155       140,911       (140,911 )     44,961,155  
                         
Commitments and contingencies
                         
Common stock
    297,542               81,061 (1)(3)     378,603  
              10,481       (10,481 )(4)      
                         
Total common stock
    297,542       10,481       70,580       378,603  
                         
Preferred shares
                         
Additional paid in capital
    373,381       144,802       18,360,399 (1)     18,878,582  
                      129,152 (2)     129,152  
                      (350,000 )(2)     (350,000 )
                      (274,435 )(3)     (274,435 )
                         
Total additional paid-in capital
    373,381       144,802       17,865,116       18,383,299  
                         
Retained earnings/(Accumulated deficit)(restated)
    980,106       (274,435 )     274,435 (3)     980,106  
                         
Total shareholders’ equity
    1,651,029       (119,152 )     18,210,131       19,742,008  
                         
Total liabilities and shareholders’ equity
    46,612,184       21,759       18,069,220       64,703,163  
                         

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(1)  To account for the sale in the Private Placement of 7,026,993 shares and 1,756,743 warrants dated August 25, 2005 at $3 per share with a par value of $0.01 per share or $70,270, less the cost of the offering estimated to be $2.65 million. The value of the warrants is included in “Additional paid in capital” and is estimated to be $614,860.
 
(2)  The Merger Agreement states that Cove Apparel, Inc. will have a cash balance of $10,000 and equity of the same amount at the effective date of the Merger. The pro forma entries reflect the increase in paid in capital and repayment of the accounts payable and loan to the shareholder of Cove Apparel, Inc. of $140,911 less the cash balance noted above totalling $11,759. The repayment of trade accounts and loan from stockholders amounting to $129,152 was reflected in additional paid-in capital. The costs related to the Merger are estimated to be $0.35 million and are accounted as a reduction in equity.
 
(3)  To account for the acquisition of Cove Apparel, Inc. through the issuance of 1,079,167 shares to the shareholders of Cove at $3 per share amounting to $3,237,501 with a par value of $0.01 per share or $10,791. Since the acquisition of Cove was made to satisfy the requirement in the Private Placement, the difference between the purchase price of $3,237,501 and the fair value of Cove’s acquired net assets of $10,000 after taking into account the transactions in (2) above, is accounted for as a reduction in equity amounting to $3,227,501.
 
(4)  To account for the consolidation entries eliminating the common stock of Cove amounting to $10,481, the paid in capital of Cove amounting to $144,802 and accumulated deficit of Cove of $274,435.

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EUROSEAS LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
For the Six-Month Period Ended June 30, 2005
                         
    Euroseas Ltd.   Cove Apparel, Inc.   Pro Forma
             
Revenues
              (4)        
Voyage revenue
    23,833,736               23,833,736  
Commissions
    (1,340,228 )             (1,340,228 )
                   
Net revenue
    22,493,508               22,493,508  
                   
Operating Expenses
                       
Voyage expenses
    131,903               131,903  
Vessel operating expenses
    4,270,787               4,270,787  
Management fees
    965,384               965,384  
Selling, general and administrative expenses
          103,590       103,590  
Amortization and depreciation
    1,824,322               1,824,322  
                   
Total operating expenses
    7,192,396       103,590       7,295,986  
                   
Operating income/(loss)
    15,301,112       (103,590 )     15,197,522  
                   
Other Income/(Expenses)
                       
Interest and finance cost
    (545,719 )             (545,719 )
Derivative Loss
    (82,029 )             (82,029 )
Foreign exchange (loss)/gain
    312               312  
Interest income
    89,698               89,698  
                   
Other income/(expenses), net
    (537,738 )             (537,738 )
                   
Net income/(loss) for the period
    14,763,374       (103,590 )     14,659,784  
                   
Earnings per share(5)
  $ 0.39           $ 0.39  
 
(4)  The six-month period ended June 30, 2005 figures are derived from the published quarterly financial statements of Cove Apparel, Inc. and do not represent the statutory reporting period.
 
(5)  Based upon 37,860,326 shares of Euroseas common stock.

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EUROSEAS LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
For the Year Ended December 31, 2004
                         
    Euroseas Ltd.   Cove Apparel, Inc.   Pro Forma
             
Revenues
              (4)        
Voyage revenue and other
    45,718,006       6,500       45,724,506  
Commissions
    (2,215,197 )             (2,215,197 )
                   
Net revenue
    43,502,809       6,500       43,509,309  
                   
Operating Expenses
                       
Voyage expenses
    370,345               370,345  
Vessel operating expenses
    8,906,252               8,906,252  
Management fees
    1,972,252               1,972,252  
Selling, general and administrative expenses
          85,801       85,801  
Amortization and depreciation
    3,461,678               3,461,678  
Net gain on sale of vessel
    (2,315,477 )             (2,315,477 )
                   
Total operating expenses
    12,395,050       85,801       12,480,851  
                   
Operating income
    31,107,759       (79,301 )     31,028,458  
                   
Other Income/(Expenses)
                       
Interest and finance cost
    (708,284 )             (708,284 )
Derivative gain
    27,029             27,029  
Foreign exchange (loss)/gain
    (1,808 )           (1,808 )
Interest income
    187,069             187,069  
                   
Other income/(expenses), net
    (495,994 )           (495,994 )
                   
Net Income/(loss) for the period
    30,611,765       (79,301 )     30,532,464  
                   
Earnings per share(5)
  $ 0.81           $ 0.81  
 
(4)  The year ended December 31, 2004 figures are derived from the published quarterly financial statements of Cove Apparel, Inc. and do not represent the statutory reporting period.
 
(5)  Based on 37,860,326 shares of Euroseas common stock.

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COMPARATIVE PER SHARE INFORMATION
      The following table sets forth selected historical per share information of Euroseas and Cove and unaudited pro forma book value per share information after giving effect to the Merger. You should read this information in conjunction with the selected historical financial information, included elsewhere in this joint Information Statement/ prospectus, and the historical financial statements of Euroseas and Cove and related notes that are included elsewhere in this joint Information Statement/ prospectus. The unaudited pro forma per share information is derived from, and should be read in conjunction with, the Unaudited Pro Forma Financial Information and related notes included elsewhere in this joint Information Statement/ prospectus. The historical per share information is derived from financial statements as of and for the period ended December 31, 2004 and June 30, 2005, respectively.
         
Proforma per Share Information in U.S. Dollars   June 30, 2005
     
    (Unaudited)
Total Proforma net book value
    19,742,008  
Total Proforma number of shares
    37,860,326  
Proforma book value per share
    0.52  
                                         
    Year Ended December 31,   Six Months Ended June 30,
         
Historical per Share Information   2002   2003   2004   2004   2005
                     
    (Audited)   (Audited)   (Audited)   (Unaudited)   (Unaudited)
    (U.S. dollars per share)
Euroseas Earnings per share, basic and diluted
    0.03       0.28       1.03       0.50       0.50  
Cove Earnings per share, basic and diluted
                             
MARKET PRICE AND DIVIDEND INFORMATION
      Cove’s common stock is listed on the OTC Bulletin Board (the “OTCBB”) under the symbol “CVAP.OB.” The closing high and low sales prices of Cove’s common stock as reported by the OTC Bulletin Board, for the quarters indicated are as follows:
                 
    Common Stock
     
    High   Low
         
2003:
               
First Quarter
  $ 0.00     $ 0.00  
Second Quarter
  $ 0.00     $ 0.00  
Third Quarter
  $ 0.00     $ 0.00  
Fourth Quarter
  $ 0.00     $ 0.00  
2004:
               
First Quarter
  $ 0.00     $ 0.00  
Second Quarter
  $ 0.00     $ 0.00  
Third Quarter
  $ 0.00     $ 0.00  
Fourth Quarter
  $ 0.00     $ 0.00  
2005:
               
First Quarter
  $ 0.00     $ 0.00  
Second Quarter
  $ 0.00     $ 0.00  
August 30, 2005(1)
  $ 0.00     $ 0.00  
February 2, 2006(2)
  $ 0.70     $ 0.70  
 
(1)  The last full trading day prior to the announcement of the execution of the Merger Agreement.
 
(2)  The last full trading day prior to the filing of this joint Information Statement/ prospectus.

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      The trading of Cove’s common stock is limited, and therefore there may not be deemed to be an established public trading market under guidelines set forth by the SEC. As of December 22, 2005, there were 34 stockholders of record of Cove common stock and 9,300,000 shares of Cove common stock are eligible for trading under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”).
      Cove has never declared or paid any dividends on its common stock.
      Stockholders are urged to obtain a current market quotation for Cove common stock.
      Euroseas is a privately-held Marshall Islands corporation and its common stock is not currently listed and does not trade on any stock exchange. Euroseas paid $687,500, $1,200,00, $26,962,500 and $44,225,000 (consisting of $27,525,000 of dividends and $16,700,000 as return of capital) in 2002, 2003, 2004 and in the first six months of 2005, respectively. Over the period January 1, 2002 to June 30, 2005, Euroseas paid substantially all of its net income as dividends. While Euroseas has paid dividends on an annual basis during the time it has been a private company, it intends to pay dividends on a quarterly basis once it has become a public company. Euroseas’ Board of Directors recently declared a dividend in the amount of $0.07 per share which (i) was paid on or about December 19, 2005 to those holders of record of common stock of Euroseas on December 16, 2005, and (ii) (A) is payable to the stockholders of Cove who are entitled to receive shares of Euroseas common stock in connection with Cove’s merger with EuroSub, with such payment being made only to those holders of record of Cove common stock as of the effective date of the merger and such dividend payment being made upon exchange of their Cove shares for shares of Euroseas common stock (assuming such merger is consummated), or (B) is payable to Friends if such merger is not consummated since Friends will be issued the shares that would have otherwise been issued in the Merger. The aggregate amount of such dividend is anticipated to be $2,650,223.

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CAPITALIZATION
      The following table sets forth our consolidated capitalization at September 30, 2005 on a historical basis and as adjusted to give effect to the Merger.
      As at September 30, 2005, the subsequent event that we have made adjustments for include:
        (a) The Merger with Cove in which 1,079,167 newly issued shares are to be issued to the shareholders of Cove, when the Merger is consummated (or, to Friends if the Merger is not consummated). Of this amount, 818,604 shares are to be issued to certain affiliates of Cove and are being registered for resale under this prospectus. However, for purposes of the calculations hereunder, we have used the full 1,079,167 amount since all of these shares are expected to be issued in connection with the Merger.
 
        (b) Cash dividend of $2.65 million declared on November 2, 2005 to (i) our shareholders of record on December 16, 2005 and paid on or about December 19, 2005, and (ii) either Cove’s shareholders that will exchange their shares to Euroseas shares, if the Merger with Cove is consummated, or, Friends which will be issued the shares that would have been issued to Coven’s shareholders if the Merger is not consummated. None of the Company’s warrants were exercised.
 
        (c) New loan to finance acquisition of m/v Artemis of $15,500,000 which was drawn down on December 30, 2005; and repayments for loans outstanding as at September 30, 2005 amounting to $4,170,000.
                   
    As of September 30, 2005
     
        As Adjusted for
        Subsequent Event
    Actual   and This Offering
         
    (In U.S. dollars)
Debt:
               
 
Current portion of long term debt
    12,854,998       14,430,000  
 
Total long term debt, net of current portion
    24,375,002       34,130,000  
Total debt
    37,230,000       48,560,000  
Shareholders’ equity
               
 
Common stock, $.01 par value; 100,000,000 shares authorized on an actual and as adjusted basis; 36,781,159 shares issued and outstanding on an actual basis; 37,860,326 shares issued and outstanding on an as adjusted basis
    367,812       378,603  
 
Additional paid-in capital
    18,383,781       18,382,990  
 
Retained earnings (deficit)
    6,673,708       6,673,708  
 
Dividend declared November 2, 2005
          (2,650,223 )
Total shareholders equity (deficit)
    25,425,301       22,785,078  
Total capitalization
    62,655,301       71,345,078  
DILUTION
      Dilution information is provided for both subsequent events: the Private Placement and the Merger with Cove (if consummated, or the issuance of the same number of shares that would have been issued to Cove’s stockholders to Friends otherwise).
      At June 30, 2005, we had net tangible book value of $1.66 million, or $0.06 per share. After giving effect to the sale of 7,026,993 shares of common stock at the price of $3.00 per share and the issuance of 1,079,167 shares of common stock to the shareholders of Cove if the Merger with Cove is consummated or to Friends if the Merger is not consummated at the price of $3.00 per share, the pro forma net tangible book value at June 30, 2005 would have been $19.74 million or $0.52 per share. This represents an immediate appreciation in net tangible book value of $0.46 per share to existing shareholders and an immediate dilution

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of net tangible book value of $2.48 per share to new investors. The following table illustrates the pro forma per share dilution and appreciation at June 30, 2005:
         
Initial offering price per share in the Private Placement
  $ 3.00  
Net tangible book value per share as of June 30, 2005
  $ 0.06  
Increase in net tangible book value attributable to the new investors
  $ 0.46  
Proforma net tangible book value per share after giving effect to this offering
  $ 0.52  
Dilution per share to the new investors
  $ 2.48  
      Net tangible book value per share of our common stock is determined by dividing our tangible net worth, which consists of tangible assets less liabilities, by the number of shares of our common stock outstanding. Dilution is determined by subtracting the net tangible book value per share of common stock after this offering from the public offering price per share.
      The following table summarizes, on a pro forma basis as at June 30, 2005, the differences between the number of shares of common stock acquired from us, the total amount paid and the average price per share paid by the existing holders of shares of common stock, Cove stockholders (in case the Merger is consummated; Friends will be issued the shares otherwise to be issued to Cove’s shareholders without any consideration if the Merger is not consummated) and by the Private Placement investors based upon the Private Placement share price of $3.00 per share.
                                         
    Pro Forma Shares        
    Outstanding   Total Consideration    
            Average Price
    Number   Percent   Amount   Percent   per Share
                     
Existing shareholders
    29,754,166       78.6%     $ 1,651,029       7.3%     $ 0.06  
Cove shareholders
    1,079,167       2.8%     $ 10,000       0.0%     $ 0.01  
New investors
    7,026,993       18.6%     $ 21,080,979       92.7%     $ 3.00  
Total
    37,860,326       100.0%     $ 22,742,008       100.0%     $ 0.60  
      The existing shareholders of the Company, owners of 29,754,166 shares, have acquired their shares by contributing the equity required to purchase the seven vessels the Company owned as of June 30, 2005, plus the m/v Widar which was sold on April 24, 2004 amounting to $18,920,778, or $0.64 per share. Over the period January 1, 2002 to June 30, 2005, the existing shareholders have received dividends and return of capital totaling $73,075,000, or $2.46 per share.

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RISK FACTORS
      Any investment in Euroseas stock involves a high degree of risk. You should consider carefully the following factors, as well as the other information set forth in this joint Information Statement/ prospectus, before making a decision on the Merger. Some of the following risks relate principally to the industry in which Euroseas operates and its business in general. Other risks relate to the securities market for and ownership of Euroseas common stock. Any of the risk factors could significantly and negatively affect Euroseas’ business, financial condition, operating results and common stock price. The following risk factors describe the material risks that are presently known to Euroseas and Cove.
Risk Factors Relating to Euroseas Common Stock
There may not be an active market for Euroseas’ shares, which may cause its shares to trade at lower prices and make it difficult to sell your shares.
      Prior to the Merger, there will be no public market for Euroseas’ shares. Euroseas cannot assure you that it will be successful in obtaining a public listing for its stock or that an active trading market for Euroseas’ shares will develop or be sustained after the Merger. Euroseas cannot predict at this time how actively Euroseas’ shares will trade in the public market subsequent to the Merger, if at all, or whether the price of Euroseas’ shares in the public market will reflect its actual financial performance.
The price of Euroseas’ shares after the Merger may be volatile and less than you originally paid for your corresponding shares of Cove common stock.
      The price of Euroseas’ shares after the Merger may be volatile, and may fluctuate due to factors such as:
  •  actual or anticipated fluctuations in quarterly and annual results;
 
  •  mergers and strategic alliances in the shipping industry;
 
  •  market conditions in the industry;
 
  •  changes in government regulation;
 
  •  fluctuations in Euroseas’ quarterly revenues and earnings and those of its publicly held competitors;
 
  •  shortfalls in Euroseas’ operating results from levels forecasted by securities analysts;
 
  •  announcements concerning Euroseas or its competitors; and
 
  •  the general state of the securities markets.
      The international drybulk and containership shipping industries have been highly unpredictable and volatile. The market for common shares of companies in these industries may be equally volatile. The Euroseas’ shares that you receive in the Merger may trade at prices lower than you originally paid for your corresponding shares of Cove common stock.
      There has been a limited trading market for Cove shares which will be converted at the effective time of the Merger into Euroseas’ shares.
Cove shareholders will experience significant dilution and a reduction in percentage ownership and voting power with respect to Cove shares as a result of the Merger.
      Cove shareholders will experience significant dilution and a substantial reduction in their percentage ownership interests and effective voting power relative to their respective percentage ownership interests in Cove prior to the Merger. If the Merger is consummated and all of the Cove stockholders receive Euroseas shares in the Merger, current Cove shareholders will own approximately 2.8% of the shares of Euroseas and Euroseas stockholders, including the investors in the Private Placement, will own approximately 97.2% of the shares of Euroseas.

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Future sales of Euroseas’ shares could depress its stock price.
      Upon consummation of the Merger, Euroseas’ present shareholders will own approximately 97.2% of its outstanding common stock. Euroseas has agreed to register the shares acquired by the investors in the Private Placement for resale. Euroseas has also agreed to register for resale 818,604 of the 1,079,167 shares to be issued in the Merger. These shares will be issued in the Merger to certain affiliates of Cove. Sales or the possibility of sales of substantial amounts of Euroseas’ shares of its common stock by such persons in the public markets could adversely affect the market price of Euroseas’ common stock.
Current Euroseas’ shareholders will control approximately 97.2% of Euroseas after the Merger and will effectively control the outcome of matters on which Euroseas shareholders are entitled to vote, including the election of directors and other significant corporate actions.
      If the Merger is consummated and all of the Cove stockholders receive Euroseas’ shares in the Merger, the current Euroseas shareholders will own approximately 97.2% of the shares of Euroseas. While the existing Euroseas shareholders have no agreement, arrangement or understanding relating to the voting of their shares following the Merger, they will effectively control the outcome of matters on which Euroseas shareholders are entitled to vote, including the election of directors and other significant corporate actions. The interests of these shareholders may be different from Cove stockholder interests.
Euroseas’ Articles of Incorporation and Bylaws contain anti-takeover provisions that may discourage, delay or prevent (1) the merger or acquisition of Euroseas and/or (2) the removal of incumbent directors and officers.
      Euroseas’ current Articles of Incorporation and Bylaws contain certain anti-takeover provisions. These provisions include blank check preferred stock, the prohibition of cumulative voting in the election of directors, a classified board of directors, advance written notice for shareholder nominations for directors, removal of directors only for cause, advance written notice of shareholder proposals for the removal of directors and limitations on action by shareholders. These provisions, either individually or in the aggregate, may discourage, delay or prevent (1) the merger or acquisition of Euroseas by means of a tender offer, a proxy contest or otherwise, that a shareholder may consider in its best interest and (2) the removal of incumbent directors and officers.
Profitable operation of Euroseas’ business will be dependent upon the efforts of Euroseas’, not Cove’s, management.
      As a condition to the Merger, Cove’s sole officer and director must resign from his current positions at or prior to the effective time of the Merger. The current officer and director of Cove will have no role in the management of Euroseas after the Merger. Instead, the current management of Euroseas will remain in place. Although Cove has researched and assessed Euroseas’ management, Cove cannot assure you that its assessment of Euroseas’ management will prove to be correct and that Euroseas’ management will be successful in its operation of Euroseas’ business after the Merger.
Cove and Euroseas expect to incur significant costs associated with the Merger, whether or not the Merger is completed and the incurrence of these costs will reduce the amount of cash available to be used for other corporate purposes.
      Cove and Euroseas expect to incur significant costs associated with the Merger, whether or not the Merger is completed and the incurrence of these costs will reduce the amount of cash available to be used for other corporate purposes.
Cove’s and Euroseas’ pro forma accounting for the transaction may change and materially reduce Euroseas’ actual post-transaction net worth from the pro forma amount.
      The unaudited pro forma financial information contained in this joint Information Statement/ prospectus is presented for illustrative purposes only and is not necessarily indicative of the financial position of Euroseas

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for future periods. Cove and Euroseas have estimated the impacts of the transaction in developing the related pro forma information. These estimates are subject to change pending a final analysis after completion of the transaction. The impact of these changes could materially reduce Euroseas’ actual post-transaction net worth from the pro forma amount.
If the Merger does not qualify as a nontaxable reorganization under the U.S. Internal Revenue Code, the transaction may be a taxable event to Cove’s stockholders.
      The Merger has been structured to qualify as a nontaxable reorganization for U.S. federal income tax purposes. If the Merger does not qualify as a nontaxable reorganization for federal income tax purposes, then the Merger may result in the recognition of gain or loss to Cove stockholders. In the event that the Merger resulted in the recognition of taxable gain to Cove stockholders, Cove stockholders will not receive any cash as a portion of the Merger consideration (other than the $0.07 per share Euroseas dividend) that could be used by them to satisfy any tax liability created by the Merger.
Industry Risk Factors Relating to Euroseas
The cyclical nature of the shipping industry may lead to volatile changes in freight rates which may reduce Euroseas’ revenues and net income.
      Euroseas is an independent shipping company that operates in the drybulk and containership shipping markets. Euroseas’ profitability is dependent upon the freight rates Euroseas is able to charge. The supply of and demand for shipping capacity strongly influences freight rates. The demand for shipping capacity is determined primarily by the demand for the type of commodities carried and the distance that those commodities must be moved by sea. The demand for commodities is affected by, among other things, world and regional economic and political conditions (including developments in international trade, fluctuations in industrial and agricultural production and armed conflicts), environmental concerns, weather patterns, and changes in seaborne and other transportation costs. The size of the existing fleet in a particular market, the number of new vessel deliveries, the scrapping of older vessels and the number of vessels out of active service (i.e., laid-up, drydocked, awaiting repairs or otherwise not available for hire), determines the supply of shipping capacity, which is measured by the amount of suitable tonnage available to carry cargo. The cyclical nature of the shipping industry may lead to volatile changes in freight rates which may reduce Euroseas’ revenues and net income.
      In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys, normal maintenance and insurance coverage, the efficiency and age profile of the existing fleet in the market and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. These factors influencing the supply of and demand for shipping capacity are outside of Euroseas’ control, and it cannot predict the nature, timing and degree of changes in industry conditions. Some of these factors may have a negative impact on Euroseas’ revenues and net income.
The value of Euroseas’ vessels may fluctuate, adversely affecting its earnings, liquidity and causing it to breach its secured credit agreements.
      The market value of Euroseas’ vessels can fluctuate significantly. The market value of Euroseas’ vessels may increase or decrease depending on the following factors:
  •  general economic and market conditions affecting the shipping industry;
 
  •  supply of drybulk and containership vessels;
 
  •  demand for drybulk containership vessels;
 
  •  types and sizes of vessels;
 
  •  other modes of transportation;

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  •  cost of newbuildings;
 
  •  new regulatory requirements from governments or self-regulated organizations; and
 
  •  prevailing level of charter rates.
      As vessels grow older, they generally decline in value. Due to the cyclical nature of the dry bulk and container vessel markets, if for any reason Euroseas sells vessels at a time when prices have fallen, it could incur a loss and its business, results of operations, cash flow, financial condition and ability to pay dividends could be adversely affected.
      Due to the fact that the market value of Euroseas’ vessels may fluctuate significantly, Euroseas may incur losses when it sells vessels, which may adversely affect its earnings. In addition, any determination that a vessel’s remaining useful life and earnings requires an impairment of its value on Euroseas’ financial statements could result in a charge against Euroseas’ earnings and a reduction in Euroseas’ shareholders’ equity. Any change in the assessed value of a Euroseas vessel might cause a violation of the covenants of each secured credit agreement which in turn might restrict Euroseas’ cash and affect its liquidity. All of Euroseas’ credit agreements provide for a minimum security maintenance ratio. If the assessed value of its vessels declines below certain thresholds, Euroseas will be deemed to have violated these covenants and may incur penalties for breach of its credit agreements. For example, these penalties could require Euroseas to prepay the shortfall between the assessed value of its vessels and the value such vessels are required to maintain pursuant to the secured credit agreement, or to provide additional security acceptable to the lenders in an amount at least equal to the amount of any shortfall. Further, future loans that Euroseas may agree to may include various other covenants, in addition to the vessel-related ones, that may ultimately depend on the assessed values of its vessels. Such covenants include, but are not limited to, maximum fleet leverage covenants and minimum fair net worth covenants. If for any reason Euroseas sells its vessels at a time when prices have fallen, the sale may be less than such vessel’s carrying amount on its financial statements, and Euroseas would incur a loss and a reduction in earnings.
Although charter rates in the international shipping industry reached historic highs recently, future profitability will be dependent on the level of charter rates and commodity prices.
      Charter rates for the international shipping industry have reached record highs during the past year; however, recently rates have declined. Euroseas anticipates that the future demand for its drybulk carriers and containership vessels and the charter rates of the corresponding markets will be dependent upon continued economic growth in China, India and the world economy, seasonal and regional changes in demand, and changes to the capacity of the world fleet. The capacity of the world fleet seems likely to increase and there can be no assurance that economic growth will continue. Adverse economic, political, social or other developments could also have a material adverse effect on Euroseas’ business and results of operations. If the number of new ships delivered exceeds the number of vessels being scrapped and lost, vessel capacity will increase. For instance, given that as of the end of 2004 the capacity of the worldwide container vessel fleet was approximately 7.4 million teu, with approximately 3.4 million teu of additional capacity on order, the growing supply of container vessels may exceed future demand, particularly in the short term. If the supply of vessel capacity increases but the demand for vessel capacity does not increase correspondingly, charter rates and vessel values could materially decline.
      The factors affecting the supply and demand for vessels are outside of Euroseas’ control, and the nature, timing and degree of changes in industry conditions are unpredictable. Some of the factors that influence demand for vessel capacity include:
  •  supply and demand for drybulk and containership commodities, and separately for containerized cargo;
 
  •  global and regional economic conditions;
 
  •  the distance drybulk and containership commodities are to be moved by sea; and
 
  •  changes in seaborne and other transportation patterns.

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      Some of the factors that influence the supply of vessel capacity include:
  •  the number of newbuilding deliveries;
 
  •  the scrapping rate of older vessels;
 
  •  changes in environmental and other regulations that may limit the useful life of vessels;
 
  •  the number of vessels that are laid up; and
 
  •  changes in global drybulk and containership commodity production and manufacturing distribution patterns of finished goods.
An economic slowdown in the Asia Pacific region could materially reduce the amount and/or profitability of Euroseas’ business.
      A significant number of the port calls made by Euroseas’ vessels involve the loading or discharging of raw materials and semi-finished products in ports in the Asia Pacific region. As a result, a negative change in economic conditions in any Asia Pacific country, but particularly in China or India, may have an adverse effect on Euroseas’ business, financial position and results of operations, as well as its future prospects. In particular, in recent years, China has been one of the world’s fastest growing economies in terms of gross domestic product. Euroseas cannot assure you that such growth will be sustained or that the Chinese economy will not experience contraction in the future. Moreover, any slowdown in the economies of the United States of America, the European Union or certain Asian countries may adversely effect economic growth in China and elsewhere. Euroseas’ business, financial position and results of operations, as well as its future prospects, will likely be materially and adversely affected by an economic downturn in any of these countries.
Euroseas may become dependent on spot charters in the volatile shipping markets, which can result in decreased revenues and/or profitability.
      Although most of Euroseas’ vessels are currently under longer term time charters, in the future, Euroseas may have more of these vessels and/or any newly acquired vessels on spot charters. The spot charter market is highly competitive and rates within this market are subject to volatile fluctuations, while longer-term time charters provide income at pre-determined rates over more extended periods of time. If Euroseas decides to spot charter its vessels, there can be no assurance that Euroseas will be successful in keeping all its vessels fully employed in these short-term markets or that future spot rates will be sufficient to enable its vessels to be operated profitably. A significant decrease in charter rates could affect the value of Euroseas’ fleet and could adversely affect its profitability and cash flows with the result that its ability to pay debt service to its lenders and dividends to its shareholders could be impaired.
Euroseas is subject to regulation and liability under environmental laws that could require significant expenditures and affect its cash flows and net income.
      Euroseas’ business and the operation of its vessels are materially affected by government regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration. Because such conventions, laws, and regulations are often revised, Euroseas cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale prices or useful lives of its vessels. Additional conventions, laws and regulations may be adopted which could limit Euroseas’ ability to do business or increase the cost of its doing business and which may materially adversely affect its operations. Euroseas is required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to its operations.
      The operation of Euroseas’ vessels is affected by the requirements set forth in the International Maritime Organization’s (“IMO’s”) International Management Code for the Safe Operation of Ships and Pollution Prevention (“ISM Code”). The ISM Code requires shipowners and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental

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protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels, and/or may result in a denial of access to, or detention in, certain ports. Currently, each of Euroseas’ vessels and Eurobulk Ltd. (“Eurobulk”), Euroseas’ ship management company, are ISM Code-certified, however, there can be no assurance that such certification will be maintained indefinitely.
      Although the United States of America is not a party, many countries have ratified and follow the liability scheme adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended (the “CLC”), and the Convention for the Establishment of an International Fund for Oil Pollution of 1971, as amended. Under these conventions, a vessel’s registered owner is strictly liable for pollution damage caused on the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses. Many of the countries that have ratified the CLC have increased the liability limits through a 1992 Protocol to the CLC. The right to limit liability is also forfeited under the CLC where the spill is caused by the owner’s actual fault or privity and, under the 1992 Protocol, where the spill is caused by the owner’s intentional or reckless conduct. Vessels trading to contracting states must provide evidence of insurance covering the limited liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to the CLC.
      The United States Oil Pollution Act of 1990 (“OPA”) established an extensive regulatory and liability regime for the protection and clean-up of the environment from oil spills. OPA affects all owners and operators whose vessels trade in the United States of America or any of its territories and possessions or whose vessels operate in waters of the United States of America, which includes the territorial sea of the United States of America and its 200 nautical mile exclusive economic zone. OPA allows for potentially unlimited liability without regard to fault of vessel owners, operators and bareboat charterers for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels, including bunkers (fuel), in the U.S. waters. OPA also expressly permits individual states to impose their own liability regimes with regard to hazardous materials and oil pollution materials occurring within their boundaries.
      While Euroseas does not carry oil as cargo, it does carry fuel oil (bunkers) in its drybulk carriers. Euroseas currently maintains, for each of its vessels, pollution liability coverage insurance of $1 billion per incident. If the damages from a catastrophic spill exceeded its insurance coverage, that would have a material adverse affect on Euroseas’ financial condition.
Capital expenditures and other costs necessary to operate and maintain Euroseas’ vessels may increase due to changes in governmental regulations, safety or other equipment standards.
      Changes in governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations and customer requirements or competition, may require Euroseas to make additional expenditures. In order to satisfy these requirements, Euroseas may, from time to time, be required to take its vessels out of service for extended periods of time, with corresponding losses of revenues. In the future, market conditions may not justify these expenditures or enable Euroseas to operate some or all of its vessels profitably during the remainder of their economic lives.
Increased inspection procedures and tighter import and export controls could increase costs and disrupt Euroseas’ business.
      International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination. Inspection procedures can result in the seizure of contents of Euroseas’ vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against Euroseas.
      It is possible that changes to inspection procedures could impose additional financial and legal obligations on Euroseas. Furthermore, changes to inspection procedures could also impose additional costs and obligations

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on Euroseas’ customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on Euroseas’ business, financial condition and results of operations.
Rising fuel prices may adversely affect Euroseas’ profits.
      Fuel (bunkers) is a significant, if not the largest, operating expense for many of Euroseas’ shipping operations when its vessels are under voyage charter. When a vessel is operating under a time charter, these costs are paid by the charterer. However fuel costs are taken into account by the charterer in determining the amount of time charter hire and therefore fuel costs also indirectly affect time charters. The price and supply of fuel is unpredictable and fluctuates based on events outside Euroseas’ control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Fuel prices have been at historically high levels recently but shipowners have not really felt the effect of these high prices because the shipping markets have also been at high levels. Any increase in the price of fuel may adversely affect Euroseas’ profitability. Further, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of Euroseas’ business versus other forms of transportation, such as truck or rail.
If Euroseas’ vessels fail to maintain their class certification and/or fail any annual survey, intermediate survey, drydocking or special survey, that vessel would be unable to carry cargo, thereby reducing Euroseas’ revenues and profitability and violating certain loan covenants of its third-party indebtedness.
      The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention (“SOLAS”). Euroseas’ vessels are currently classed with Lloyd’s Register of Shipping, Bureau Veritas and Nippon Kaiji Kyokai. ISM and International Ship and Port Facilities Security (“ISPS”) certification have been awarded by Bureau Veritas and the Panama Maritime Authority to Euroseas’ vessels and Eurobulk.
      A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be drydocked every two to three years for inspection of the underwater parts of such vessel.
      If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause Euroseas to be in violation of certain covenants in its loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on Euroseas’ financial condition and results of operations. That status could cause Euroseas to be in violation of certain covenants in its loan agreements.
Maritime claimants could arrest Euroseas’ vessels, which could interrupt its cash flow.
      Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lienholder may enforce its lien by arresting a vessel through foreclosure proceedings. The arresting or attachment of one or more of Euroseas’ vessels could interrupt its cash flow and require it to pay large sums of funds to have the arrest lifted which would have a material adverse effect on Euroseas’ financial condition and results of operations.
      In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one of Euroseas’ vessels for claims relating to another of its vessels.

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Governments could requisition Euroseas’ vessels during a period of war or emergency, resulting in loss of earnings.
      A government could requisition for title or seize Euroseas’ vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. Also, a government could requisition Euroseas’ vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of Euroseas’ vessels could have a material adverse effect on Euroseas’ financial condition and results of operations.
World events outside Euroseas’ control may negatively affect its ability to operate, thereby reducing its revenues and net income or its ability to obtain additional financing, thereby restricting the implementation of its business strategy.
      Terrorist attacks such as the attacks on the United States of America on September 11, 2001, on London, England on July 7, 2005, and the response to these attacks, as well as the threat of future terrorist attacks, continue to cause uncertainty in the world financial markets and may affect Euroseas’ business, results of operations and financial condition. The continuing conflict in Iraq may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also have a material adverse effect on Euroseas’ ability to obtain additional financing on terms acceptable to it or at all.
      Terrorist attacks may also negatively affect Euroseas’ operations and financial condition and directly impact its vessels or its customers. Future terrorist attacks could result in increased volatility of the financial markets in the United States of America and globally and could result in an economic recession in the United States of America or the world. Any of these occurrences could have a material adverse impact on Euroseas’ financial condition and costs.
Company Risk Factors Relating to Euroseas
Euroseas will depend entirely on Eurobulk to manage and charter its fleet.
      Euroseas currently contracts the commercial and technical management of its fleet, including crewing, maintenance and repair, to Eurobulk, an affiliated company with which Euroseas is under common control. The loss of Eurobulk’s services or its failure to perform its obligations to Euroseas could have a material adverse effect on Euroseas’ financial condition and results of its operations. Although Euroseas may have rights against Eurobulk if it defaults on its obligations to Euroseas, you will have no recourse against Eurobulk. Further, Euroseas expects that it will need to seek approval from its lenders to change Eurobulk as its ship manager.
Because Eurobulk is a privately held company, there is little or no publicly available information about it and Euroseas may get very little advance warning of operational or financial problems experienced by Eurobulk that may adversely affect Euroseas.
      The ability of Eurobulk to continue providing services for Euroseas’ benefit will depend in part on its own financial strength. Circumstances beyond Euroseas’ control could impair Eurobulk’s financial strength. Because Eurobulk is privately held it is unlikely that information about its financial strength would become public unless Eurobulk began to default on its obligations. As a result, there may be little advance warning of problems affecting Eurobulk, even though these problems could have a material adverse effect on Euroseas.
Euroseas and its principal officers have affiliations with Eurobulk that could create conflicts of interest detrimental to Euroseas.
      The principal officers of Euroseas are also principals, officers and employees of Eurobulk, which is Euroseas’ ship management company. These responsibilities and relationships could create conflicts of interest between Euroseas and Eurobulk. Conflicts may also arise in connection with the chartering, purchase, sale and

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operations of the vessels in Euroseas’ fleet versus drybulk carriers that may be managed in the future by Eurobulk. Circumstances in any of these instances may make one decision advantageous to Euroseas but detrimental to Eurobulk and vice versa. Eurobulk does not presently manage any vessels other than those owned by Euroseas. In the past, Eurobulk has managed vessels where the Pittas family was a minority shareholder but never any where there was no Pittas participation at all. There have never been any conflicts of interest that were resolved in a manner unfavorable to Euroseas or its predecessors. However, it is possible that in the future Eurobulk may manage vessels which will not belong to Euroseas and in which the Pittas family may have controlling, little or even no power or participation and where such conflicts may arise. There can be no assurance that Eurobulk will resolve all conflicts of interest in a manner beneficial to Euroseas.
Euroseas is a holding company, and it depends on the ability of its subsidiaries to distribute funds to it in order to satisfy its financial obligations or to make dividend payments.
      Euroseas is a holding company and its subsidiaries, which are all wholly-owned by it either directly or indirectly, conduct all of its operations and own all of its operating assets. Euroseas has no significant assets other than the equity interests in its wholly-owned subsidiaries. As a result, its ability to make dividend payments to you depends on its subsidiaries and their ability to distribute funds to it. If Euroseas is unable to obtain funds from its subsidiaries, it may be unable or its Board of Directors may exercise its discretion not to pay dividends.
Euroseas may not be able to pay dividends.
      Subject to the limitations discussed below, Euroseas currently intends to pay cash dividends on a quarterly basis. However, Euroseas may incur other expenses or liabilities that would reduce or eliminate the cash available for distribution as dividends. Euroseas’ loan agreements may also limit the amount of dividends Euroseas can pay under some circumstances based on certain covenants included in the loan agreements. Over the period January 1, 2002 to June 30, 2005, Euroseas paid substantially all of its net income as dividends usually on an annual basis without having been restricted by its loan agreements.
      If Euroseas is not successful in acquiring additional vessels, any unused net proceeds from its Private Placement offering may be used for other corporate purposes or held pending investment in other vessels. Identifying and acquiring vessels may take a significant amount time. The result may be that proceeds of the offering are not invested in additional vessels, or are so invested but only after some delay. In either case, Euroseas will not be able to earn charterhire consistent with its current anticipations, and its profitability and its ability to pay dividends will be affected.
      In addition, the declaration and payment of dividends will be subject at all times to the discretion of Euroseas’ Board of Directors. The timing and amount of dividends will depend on its earnings, financial condition, cash requirements and availability, restrictions in its loan agreements, growth strategy, the provisions of Marshall Islands law affecting the payment of dividends and other factors. Marshall Islands law generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent upon the payment of such dividends. However, there can be no assurance that dividends will be paid.
Companies affiliated with Eurobulk or Eurosesas’ officers and directors may acquire vessels that compete with Euroseas’ fleet.
      Companies affiliated with Eurobulk or Euroseas’ officers and directors own drybulk carriers and may acquire additional drybulk carriers in the future. These vessels could be in competition with Eursoseas’ fleet and other companies affiliated with Eurobulk might be faced with conflicts of interest with respect to their own interests and their obligations to Euroseas.

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If Euroseas is unable to fund its capital expenditures, it may not be able to continue to operate some of its vessels, which would have a material adverse effect on its business and its ability to pay dividends.
      In order to fund its capital expenditures, Euroseas may be required to incur borrowings or raise capital through the sale of debt or equity securities. Euroseas’ ability to access the capital markets through future offerings may be limited by its financial condition at the time of any such offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond its control. Euroseas’ failure to obtain the funds for necessary future capital expenditures would limit its ability to continue to operate some of its vessels and could have a material adverse effect on its business, results of operations and financial condition and its ability to pay dividends. Even if Euroseas is successful in obtaining such funds through financings, the terms of such financings could further limit its ability to pay dividends.
If Euroseas fails to manage its planned growth properly, it may not be able to successfully expand its market share.
      Euroseas intends to continue to grow its fleet. Euroseas’ growth will depend on:
  •  locating and acquiring suitable vessels;
 
  •  identifying and consummating acquisitions or joint ventures;
 
  •  integrating any acquired business successfully with its existing operations;
 
  •  enhancing its customer base;
 
  •  managing its expansion; and
 
  •  obtaining required financing.
      Growing any business by acquisition presents numerous risks, such as undisclosed liabilities and obligations and difficulty experienced in (1) obtaining additional qualified personnel, (2) managing relationships with customers and suppliers and (3) integrating newly acquired operations into existing infrastructures. Euroseas cannot give any assurance that it will be successful in executing its growth plans or that it will not incur significant expenses and losses in connection with the execution of those growth plans.
A decline in the market value of Euroseas’ vessels could lead to a default under Euroseas’ loan agreements and the loss of Euroseas’ vessels.
      Euroseas has incurred secured debt under loan agreements for its vessels and currently expects to incur additional secured debt in connection with its acquisition of other vessels. If the market value of Euroseas’ fleet declines, Euroseas may not be in compliance with certain provisions of its existing loan agreements and it may not be able to refinance its debt or obtain additional financing. If Euroseas is unable to pledge additional collateral, its lenders could accelerate its debt and foreclose on its fleet.
Euroseas’ existing loan agreements contain restrictive covenants that may limit its liquidity and corporate activities.
      Euroseas’ existing loan agreements impose operating and financial restrictions on it. These restrictions may limit its ability to:
  •  incur additional indebtedness;
 
  •  create liens on its assets;
 
  •  sell capital stock of its subsidiaries;
 
  •  make investments;
 
  •  engage in mergers or acquisitions;

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  •  pay dividends;
 
  •  make capital expenditures;
 
  •  change the management of its vessels or terminate or materially amend the management agreement relating to each vessel; and
 
  •  sell its vessels.
      Therefore, Euroseas may need to seek permission from its lenders in order to engage in some corporate actions. The lenders’ interests may be different from those of Euroseas, and Euroseas cannot guarantee that it will be able to obtain the lenders’ permission when needed. This may prevent Euroseas from taking actions that are in its best interest.
Servicing future debt would limit funds available for other purposes.
      To finance Euroseas’ fleet, it has incurred secured debt under loan agreements for its vessels. Euroseas also currently expects to incur additional secured debt to finance the acquisition of additional vessels. Euroseas must dedicate a portion of its cash flow from operations to pay the principal and interest on its debt. These payments limit funds otherwise available for working capital expenditures and other purposes. As of June 30, 2005, Euroseas had total bank debt of approximately $40 million. If Euroseas was unable to service its debt, it could have a material adverse effect on Euroseas’ financial condition and results of operations.
      A rise in interest rates could cause an increase in Euroseas’ costs and have a material adverse effect on its financial condition and results of operations. Euroseas has purchased, and may purchase in the future, vessels under loan agreements that provide for periodic interest payments based on indices that fluctuate with changes in market interest rates. If interest rates increase significantly, it would increase Euroseas’ costs of financing its acquisition of vessels, which could have a material adverse effect on Euroseas’ financial condition and results of operations. Any increase in debt service would also reduce the funds available to Euroseas to purchase other vessels.
Euroseas’ ability to obtain additional debt financing may be dependent on the performance of its then existing charters and the creditworthiness of its charterers.
      The actual or perceived credit quality of Euroseas’ charterers, and any defaults by them, may materially affect its ability to obtain the additional debt financing that Euroseas will require to purchase additional vessels or may significantly increase its costs of obtaining such financing. Euroseas’ inability to obtain additional financing at all or at a higher than anticipated cost may materially affect its results of operation and its ability to implement its business strategy.
As Euroseas expands its business, it may need to upgrade its operations and financial systems, and add more staff and crew. If it cannot upgrade these systems or recruit suitable employees, its performance may be adversely affected.
      Euroseas’ current operating and financial systems may not be adequate if it expands the size of its fleet, and its attempts to improve those systems may be ineffective. In addition, if Euroseas expands its fleet, it will have to rely on Eurobulk to recruit suitable additional seafarers and shoreside administrative and management personnel. Euroseas cannot assure you that Eurobulk will be able to continue to hire suitable employees as Euroseas expands its fleet. If Eurobulk’s unaffiliated crewing agent encounters business or financial difficulties, Euroseas may not be able to adequately staff its vessels. If Euroseas is unable to operate its financial and operations systems effectively or to recruit suitable employees, its performance may be materially adversely affected.

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Because Euroseas obtains some of its insurance through protection and indemnity associations, it may also be subject to calls in amounts based not only on its own claim records, but also the claim records of other members of the protection and indemnity associations.
      Euroseas may be subject to calls in amounts based not only on its claim records but also the claim records of other members of the protection and indemnity associations through which Euroseas receives insurance coverage for tort liability, including pollution-related liability. Euroseas’ payment of these calls could result in significant expense to it, which could have a material adverse effect on its business, results of operations, cash flows, financial condition and ability to pay dividends.
Labor interruptions could disrupt Euroseas’ business.
      Euroseas’ vessels are manned by masters, officers and crews that are employed by third parties. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder Euroseas’ operations from being carried out normally and could have a material adverse effect on its business, results of operations, cash flows, financial condition and ability to pay dividends.
In the highly competitive international drybulk and containership shipping industry, Euroseas may not be able to compete for charters with new entrants or established companies with greater resources.
      Euroseas employs its vessels in a highly competitive market that is capital intensive and highly fragmented. Competition arises primarily from other vessel owners, some of whom have substantially greater resources than Euroseas. Competition for the transportation of drybulk and containership cargoes can be intense and depends on price, location, size, age, condition and the acceptability of the vessel and its managers to the charterers. Due in part to the highly fragmented market, competitors with greater resources could operate larger fleets through consolidations or acquisitions that may be able to offer better prices and fleets.
Euroseas may be unable to attract and retain key management personnel and other employees in the shipping industry, which may negatively affect the effectiveness of its management and its results of operations.
      Euroseas’ success depends to a significant extent upon the abilities and efforts of its management team. Euroseas’ success will depend upon its ability to hire additional employees and to retain key members of its management team. The loss of any of these individuals could adversely affect Euroseas’ business prospects and financial condition. Difficulty in hiring and retaining personnel could adversely affect Euroseas’ results of operations. Euroseas does not currently intend to maintain “key man” life insurance on any of its officers.
Risks involved with operating ocean going vessels could affect Euroseas’ business and reputation, which may reduce its revenues.
      The operation of an ocean-going vessel carries inherent risks. These risks include, among others, the possibility of:
  •  crew strikes and/or boycotts;
 
  •  marine disaster;
 
  •  piracy;
 
  •  environmental accidents;
 
  •  cargo and property losses or damage; and
 
  •  business interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather conditions.
      The involvement of any of the vessels in an environmental disaster may harm Euroseas’ reputation as a safe and reliable vessel operator. Any of these circumstances or events could increase Euroseas’ costs or lower its revenues.

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Euroseas’ vessels may suffer damage and it may face unexpected drydocking costs, which could affect its cash flow and financial condition.
      If Euroseas’ vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can be substantial. Euroseas may have to pay drydocking costs that its insurance does not cover. The loss of earnings while these vessels are being repaired and reconditioned, as well as the actual cost of these repairs, would decrease its earnings.
Purchasing and operating previously owned, or secondhand, vessels may result in increased operating costs and vessels off-hire, which could adversely affect Euroseas’ earnings.
      Although Euroseas inspects the secondhand vessels prior to purchase, this inspection does not provide Euroseas with the same knowledge about their condition and cost of any required (or anticipated) repairs that it would have had if these vessels had been built for and operated exclusively by Euroseas. Generally, Euroseas does not receive the benefit of warranties on secondhand vessels.
      In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel efficient and more costly to maintain than more recently constructed vessels. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.
      Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to Euroseas’ vessels and may restrict the type of activities in which the vessels may engage. Euroseas cannot assure you that, as Euroseas’ vessels age, market conditions will justify those expenditures or enable it to operate its vessels profitably during the remainder of their useful lives. If Euroseas sells vessels, it is not certain that the price for which it sells them will equal their carrying amount at that time.
Euroseas may not have adequate insurance to compensate it adequately for damage to, or loss of, its vessels.
      Euroseas procures hull and machinery insurance, protection and indemnity insurance, which includes environmental damage and pollution insurance and war risk insurance and freight, demurrage and defence insurance for its fleet. Euroseas does not maintain insurance against loss of hire, which covers business interruptions that result in the loss of use of a vessel. Euroseas can give no assurance that it is adequately insured against all risks. Euroseas may not be able to obtain adequate insurance coverage for its fleet in the future. The insurers may not pay particular claims. Euroseas’ insurance policies contain deductibles for which it will be responsible and limitations and exclusions which may increase its costs or lower its revenue. Moreover, Euroseas cannot assure that the insurers will not default on any claims they are required to pay. If Euroseas’ insurance is not enough to cover claims that may arise, it may have a material adverse effect on Euroseas’ financial condition and results of operations.
  Euroseas’ operations outside the United States of America expose it to risks of mining, terrorism and piracy that may interfere with the operation of its vessels.
      Euroseas is an international company and primarily conducts its operations outside the United States of America. Changing economic, political and governmental conditions in the countries where Euroseas is engaged in business or where Euroseas’ vessels are registered affect Euroseas’ operations. In the past, political conflicts, particularly in the Arabian Gulf, resulted in attacks on vessels, mining of waterways and other efforts to disrupt shipping in the area. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea. The likelihood of future acts of terrorism may increase, and Euroseas’ vessels may face higher risks of being attacked. Euroseas is not fully insured for any of these risks. In addition, future hostilities or other political instability in regions where Euroseas’ vessels trade could have a material adverse effect on its trade patterns and adversely affect its operations and performance.

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Because the Republic of the Marshall Islands, where Euroseas is incorporated, does not have a well-developed body of corporate law, former Cove stockholders may have fewer rights and protections than under typical laws of the United States, such as Delaware, and shareholders may have more difficulty in protecting their interest in Euroseas with regard to actions taken by Euroseas’ Board of Directors.
      Euroseas’ corporate affairs are governed by its Articles of Incorporation and By-laws and by the Marshall Islands Business Corporations Act (the “BCA”). The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States of America. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the law of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain jurisdictions in the United States of America. Shareholder rights may differ as well. For example, under Marshall Islands law, a copy of the notice of any meeting of the shareholders must be given not less than 15 days before the meeting, whereas in Delaware such notice must be given not less than 10 days before the meeting. Therefore, if immediate shareholder action is required, a meeting may not be able to be convened as quickly as it can be convened under Delaware law. Also, under Marshall Islands law, any action required to be taken by a meeting of shareholders may only be taken without a meeting if consent is in writing and is signed by all of the shareholders entitled to vote, whereas under Delaware law action may be taken by consent if approved by the number of shareholders that would be required to approve such action at a meeting. Therefore, under Marshall Islands law, it may be more difficult for a company to take certain actions without a meeting even if a majority of the shareholders approve of such action. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, public shareholders may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States of America.
Obligations associated with being a public company will require significant company resources and management attention
      Euroseas has operated as a private company since its inception. Shortly after the completion of this Merger, Euroseas will be subject to the reporting requirements of the Exchange Act, and the other rules and regulations of the SEC, including the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act requires that Euroseas evaluate and determine the effectiveness of its internal control over financial reporting. If Euroseas has a material weakness in its internal control over financial reporting, it may not detect errors on a timely basis and its financial statements may be materially misstated. Euroseas will have to dedicate a significant amount of time and resources to ensure compliance with these regulatory requirements. In addition, Euroseas has applied to list the common stock on the Nasdaq National Market, and if approved, will be subject to the listing requirements of the Nasdaq National Market. Euroseas cannot assure you that such listing will be obtained. If such listing is not obtained, Euroseas will seek to list its common stock on the OTC Bulletin Board or another exchange.
      Euroseas will work with its legal, accounting and financial advisors to identify any areas in which changes should be made to its financial and management control systems to manage its growth and its obligations as a public company. Euroseas will evaluate areas such as corporate governance, corporate control, internal audit, disclosure controls and procedures and financial reporting and accounting systems. Euroseas will make changes in any of these and other areas, including its internal control over financial reporting, which Euroseas believes are necessary. However, these and other measures it may take may not be sufficient to allow it to satisfy its obligations as a public company on a timely and reliable basis. In addition, compliance with reporting and other requirements applicable to public companies will create additional costs for Euroseas and will require the time and attention of management. Euroseas’ limited management resources may exacerbate the difficulties in complying with these reporting and other requirements while focusing on executing its business strategy. Euroseas cannot predict or estimate the amount of the additional costs it may incur, the timing of such costs or the degree of impact that its management’s attention to these matters will have on its business.

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Euroseas’ historical financial and operating data may not be representative of its future results because it is a newly formed company with no operating history as a stand-alone entity or as a publicly traded company.
      Euroseas’ historical financial and operating data may not be representative of its future results because it is a newly formed company with no operating history as a stand-alone entity or as a publicly traded company. Euroseas’ combined financial statements included in this joint Information Statement/ prospectus have been carved out of the consolidated financial statements of shipowning companies managed by Eurobulk and majority owned by the Pittas family. Consistent with shipping industry practice, Euroseas has not obtained, nor does it present in this joint Information Statement/ prospectus, historical operating data for its vessels prior to their acquisition. Although Euroseas’ results of operations, cash flows and financial condition reflected in its combined financial statements include all expenses allocable to its business, due to factors such as the additional administrative and financial obligations associated with operating as a publicly traded company, they may not be indicative of the results of operations that Euroseas would have achieved had it operated as a public entity for all periods presented or of future results that it may achieve as a publicly traded company with its current holding company structure.
Euroseas depends upon a few significant charterers for a large part of its revenues. The loss of one or more of these charterers could adversely affect its financial performance.
      Euroseas has historically derived a significant part of its revenue from a small number of charterers. Euroseas’ top five customers accounted for approximately 68% of its total revenues for 2004 and 54% of its total revenues for 2003. During the half of 2005, Euroseas’ top five customers accounted for 60% of its total revenues. If Euroseas loses any of these charterers, or if any of these charterers significantly reduce its use of Euroseas’services or was unable to make charter payments to Euroseas, Euroseas’ results of operations, cash flows and financial condition would be adversely affected.
Exposure to currency exchange rate fluctuations will result in fluctuations in Euroseas’ cash flows and operating results.
      Euroseas generates all its revenues in U.S. dollars, but its ship manager, Eurobulk, incurs approximately 30% of vessel operating expenses and Euroseas incurs general and administrative expenses in currencies other than the U.S. dollar. This difference could lead to fluctuations in Euroseas’ vessel operating expenses, which would affect its financial results. Expenses incurred in foreign currencies increase when the value of the U.S. dollar falls, which would reduce Euroseas’ profitability. Euroseas does not currently engage in hedging transactions to minimize its exposure to currency rate fluctuations but it may do so in the future.
U.S. tax authorities could treat Euroseas as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.
      A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime applicable to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
      Based on Euroseas’ proposed method of operation, it does not believe that it will be a PFIC. In this regard, Euroseas intends to treat the gross income it derives or is deemed to derive from its time chartering activities as services income, rather than rental income. Accordingly, Euroseas believes that its income from

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its time chartering activities will not constitute “passive income,” and the assets that it owns and operates in connection with the production of that income will not constitute passive assets.
      There is, however, no direct legal authority under the PFIC rules addressing Euroseas’ proposed method of operation. Accordingly, no assurance can be given that the U.S. Internal Revenue Service, or IRS, or a court of law will accept Euroseas’ position, and there is a risk that the IRS or a court of law could determine that Euroseas is a PFIC. Moreover, no assurance can be given that Euroseas would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of its operations.
      If Euroseas is or has been a PFIC for any taxable year, its U.S. shareholders will face significant and potentially adverse U.S. tax consequences. Under the PFIC rules, unless those shareholders make an election available under the United States Internal Revenue Code of 1986, or the Code, such shareholders would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of Euroseas’ common shares, as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of Euroseas’ common shares. Please read “Tax Items Discussion — Passive Foreign Investment Company and Controlled Foreign Corporation Status” for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. shareholders if Euroseas is treated as a PFIC.
Euroseas may have to pay tax on United States source income, which would reduce its earnings.
      Under the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as Euroseas and its subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as U.S. source shipping income and will be subject to a 4% United States federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the related Treasury Regulations, which the IRS has adopted and which became effective on January 1, 2005 for calendar year taxpayers such as Euroseas and its subsidiaries.
      Euroseas expects that it and each of its subsidiaries qualify for this statutory tax exemption, and will take this position for United States federal income tax reporting purposes. However, there are factual circumstances beyond Euroseas’ control that could cause it to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on its United States source income. Due to the factual nature of the issues involved, Euroseas can give no assurances regarding its tax-exempt status or that of any of its subsidiaries.
      If Euroseas or its subsidiaries are not entitled to exemption under Section 883 of the Code for any taxable year, the imposition of a 4% U.S. federal income tax on its U.S. source shipping income and that of its subsidiaries could have a negative effect on its business and would result in decreased earnings available for distribution to its shareholders.
If the Merger does not qualify as a nontaxable reorganization, Euroseas will be required to pay U.S. federal income tax.
      The Merger has been structured to qualify as a nontaxable reorganization for U.S. federal income tax purposes. If the Merger does not so qualify, then the Merger likely would result in the recognition of gain to Cove. In the event that the Merger results in the recognition of taxable gain to Cove, Eurosub (and perhaps Cove stockholders) would be required to pay U.S. federal income tax with respect to such gains. This U.S. federal income tax would be in addition to any taxable gain recognized by Cove stockholders on their receipt of Euroseas stock. Neither Cove nor Cove stockholders will receive any cash as a portion of the Merger consideration (other than the $0.07 per Euroseas share dividend payment) that would be used by them to satisfy any tax liability Cove created by the Merger.

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FORWARD-LOOKING STATEMENTS
      This joint Information Statement/ prospectus contains forward-looking statements. These forward-looking statements include information about possible or assumed future results of operations or the performance of the Euroseas after the Merger, the expected completion and timing of the Merger and other information relating to the Merger. Words such as “expects,” “intends,” “plans,” “believes,” “anticipates,” “estimates,” and variations of such words and similar expressions are intended to identify the forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements include statements regarding:
  •  Euroseas’s future operating or financial results;
 
  •  future, pending or recent acquisitions, business strategy, areas of possible expansion, and expected capital spending or operating expenses; and
 
  •  drybulk and containership market trends, including charter rates and factors affecting vessel supply and demand.
      We undertake no obligation to publicly update or revise any forward-looking statements contained in this joint Information Statement/ prospectus, or the documents to which we refer you in this joint Information Statement/ prospectus, to reflect any change in our expectations with respect to such statements or any change in events, conditions or circumstances on which any statement is based.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      On August 25, 2005, Euroseas raised approximately $21 million in gross proceeds from the Private Placement of its securities to a number of institutional and accredited investors. In the Private Placement, Euroseas issued 7,026,993 shares of common stock at a price of $3.00 per share, as well as warrants to purchase an additional 1,756,743 shares of common stock.
      For every share of Euroseas common stock issued, the Private Placement investors received 0.25 warrants, with each warrant entitling its holder to purchase one share of Euroseas common stock at an exercise price of $3.60 per share (subject to adjustments) within a period of five years from the date of the issuance of the warrant. The issue price in the Private Placement for each share of Euroseas common stock with 0.25 warrant was $3.00. A Private Placement investor may sell the Euroseas common stock acquired in the Private Placement to third parties and the warrants remain with the initial Private Placement investor or its transferees and remain exercisable for the remainder of the five year period. The Private Placement investors may also sell or transfer the warrants separate from the related Euroseas common stock so long as such sale or transfer complies with applicable securities laws.
      As a condition to the Private Placement, Euroseas agreed to execute the Merger Agreement involving EuroSub and Cove. As such, Euroseas views the costs associated with the Merger with Cove as costs of the equity raised in the Private Placement. Accordingly, the excess of the fair value of the shares of Euroseas that would be exchanged for the shares of Cove at the consummation of the Merger over the fair value of the net assets of Cove acquired is recognized as reduction to equity.
      As discussed further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations, on August 25, 2005, Cove, the Cove Principals, EuroSub and Euroseas, signed the Merger Agreement, pursuant to which Euroseas, through its wholly-owned subsidiary, EuroSub, agreed to acquire Cove in exchange for shares of Euroseas common stock. The Cove Principal have agreed to pledge, or to cause their transferees to pledge, 475,000 of the shares of Euroseas, they or their transferees are to receive in the Merger, in exchange for their Cove shares as collateral for breach of the representations and warranties made by Cove to Euroseas in the Merger Agreement.

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      The following unaudited pro forma condensed consolidated financial statements have been prepared by Euroseas’ management and are based on (a) the historical financial statements of (i) Euroseas and (ii) Cove as adjusted for the reporting period of Euroseas, which is December 31 each year and (b) the assumptions and adjustments described below. The unaudited pro forma condensed consolidated balance sheet at June 30, 2005 gives effect to the following transactions, as if such transactions had taken effect on June 30, 2005:
  •  The shares issued by Euroseas as part of the Private Placement and the payment of the related expenses of the transaction;
 
  •  The acquisition of Cove by EuroSub as described above; and
 
  •  The repayment of the loan from the stockholder and all liabilities of Cove as required by the Merger Agreement
      The unaudited pro forma condensed consolidated financial statements do not purport to represent what Euroseas’ results of operations or its financial position will be for future periods.
      The unaudited pro forma condensed consolidated financial statements should be read together with the historical consolidated financial statements of Euroseas and Cove and the related notes, each included elsewhere herein and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
      The unaudited pro forma condensed consolidated financial statements are provided for illustrative purposes only and its inclusion in this joint Information Statement/ prospectus should not be regarded as an indication that it is an accurate prediction of future events, and it should not be relied on as such. Except as may be required by applicable securities laws, we do not intend to update or otherwise revise the unaudited pro forma condensed consolidated financial statements to reflect circumstances existing after the date when made or to reflect the occurrences of future events even if any or all of the assumptions are shown to be in error.

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      The following proforma financial statements assume the Private Placement and the Merger had been completed on January 1, 2004 and include Statements of Operations for Euroseas for six months ended June 30, 2005 and for the year ended December 31, 2004 and a proforma Balance Sheet as at June 30, 2005:
EUROSEAS LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 2005
                                 
    Euroseas Ltd.   Cove Apparel, Inc.   Adjustments   Pro Forma
                 
ASSETS
Current Assets
                               
Cash and cash equivalents
    5,452,608               18,430,979 (1)     23,883,587  
                      (350,000 )(1)     (350,000 )
              21,759       (11,759 )(2)     10,000  
                         
Total cash and cash equivalents
    5,452,608       21,759       18,069,220       23,543,587  
                         
Accounts receivable trade, net
    9,652                       9,652  
Prepaid expenses
    129,706                       129,706  
Claims and other receivables
    69,641                       69,641  
Due from related party
    3,995,602                       3,995,602  
Inventories
    319,765                       319,765  
Restricted cash
    1,299,135                       1,299,135  
                         
Total current assets
    11,276,109       21,759       18,069,220       29,367,088  
                         
Fixed Assets
                               
Vessels, net book value
    32,978,300                       32,978,300  
                         
Total fixed assets
    32,978,300                     32,978,300  
                         
Long-Term Assets
                               
Deferred charges, net
    2,357,775                       2,357,775  
                         
Total long-term assets
    2,357,775                     2,357,775  
                         
Total assets
    46,612,184       21,759       18,069,220       64,703,163  
                         
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
                               
Long-term debt, current portion
    14,780,000                       14,780,000  
Trade accounts payable
    946,760       95,911       (95,911 )(2)     946,760  
Accrued expenses
    437,570                       437,570  
Deferred income
    2,176,825                       2,176,825  
Loan from stockholder
          45,000       (45,000 )(2)      
                         
Total current liabilities
    18,341,155       140,911       (140,911 )     18,341,155  
                         
Long-Term Liabilities
                               
Long-term debt, net of current portion
    26,620,000                     26,620,000  
                         
Total long-term liabilities
    26,620,000                   26,620,000  
                         
Total liabilities
    44,961,155       140,911       (140,911 )     44,961,155  
                         
Commitments and contingencies
                         
Common stock
    297,542               81,061 (1)(3)     378,603  
              10,481       (10,481 )(4)      
                         
Total common stock
    297,542       10,481       70,580       378,603  
                         
Preferred shares
                         
Additional paid in capital
    373,381       144,802       18,360,399 (1)     18,878,582  
                      129,152 (2)     129,152  
                      (350,000 )(2)     (350,000 )
                      (274,435 )(3)     (274,435 )
                         
Total additional paid-in capital
    373,381       144,802       17,865,116       18,383,299  
                         
Retained earnings/(Accumulated deficit) (restated)
    980,106       (274,435 )     274,435 (3)     980,106  
                         
Total shareholders’ equity
    1,651,029       (119,152 )     18,210,131       19,742,008  
                         
Total liabilities and shareholders’ equity
    46,612,184       21,759       18,069,220       64,703,163  
                         

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(1)  To account for the sale in the Private Placement of 7,026,993 shares and 1,756,743 warrants dated August 25, 2005 at $3 per share with a par value of $0.01 per share or $70.270, less the cost of the offering estimated to be $2.65 million. The value of the warrants is included in “Additional paid in capital” and is estimated to be $614,860.
 
(2)  The Merger Agreement states that Cove Apparel, Inc. will have a cash balance of $10,000 and equity of the same amount at the effective date of the Merger. The pro forma entries reflect the increase in paid in capital and repayment of the accounts payable and loan to the shareholder of Cove Apparel, Inc. of $140,911 less the cash balance noted above totalling $11,759. The repayment of trade accounts and loan from stockholders amounting to $129,152 was reflected in additional paid-in capital. The costs related to the Merger are estimated to be $0.35 million and are accounted as a reduction in equity.
 
(3)  To account for the acquisition of Cove Apparel, Inc. through the issuance of 1,079,167 shares to the shareholders of Cove at $3 per share amounting to $3,237,501 with a par value of $0.01 per share or $10,791. Since the acquisition of Cove was made to satisfy the requirement in the Private Placement the difference between the purchase price of $3,237,501 and the fair value of Cove’s acquired net assets of $10,000 after taking into account the transactions in (2) above, is accounted for as a reduction in equity amounting to $3,227,501.
 
(4)  To account for the consolidation entries eliminating the common stock of Cove amounting to $10,481, the paid in capital of Cove amounting to $144,802 and accumulated deficit of Cove of $274,435.

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EUROSEAS LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
For the Six-Month Period Ended June 30, 2005
                         
    Euroseas Ltd.   Cove Apparel, Inc.   Pro Forma
             
Revenues
              (4)        
Voyage revenue
    23,833,736               23,833,736  
Commissions
    (1,340,228 )             (1,340,228 )
                   
Net revenue
    22,493,508               22,493,508  
                   
Operating Expenses
                       
Voyage expenses
    131,903               131,903  
Vessel operating expenses
    4,270,787               4,270,787  
Management fees
    965,384               965,384  
Selling, general and administrative expenses
          103,590       103,509  
Amortization and depreciation
    1,824,322               1,824,322  
                   
Total operating expenses
    7,192,396       103,590       7,295,986  
                   
Operating income/(loss)
    15,301,112       (103,590 )     15,197,522  
                   
Other Income/(Expenses)
                       
Interest and finance cost
    (545,719 )             (545,719 )
Derivative Loss
    (82,029 )             (82,029 )
Foreign exchange (loss)/gain
    312               312  
Interest income
    89,698               89,698  
                   
Other income/(expenses), net
    (537,738 )             (537,738 )
                   
Net income/(loss) for the period
    14,763,374       (103,590 )     14,659,784  
                   
Earnings per share(5)
  $ 0.39           $ 0.39  
 
(4)  The six-month period ended June 30, 2005 figures are derived from the published quarterly financial statements of Cove Apparel, Inc. and do not represent the statutory reporting period.
 
(5)  Based on 37,860,326 shares of Euroseas common stock.

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EUROSEAS LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
For the Year Ended December 31, 2004
                         
    Euroseas Ltd.   Cove Apparel, Inc.   Pro Forma
             
Revenues
              (4)        
Voyage revenue and other
    45,718,006       6,500       45,724,506  
Commissions
    (2,215,197 )             (2,215,197 )
                   
Net revenue
    43,502,809       6,500       43,509,309  
                   
Operating Expenses
                       
Voyage expenses
    370,345               370,345  
Vessel operating expenses
    8,906,252               8,906,252  
Management fees
    1,972,252               1,972,252  
Selling, general and administrative expenses
          85,801       85,801  
Amortization and depreciation
    3,461,678               3,461,678  
Net gain on sale of vessel
    (2,315,477 )             (2,315,477 )
                   
Total operating expenses
    12,395,050       85,801       12,480,851  
                   
Operating income
    31,107,759       (79,301 )     31,028,458  
                   
Other Income/(Expenses)
                       
Interest and finance cost
    (708,284 )             (708,284 )
Derivative gain
    27,029             27,029  
Foreign exchange (loss)/gain
    (1,808 )           (1,808 )
Interest income
    187,069             187,069  
                   
Other income/(expenses), net
    (495,994 )           (495,994 )
                   
Net Income/(loss) for the period
    30,611,765       (79,301 )     30,532,464  
                   
Earnings per share
  $ 0.81           $ 0.81  
 
(4)  The year ended December 31, 2004 figures are derived from the published quarterly financial statements of Cove Apparel, Inc. and do not represent the statutory reporting period.
 
(5)  Based on 37,860,326 shares of Euroseas common stock.

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THE COVE CONSENT TO ACTION WITHOUT A MEETING
      Completion of the Merger requires the approval of the Merger Agreement by holders of a majority of the issued and outstanding shares of Cove common stock entitled to vote. A majority of Cove’s stockholders approved the Merger pursuant to an action taken by written consent of Cove’s majority stockholders, on September 26, 2005, in accordance with the relevant Sections of the NRS. This action was taken by Seward Ave Partners, LLC, Olive Grove LLC, Jonathan Spanier and Blue Star Investors, Ltd. who own in excess of the required majority of Cove outstanding common stock necessary for the adoption of the actions.
BACKGROUND AND REASONS FOR THE MERGER
Background of the Merger
      Late in 2004, the Pittas family decided they wanted to explore the possibility of taking their shipping interests public in an effort to streamline their operations and grow their company. Aristides J. Pittas undertook the task of familiarizing himself with the U.S. capital markets and contacted various shipping related consultants and banks in the U.S. The Pittas family eventually concluded that their company was too small to attempt an initial public offering and that this would be too costly for such a small company. In early 2005, Mr. Pittas contacted Mr. Jim Apostolakis and Mr. Robert Di Marsico of Poseidon Capital, a New York based ship consultant which Mr Pittas had known for many years. Poseidon suggested the idea of merging with a special purpose acquisition company. Poseidon identified one such special purpose company to Mr. Pittas and an engagement agreement was signed on February 8, 2005 between Eurobulk, the Pittas family ship management company, and Poseidon to act as Eurobulk’s financial advisor to pursue a potential merger of the two companies. After some meetings and negotiations between Eurobulk and the special purpose acquisition company, the potential deal never materialized. Mr. Pittas continued his efforts to identify a suitable partner for Euroseas, the ship holding company the Pittas family had decided to form to consolidate all of their ship-owning interests. Discussions were held with several parties but none came to a fruitful conclusion.
      On March 23, 2005, Poseidon advised Mr. Pittas regarding Roth Capital, a firm Poseidon believed could assist Euroseas in becoming public. Mr. David Enzer of Roth Capital met with Mr. Pittas in New York. Prior to that meeting neither Mr. Pittas nor any members of the Pittas family or other officers of Eurobulk had any previous contacts, understandings or arrangements either with Mr. Enzer or Roth Capital. At the meeting, Mr. Enzer suggested to Mr. Pittas to pursue a private placement in combination with a merger or acquisition of a U.S. public shell company. Mr. Enzer suggested a merger with Cove Apparel, Inc., a surf apparel company that Mr. Pittas and his family had never heard of before. For tax reasons unique to the shipping industry, they decided to structure the transaction with Euroseas setting up a U.S. subsidiary that would merge with Cove, with the Cove stockholders receiving shares of Euroseas in the merger. An engagement letter between Roth Capital and Eurobulk was signed on April 21, 2005 for Roth Capital to act as financial advisor and placement agent to Eurobulk. The engagement letter stipulated, among other things, that Roth would arrange a private placement for Euroseas’ shares of common stock. The terms of the Private Placement required Euroseas to execute a merger agreement with Cove, register for resale the shares issued in the Private Placement and apply for a listing on a national stock exchange. Euroseas would not have agreed to the Merger otherwise. On the same date of execution of the engagement letter between Roth Capital and Eurobulk, a term sheet was executed between Cove and Eurobulk setting forth the terms of the proposed merger. As a condition to the Merger, Euroseas agreed to register the shares to be issued in the Merger and apply for a listing of its stock on a national stock exchange. On August 25, 2005, the final agreement for the merger was signed with Cove and the Private Placement closed, with Euroseas raising approximately $21 million.
Recommendations of the Boards of Directors and Reasons for the Merger
Cove
      Cove’s Board of Directors has determined that the Merger is in the best interests of Cove and its stockholders. Both the Cove Board and its stockholders have approved the Merger Agreement and the

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transactions contemplated thereby. In reaching its determination, Cove’s Board of Directors considered a number of factors, including the following:
        (a) Although Cove has continued to pursue its historic business and intends to continue to use its business assets in a business following the Merger, Cove only has nominal revenues, and upon analysis of the potential opportunity, the Board of Directors of Cove decided to merge with EuroSub because the Board was of the view that the Cove stockholders would have a better opportunity as shareholders of Euroseas than as stockholders of Cove;
 
        (b) there has been strong raw materials demand in recent years by developing countries, particularly China and India, that has resulted in robust growth for drybulk shipping as well as increased freight rates, attributable in part to industrywide capacity constraints. As a result, the drybulk shipping sector has been attracting growing investor interest, with a number of drybulk and other seaborne shipping companies recently completing or planning public financings in the United States of America and other financial markets;
 
        (c) Euroseas has an experienced, highly regarded management team, which Cove’s Board believes is well suited to pursue a strategy of acquiring and operating drybulk vessels; and
 
        (d) the fact that the merger should constitute a tax-free reorganization under the Internal Revenue Code of 1986, as amended.
      Cove’s Board of Directors also considered potential risks relating to the Merger, including the following:
        (a) the fact that Euroseas is a recently formed foreign corporation and that Cove’s stockholders will have minority ownership in Euroseas following consummation of the merger;
 
        (b) a macroeconomic slowdown, particularly in China or India, which would reduce the demand for shipping capacity, thereby resulting in reduced shipping rates;
 
        (c) the risks and costs to Cove if the Merger is not completed; and
 
        (d) the restrictions on the conduct of Cove’s business prior to completion of the Merger, which may delay or prevent Cove from exploiting business opportunities that may arise pending completion of the Merger.
      The foregoing discussion of the information and factors considered by Cove’s Board of Directors is not intended to be exhaustive, but includes the material factors considered by it. In view of the variety of factors considered in connection with its evaluation of the Merger, Cove’s Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given differing weights to different factors. After weighing all of the different factors, Cove’s Board of Directors unanimously approved the Merger and determined to recommend that Cove’s stockholders approve the Merger.
      No consideration was given by Cove’s Board to securing an opinion of an independent investment banker or other financial advisor to the effect that the Merger would be fair, from a financial point of view, to Cove stockholders in view of the fact that the Cove Board does not believe that the terms of the Merger give rise to any inherent conflict of interest between Cove’s executive officers, directors and principal stockholders and non-affiliated stockholders. In this regard, Cove’s Board took note of the fact that its current sole executive officer, director and principal stockholders will receive no benefit from the Merger that would not otherwise be available to the Cove stockholders as a whole. In addition, Cove’s Board took note of the fact that no executive officer, director or principal stockholders are to become salaried employees of Euroseas subsequent to the consummation of the Merger.
Euroseas
      Euroseas’ Board of Directors has determined that the Merger is in the best interests of Euroseas and its shareholders. Both the Euroseas Board and its shareholders have unanimously approved the Merger

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Agreement and the transactions contemplated thereby. In reaching its determination, Euroseas’ Board of Directors considered a number of factors, including the following:
        (a) Euroseas was required to execute the Merger Agreement as a condition to closing the Private Placement and raising approximately $21 million;
 
        (b) the Merger would afford Euroseas access to a company with a public listing whose shares could trade and help develop a market for Euroseas’ common stock and which would increase the number of shareholders that could participate in the Merger and become Euroseas’ shareholders;
 
        (c) publicly traded securities would afford Euroseas’ management, after the consummation of the transaction, the opportunity to utilize Euroseas’ authorized but unissued securities to attempt to acquire other compatible businesses; and
 
        (d) this transaction substantially reduces the uncertainty attendant to Euroseas’ own public offering of securities as compared to an underwritten initial public offering, and the possibility that any such offering might not be successfully consummated in view of the size of Euroseas and the then prevailing market conditions.
      Euroseas’ Board of Directors also considered potential risks relating to the Merger, including the following:
        (a) factors beyond Euroseas’ control, such as industry economic conditions, general economic conditions, terrorism or war, could have an adverse effect upon the market price of Euroseas’ common stock after the Merger;
 
        (b) the additional significant expense and responsibility of being a U.S. public company, including Sarbanes-Oxley Act compliance, corporate governance issues, SEC reporting requirements, and stock exchange listing requirements;
 
        (c) the necessity of ongoing direct communication with the investment community, which is time consuming and may detract from executive time that would otherwise be devoted to business operations; and
 
        (d) the risk that the Cove stockholders may not approve the Merger and Euroseas would have incurred significant legal, accounting and other expenses in connection with the proposed transaction.
      After a complete review and analysis of the foregoing and other risks, Euroseas’ Board of Directors unanimously concluded that the benefits of the Merger outweighed the risks involved.
Interests of Certain Persons in the Merger
      Cove’s sole director and member of senior management does not own any Cove common stock. He will resign from his positions at or prior to the effective time of the Merger and will not be a director or paid employee of Euroseas or the Surviving Corporation following consummation of the Merger. Jodi Hunter, one of Cove’s employees, owns Cove common stock and has agreed to remain after the Merger as an unpaid, at-will employee of the Surviving Corporation and to provide an office in the Cayman Islands at no cost or expense to Euroseas.
      As of the date that the Cove majority stockholders took action by consent without a meeting, certain of Cove’s officers and directors owned shares of Cove common stock. See “The Parties to the Merger-Cove Principal Stockholders.”
      The officers and management of Euroseas will continue to be the same following consummation of the Merger. Immediately following the Merger, the Euroseas’ Board will consist of seven directors, at least four of whom shall be “independent.”

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U.S. Federal Income Tax Matters
Certain Material U.S. Federal Income Tax Consequences
      The following is a discussion of certain material U.S. federal income tax consequences to a Cove stockholder of the exchange of Cove shares for shares of Euroseas common stock in the Merger. This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), treasury regulations promulgated under the Code, Internal Revenue Service (“IRS”) rulings and pronouncements, and judicial decisions now in effect, all of which are subject to change at any time by legislative, judicial or administrative action. Any such changes may be applied retroactively.
      No party has sought or will seek any rulings from the IRS with respect to the U.S. federal income tax consequences discussed below. It is a condition to the completion of the Merger, unless waived by the parties in writing, that Cove obtain the opinion of its counsel, Kirkpatrick & Lockhart Nicholson Graham LLP (“K&L”), that the Merger should be treated as a non-taxable reorganization for U.S. federal income tax purposes. Neither the discussion below, nor K&L’s opinion, is in any way binding on the IRS or the courts or in any way constitutes an assurance that the U.S. federal income tax consequences discussed herein will be accepted by the IRS or the courts. The opinion of K&L will rely on certain assumptions that customarily are made with respect to transactions of this kind. The opinion also will rely on certain factual representations contained in officers’ certificates of Cove and Euroseas. K&L will assume such representations to be true, correct and complete. If any such representation cannot be made at the close of business on the effective date of the Merger, or any such representation or assumption is incorrect, then K&L may be unable to render the opinion upon which the closing is conditioned.
      The U.S. federal income tax consequences to a holder of Cove shares from the Merger may vary depending upon such stockholder’s particular situation or status. This discussion is limited to holders of Cove shares who hold their Cove shares and will hold their Euroseas common stock as capital assets, and it does not address aspects of U.S. federal income taxation that may be relevant to holders of either Cove or Euroseas shares who are subject to special treatment under U.S. federal income tax laws, including but not limited to:
  •  non-U.S. holders (as defined below);
 
  •  dealers in securities;
 
  •  banks and other financial institutions;
 
  •  insurance companies;
 
  •  tax-exempt organizations, plans or accounts;
 
  •  persons holding their Cove shares as part of a “hedge,” “straddle” or other risk reduction transaction;
 
  •  persons holding their Cove shares through partnerships, trusts or other entities;
 
  •  persons that own, directly or by attribution, 10% or more of our voting stock;
 
  •  U.S. persons whose functional currency is not the U.S. dollar; and
 
  •  controlled foreign corporations or passive foreign investment companies, as those terms are defined in the Code.
In addition, this discussion does not consider the effects of any applicable foreign, state, local or other tax laws, or estate or gift tax considerations, or the alternative minimum tax.
      For purposes of this discussion, a “U.S. holder” is a beneficial owner of Cove shares that is, for U.S. federal income tax purposes:
  •  a citizen or resident of the United States;
 
  •  a corporation created or organized in or under the laws of the United States or any state thereof (including the District of Columbia);

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  •  an estate the income of which is subject to United States federal income tax regardless of its source; or
 
  •  a trust, if a court within the United States can exercise primary supervision over its administration, and one or more United States persons have the authority to control all of the substantial decisions of that trust (or the trust was in existence on August 20, 1996, was treated as a United States trust on August 19, 1996 and validly elected to continue to be treated as a United States trust).
For purposes of this discussion, a “non-U.S. holder” is, for U.S. federal income tax purposes, an individual, trust, or corporation that is a beneficial owner of Cove shares, who is not a U.S. holder.
      We encourage each stockholder to consult with his, her or its own tax advisors with respect to the particular United States federal income tax consequences of the merger and ownership of the Euroseas shares, and the tax consequences under foreign, state, local and other tax laws and the possible effects of changes in tax laws.
U.S. Federal Income Tax Consequences of the Merger
      The Merger should be treated as a nontaxable reorganization for U.S. federal income tax purposes. Accordingly, a U.S. holder of Cove shares should not recognize gain or loss upon the exchange of their shares of Cove common stock solely for shares of Euroseas common stock pursuant to the Merger. However, gain should be recognized with respect to cash (including the $0.07 dividend per Euroseas share) received in whole or in part in exchange for shares of Cove common stock. Generally, the amount of gain recognized should equal the lesser of (i) the amount of cash received in the Merger, or (ii) the amount of gain realized in the Merger. Any gain recognized by a holder generally should be capital gain. Long-term capital gains are subject to preferential rates of taxation for certain non-corporate taxpayers. A U.S. holder’s aggregate tax basis in the Euroseas shares received in the transaction should be the same as his or her aggregate tax basis in the Cove shares surrendered in the transaction, decreased by the amount of any cash received by the U.S. holder in the Merger, and increased by the amount of gain recognized by the U.S. holder with respect to cash received in the Merger. The holding period of Euroseas shares received in the Merger should include the holding period of the Cove shares surrendered in the Merger.
Distributions
      Except as described below under the heading “Passive Foreign Investment Company and Controlled Foreign Corporation Status,” any distributions made by Euroseas with respect to Euroseas common stock to a U.S. holder will generally constitute dividends for U.S. federal income tax purposes to the extent such distribution is attributable to Euroseas’ current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of Euroseas’ earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. holder’s tax basis in his or her common stock and thereafter as capital gain.
      Dividends paid on Euroseas common stock to a U.S. holder who is an individual, trust or estate (a “U.S. Individual Holder”) will generally be treated as “qualified dividend income” that is taxable to such U.S. Individual Holders at preferential tax rates (through 2008) provided that (1) the Euroseas common stock is readily tradable on an established securities market in the United States (such as The NASDAQ National Market); (2) Euroseas is not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year; and (3) the U.S. Individual Holder has owned the common stock for more than 60 days in the 121-day period beginning 60 days before the date on which the common stock becomes ex-dividend. Any dividends paid by Euroseas which are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Individual Holder. Legislation has been recently introduced in the U.S. Senate which, if enacted in its present form, would preclude Euroseas dividends from qualifying for such preferential rates.
      Special rules may apply to any “extraordinary dividend” — generally, a dividend equal to or in excess of ten percent of a shareholder’s adjusted basis (or fair market value in certain circumstances) in a share of common stock — paid by Euroseas. If Euroseas pays an “extraordinary dividend” on its common stock that is

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treated as “qualified dividend income,” then any loss derived by a U.S. Individual Holder from the sale or exchange of such common stock will be treated as long-term capital loss to the extent of such dividend. Depending upon the amount of a dividend paid by Euroseas, such dividend may be treated as an “extraordinary dividend.”
      Because Euroseas is not a United States corporation, U.S. holders that are corporations will not be entitled to claim a dividends received deduction with respect to any distributions they receive from Euroseas.
Sale or Exchange of Euroseas Shares
      Generally, except as described below under the heading “Passive Foreign Investment Company and Controlled Foreign Corporation Status,” upon the sale or exchange of Euroseas shares, a U.S. holder should recognize capital gain or loss equal to the difference between the amount realized on the sale or exchange and the holder’s adjusted tax basis in such Euroseas shares. For U.S. Individual Holders, the maximum U.S. federal income tax rate applicable to such gain if such U.S. holder’s holding period for such Euroseas shares exceeds one year and therefore qualifies as long-term capital gain is 15%. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company Status
      If Euroseas qualifies as a passive foreign investment company (“PFIC”) or controlled foreign corporation (“CFC”) for U.S. federal income tax purposes, materially different U.S. federal income tax consequences may arise for a U.S. holder of Euroseas common stock. A foreign corporation generally will be a PFIC for any taxable year in which either (a) 75% or more of its gross income consists of passive income, or (b) 50% or more of the average value of its assets is attributable to assets that produce, or are held for the production of, passive income. Subject to certain limited exceptions, if a foreign corporation is a PFIC under either of these tests in a particular year, shares of the corporation held by a U.S. holder in that year are treated as PFIC shares for that year and all subsequent years in the U.S. holder’s holding period even if the corporation fails to meet either test in a subsequent year. Certain exceptions apply, including if the U.S. holder makes a timely election to treat the foreign corporation as a “qualified electing fund” or makes a “mark-to-market” election with respect to Euroseas common stock.
      Based on Euroseas’ proposed method of operation, it does not believe that it will be a PFIC. In this regard, Euroseas intends to treat the gross income it derives or are deemed to derive from its time chartering activities as services income, rather than rental income. Accordingly, Euroseas believes that its income from its time chartering activities does not constitute “passive income,” and the assets that it owns and operates in connection with the production of that income do not constitute passive assets.
      There is, however, no direct legal authority under the PFIC rules addressing Euroseas’ proposed method of operation. Accordingly, no assurance can be given that the U.S. Internal Revenue Service, or IRS, or a court of law will accept Euroseas’ position, and there is a risk that the IRS or a court of law could determine that Euroseas is a PFIC. Moreover, no assurance can be given that Euroseas would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of its operations.
      If Euroseas is treated as a PFIC, a U.S. holder of Euroseas common stock generally would be required to pay a special U.S. tax and a deferred interest charge when the holder either disposes of his Euroseas stock or receives certain substantial distributions from Euroseas. Generally, the special U.S. tax would be determined by allocating the gain on disposition or the substantial distribution (as the case may be) ratably to each day in the U.S. holder’s holding period of Euroseas common stock and multiplying such amounts by the highest rate of U.S. tax in effect for the taxable years for which such allocations are made. Alternatively, a U.S. holder could elect to treat Euroseas as a qualified electing fund. If this election is made by a U.S. holder, and Euroseas provides certain information to such U.S. holder, the special U.S. tax and deferred interest charge described above would not apply to a disposition of Euroseas stock or substantial distributions. Instead, the U.S. holder would be required to take into account currently its allocable share of Euroseas ordinary income and capital gains for U.S. federal income tax purposes. If Euroseas stock is “marketable stock” for purposes of Section 1296 of the Code, a U.S. holder alternatively may be able to elect to “mark-to-market” its Euroseas

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shares on an annual basis. “Marking-to-market,” in this context, means including in gross income each taxable year (and treating as ordinary income, not net capital gain) the excess, if any, of the fair market value of the electing holder’s Euroseas shares over its adjusted basis therein as of the end of that year. The U.S. holder’s adjusted basis in the shares would be adjusted to reflect the amounts of income included under the election. The U.S. federal income tax consequences to a U.S. holder of shares in a PFIC, including any available elections, are complex. Accordingly, a U.S. holder should consult its tax advisor to determine the consequences to that holder of owning shares of a PFIC.
Backup Withholding Tax and Information Reporting Requirements
      When required, Euroseas or its paying agent will report to the IRS the amount of proceeds paid for the Cove shares and any dividends paid on Euroseas shares in each calendar year, and the amount of United States federal income tax withheld, if any, with respect to these payments.
      U.S. holders who are subject to information reporting and who do not provide appropriate information when requested may be subject to backup withholding at a rate of 28% on the gross amount of any proceeds or dividends received.
      Backup withholding is not an additional tax. The amount of any backup withholding will be allowed as a credit against the holder’s United States federal income tax liability and may entitle the holder to a refund, provided the required information is timely furnished to the Internal Revenue Service.
      We encourage each stockholder to consult with his, her or its own tax advisor as to particular tax consequences to it of the Merger and holding and disposing of Euroseas shares, including the applicability of any state, local or foreign tax laws and any proposed changes in applicable law.
Accounting Treatment
      Euroseas agreed in connection with the Private Placement to execute the Merger Agreement involving EuroSub and Cove. As such, Euroseas views the costs associated with the Merger with Cove as costs of the equity raised in the Private Placement. Accordingly, the excess of the fair value of the shares of Euroseas that would be exchanged for the shares of Cove at the consummation of the Merger over the fair value of the net assets of Cove acquired is recognized as reduction to equity.
Regulatory Approvals
      Cove and Euroseas do not expect that the Merger will be subject to any state or federal regulatory requirements. Should such state or federal regulatory requirements be applicable, Cove and Euroseas currently intend to comply with all such requirements. Euroseas has agreed to register its common stock pursuant to the Exchange Act. In addition, as a condition to the effectiveness of the Merger, Cove and Euroseas have agreed to use their respective reasonable best efforts to file, at or before the effective time of the Merger, authorization for listing of the Euroseas shares either on the Nasdaq SmallCap Market, The American Stock Exchange Inc. or, if permissible, the Nasdaq National Market. Euroseas has filed an application to list its common stock on the Nasdaq National Market. We cannot assure you that Euroseas will be able to obtain such listing. Other than the filing of the registration statement, this joint Information Statement/ prospectus and certain other filings under applicable securities laws and the filing of certain Merger documents with the Secretary of State of the State of Nevada and with the Secretary of State of the State of Delaware, we do not believe that, in connection with the completion of the Merger, any consent, approval, authorization or permit of, or filing with or notification to, any merger control authority will be required in any jurisdictions. Following the effective time of the Merger, we do not believe that any merger control filings will be required with any jurisdictions.

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THE MERGER AGREEMENT
      The summary of the material terms of the Merger Agreement below and elsewhere in this joint Information Statement/prospectus is qualified in its entirety by reference to the Merger Agreement, as amended, a copy of which is attached to this joint Information Statement/ prospectus as Appendix A and which we incorporate by reference into this document. This summary may not contain all of the information about the Merger Agreement that is important to you. We encourage you to read carefully the Merger Agreement in its entirety.
Structure and Effective Time of Merger
      At the effective time of the Merger, Cove will merge with and into EuroSub. The separate corporate existence of Cove will cease and EuroSub will be the Surviving Corporation as a wholly owned operating subsidiary or Euroseas and will change its name to Cove Apparel, Inc. The effective time of the Merger will occur as promptly as possible after the satisfaction or waiver of all conditions to closing in the Merger Agreement by filing a certificate of merger or similar document with the Secretary of State of the State of Delaware and the Secretary of State of the State of Nevada. We will seek to complete the Merger in the fourth quarter of 2005. However, we cannot assure you when, or if, all the conditions to completion of the Merger will be satisfied or waived.
Merger Consideration
      Each share of Cove common stock will be converted into 0.102969 shares of Euroseas common stock, subject to adjustment for any stock split by Euroseas prior to the Merger. There are no outstanding options or warrants to purchase any shares of Cove common stock or other securities of Cove and there are no outstanding options or warrants to purchase any shares of Euroseas or other securities of Euroseas (other than the warrants issued in the Private Placement).
Certificate of Incorporation; Bylaws
      The certificate of incorporation and bylaws of EuroSub in effect immediately prior to the effective time of the Merger will become the certificate of incorporation and bylaws of the Surviving Corporation.
Directors and Officers
      The directors and officers of EuroSub at the effective time of the Merger will remain the directors and officers of the Surviving Corporation.
Dissenters’ Rights
      Shares of Cove common stock that are outstanding immediately prior to the Merger and which are held by Cove stockholders who shall not have voted in favor of the Merger or consented thereto in writing and who shall have dissented properly from the Merger in accordance with the applicable provisions of the NRS (collectively, the “Dissenting Shares”) shall not be converted into or represent the right to receive the Euroseas shares. Such Cove stockholders shall be entitled to receive payment of the fair value of such shares of Cove common stock held by them in accordance with the applicable provisions of the NRS, except that all Dissenting Shares held by Cove stockholders who failed to perfect or who have effectively withdrawn or lost their rights to dissent from the Merger under the applicable provisions of the NRS shall thereupon be deemed to have converted into and to become exchangeable, as of the expiration of the statutory notice period following the Merger, of the right to receive, without any interest thereon, the Euroseas shares, upon surrender of the certificate or certificates that formerly evidenced such shares of Cove common stock certificates that formerly evidenced such shares of Cove common stock. Any payments required to be made to the holders of any Dissenting Shares shall be funded by Euroseas.
Anti-Dilution Provisions
      In the event Euroseas changes (or establishes a record date for changing) the number of Euroseas shares issued and outstanding prior to the effective time of the Merger as a result of a stock split, stock dividend,

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recapitalization, subdivision, reclassification, combination, exchange of shares or similar transaction with respect to the outstanding Euroseas shares and the record date therefor shall be prior to the effective time of the Merger, the number of Euroseas shares to be issued to Cove stockholders will be proportionately adjusted to reflect such stock split, stock dividend, recapitalization, subdivision, reclassification, combination, exchange of shares or similar transaction.
Procedure for Receiving Merger Consideration
      Exchange Agent. As of the effective time of the Merger, Euroseas will deposit with a bank or trust company designated by Euroseas and reasonably acceptable to Cove (the “Exchange Agent”), for the benefit of the holders of shares of Cove common stock, the Euroseas shares issuable in exchange for outstanding shares of Cove common stock. At the time of such deposit, Euroseas will irrevocably instruct the Exchange Agent to deliver the Euroseas shares to Cove’s stockholders after the effective time of the Merger.
      Exchange Procedures. As soon as reasonably practicable after the effective time of the Merger, the Exchange Agent will mail to each Cove stockholder of record, except those who had the right to demand and properly demanded their respective statutory dissenters’ rights, a letter of transmittal with instructions for use in surrendering the Cove stock certificates in exchange for the applicable Euroseas shares. Upon surrender of a Cove stock certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly completed and validly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Cove stock certificate shall be entitled to receive in exchange therefor Euroseas shares, and the Cove stock certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Cove common stock that is not registered in the transfer records of Cove, a Cove stock certificate evidencing the proper number of Euroseas shares may be issued in exchange therefor to a person other than the person in whose name the Cove stock certificate so surrendered is registered if such Cove stock certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such issuance shall pay any transfer or other taxes required by reason of the issuance of Euroseas shares to a person other than the registered holder of such Cove stock certificate or establish to the satisfaction of Euroseas that such tax has been paid or is not applicable. Until surrendered, each Cove stock certificate shall be deemed at any time after the effective time of the Merger to represent only the right to receive upon such surrender the Euroseas shares that the holder thereof has the right to receive.
      Distributions with Respect to Unexchanged Shares. No dividends or other distributions declared or made with respect to Euroseas shares with a record date after the effective time of the Merger will be paid to the holder of any unsurrendered Cove stock certificate with respect to Euroseas shares represented thereby, if any, and all such dividends and other distributions will be paid by Euroseas to the Exchange Agent, until the surrender of such Cove stock certificate. Subject to the effect of applicable escheat or similar laws, following surrender of any such Cove stock certificate there will be paid to the holder of whole Euroseas shares issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the effective time of the Merger theretofore paid with respect to such whole Euroseas shares and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the effective time of the Merger but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such whole Euroseas shares.
      No Further Ownership Rights in Cove Common Stock. All certificates evidencing Euroseas shares issued will be deemed to have been issued and paid in full satisfaction of all rights pertaining to the shares of Cove common stock formerly represented by such Cove stock certificates. At the close of business on the day on which the effective time of the Merger occurs, the stock transfer books of Cove will be closed, and there shall be no further registration of transfers on the stock transfer books of Euroseas of the shares of Cove common stock that were outstanding immediately prior to the effective time of the Merger. If, after the effective time of the Merger, Cove stock certificates are presented to Euroseas or the Exchange Agent for transfer or any other reason, they shall be canceled and exchanged.
      Fractional Shares. No fractional shares of Euroseas will be issued in the Merger. The number of Euroseas to be issued to the holder of a stock certificate previously evidencing Cove common stock will be rounded up to the nearest whole share of Euroseas.

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      Termination of Exchange of Euroseas Shares. Any portion of the Euroseas shares that remain undistributed to the holders of Cove common stock for six months after the effective time of the Merger will be delivered to Euroseas, upon demand, and any holders of Cove common stock may thereafter look only to Euroseas for the Euroseas shares.
      No Liability. None of the Exchange Agent, Euroseas, the Surviving Corporation or any party to the Merger Agreement will be liable to a holder of Euroseas shares or Cove common stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.
      Lost, Stolen or Destroyed Cove Common Stock. In the event any Cove common stock certificate has been lost, stolen or destroyed, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Cove common stock certificate, upon the making of an affidavit and indemnity of that fact by the holder thereof in a form that is reasonably acceptable to the Exchange Agent, the required number of Euroseas shares; provided, however, that Euroseas may, in its reasonably commercial discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Cove common stock certificate to deliver a bond in such sum as it may reasonably direct against any claim that may be made against Euroseas or the Exchange Agent with respect to the Euroseas shares alleged to have been lost, stolen or destroyed.
Representations and Warranties
      In the Merger Agreement, the parties have made customary representations and warranties about themselves concerning various business, legal, financial, regulatory and other pertinent matters. These representations and warranties survive for a two year period following the Merger. Under certain circumstances, each of the parties may decline to complete the Merger if the inaccuracy of the other party’s representations and warranties has a material adverse effect on the other party.
Covenants
Conduct of Business Prior to Effective Time of the Merger
      Each of Cove, the Cove Principals and Euroseas agreed that until the effective time of the Merger:
        (a) It shall conduct its business in the ordinary and usual course of business and consistent with past practice;
 
        (b) It shall not (i) split, combine or reclassify its outstanding capital stock or declare, set aside or pay any dividend or distribution payable in cash, stock, property or otherwise (other than (A) a reverse stock split by Euroseas, or (B) any declaration and payment of dividends, so long as the appropriate amount of such dividends are held in trust and paid to Cove stockholders if the Merger is consummated or paid to Friends if the Merger is not consummated), (ii) spin-off any assets or businesses, (iii) engage in any transaction for the purpose of effecting a recapitalization, or (iv) engage in any transaction or series of related transactions which has a similar effect to any of the foregoing;
 
        (c) It shall not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any additional shares of, or any options, warrants or rights of any kind to acquire any shares of its capital stock of any class or any debt or equity securities convertible into or exchangeable for such capital stock or amend or modify the terms and conditions of any of the foregoing (except, in the case of Euroseas, it may issue shares and warrants as contemplated in connection with the Private Placement);
 
        (d) It shall not (i) redeem, purchase, acquire or offer to purchase or acquire any shares of its capital stock, other than as required by the governing terms of such securities, (ii) take or fail to take any action which action or failure to take action would cause it or its stockholders (except to the extent that any stockholders receive cash in lieu of fractional shares) to recognize gain or loss for tax purposes as a result of the consummation of the Merger, (iii) in the case of Cove, make any acquisition of any material assets or businesses, (iv) in the case of Cove, sell any material assets or businesses, (v) in the case of Cove, enter into any contract, agreement, commitment or arrangement to do any of the foregoing; or

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  (vi) in the case of Kevin Peterson, he or she shall not resign as a director or officer of Cove until the effective time of the Merger;
 
        (e) It shall use reasonable efforts to preserve intact its business organization and goodwill, keep available the services of its present officers and key employees, and preserve the goodwill and business relationships with suppliers, distributors, customers, and others having business relationships with it, and not engage in any action, directly or indirectly, with the intent to impact adversely the transactions contemplated by the Merger Agreement;
 
        (f) It shall confer on a regular basis with one or more representatives of the other to report on material operational matters and the general status of ongoing operations; and
 
        (g) It shall file with the SEC all forms, statements, reports and documents (including all exhibits, amendments and supplements thereto) required to be filed by it pursuant to the Exchange Act.
No Solicitation of Transactions
      Euroseas has agreed that, prior to the effective time of the Merger or the termination or abandonment of the Merger Agreement, that Euroseas shall not give authorization or permission to any of Euroseas’ directors, officers, employees, agents or representatives to, and each shall use all reasonable efforts to see that such persons do not, directly or indirectly, solicit, initiate, facilitate or encourage (including by way of furnishing or disclosing information) any merger, consolidation, other business combination involving Euroseas or any of its subsidiaries, acquisition of all or any substantial portion of the assets or capital stock of Euroseas or any of its subsidiaries or inquiries or proposals concerning or which may reasonably be expected to lead to any of the foregoing (other than purchases and sales of vessels and/or vessel owning companies) (a “Euroseas Acquisition Transaction”) or negotiate, explore or otherwise knowingly communicate in any way with any third party (other than Cove or its Affiliates) with respect to any Euroseas Acquisition Transaction or enter into any agreement, arrangement or understanding requiring Euroseas to abandon, terminate or fail to consummate the Merger or any other transaction expressly contemplated by the Merger Agreement, or contemplated to be a material part thereof. Euroseas agreed to advise Cove in writing of any bona fide inquiries or proposals relating to any Euroseas Acquisition Transaction within one business day following receipt by Euroseas of any such inquiry or proposal.
      Cove and each of the Cove Principals agreed that, prior to the effective time of the Merger or the termination or abandonment of the Merger Agreement, that neither Cove nor the Cove Principals shall, and shall not give authorization or permission to any of Cove’s directors, officers, employees, agents or representatives to, and each shall use all reasonable efforts to see that such persons do not, directly or indirectly, solicit, initiate, facilitate or encourage (including by way of furnishing or disclosing information) any merger, consolidation, other business combination involving Cove, acquisition of all or any substantial portion of the assets or capital stock of Cove, or inquiries or proposals which may reasonably be expected to lead to any of the foregoing (a “Cove Acquisition Transaction”) or negotiate, explore or otherwise knowingly communicate in any way with any third party (other than the Euroseas) with respect to any Cove Acquisition Transaction or enter into any agreement, arrangement or understanding requiring it to abandon, terminate or fail to consummate the Merger or any other transaction expressly contemplated by this Agreement, or contemplated to be a material part thereof. Cove agreed to advise Euroseas in writing of any bona fide inquiries or proposals relating to a Cove Acquisition Transaction, within one business day following Cove’s receipt of any such inquiry or proposal.
Access to Information
      Each of Cove and Euroseas agreed to afford to the other and the other’s accountants, counsel, financial advisors and other representatives reasonable access during normal business hours throughout the period prior to the effective time of the Merger to all properties, books, contracts, commitments and records (including, but not limited to, tax returns) of it and, during such period, shall furnish promptly (a) a copy of each report, schedule and other document filed or received by it during such period pursuant to the requirements of federal or state securities laws or filed by it during such period with the SEC in connection with the transactions

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contemplated by the Merger Agreement or which may have a material adverse effect on it and (b) such other information concerning its business, properties and personnel as the other shall reasonably request. All non-public documents and information furnished to Cove, the Cove Principals or Euroseas, as the case may be, in connection with the transactions contemplated by the Merger Agreement shall be deemed to have been received, and shall be held by the recipient, in confidence, except that Cove, the Cove Principals and Euroseas, as applicable, may disclose such information as may be required under applicable law or as may be necessary in connection with the preparation of this registration statement and this joint Information Statement/ prospectus.
Euroseas Registration Statement
      Euroseas has agreed to file with the SEC, as soon as shall be reasonably practicable following the date of the Merger Agreement (but in no event later than 60 days following the consummation of the Private Placement, and provided Cove shall have supplied Euroseas with the Information Statement to be included therein), at its sole cost and expense, a registration statement (the “Euroseas Registration Statement”) which shall include the Information Statement. Euroseas has agreed to use all reasonable best efforts to have the Euroseas Registration Statement declared effective by the SEC as promptly as practicable thereafter. No filing of, or amendment or supplement to, or correspondence to the SEC or its staff with respect to the Euroseas Registration Statement or the Information Statement will be made by Euroseas, without providing Cove a reasonable opportunity to review and comment thereon. Euroseas has agreed to advise Cove, promptly after it receives notice thereof, of the time when the Euroseas Registration Statement has become effective or any supplement or amendment has been filed to the Euroseas Registration Statement or the Information Statement, the issuance of any stop order, the suspension of the qualification of Euroseas shares issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Euroseas Registration Statement, the Information Statement or comments thereon and responses thereto or requests by the SEC for additional information. Cove and Euroseas have agreed to promptly furnish to each other all information, and take such other actions, as may reasonably be requested in connection with any action by any of them in relation to the preparation and filing of the Euroseas Registration Statement, the Information Statement and a Form 8-K and have agreed to cooperate with one another and use their respective best efforts to facilitate the expeditious consummation of the transactions contemplated by the Merger Agreement.
      Cove and Euroseas also agreed to promptly furnish to each other all information, and take such other actions, as may reasonably be requested in connection with any action by any of them in connection with the preparation and filing of the Euroseas Registration Statement, the Information Statement and the Form 8-K and shall cooperate with one another and use their respective best efforts to facilitate the expeditious consummation of the transactions contemplated by the Merger Agreement.
SEC Filings by Cove
      Cove has agreed to file with the SEC, as soon as reasonably practicable following the filing of the Euroseas Registration Statement, any document required to be filed by it in connection with the Merger and the Cove Stockholders’ Approval, including, without limitation, any documents required under the SEC’s Regulation 14A and 14C.
Cove Stockholders’ Approval
      Cove has agreed to use its reasonable best efforts to obtain Cove stockholder approval and adoption (collectively, the “Cove Stockholders’ Approval”) of the Merger Agreement and the transactions contemplated thereby. Cove agreed, through its board of directors, to recommend to the holders of Cove Common Stock approval of the Merger Agreement and the transactions contemplated by the Merger Agreement.

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Stock Exchange Listing/ Exchange Act Listing
      Cove and Euroseas have agreed to each use its reasonable best efforts to file, at or before the effective time of the Merger, authorization for listing of the Euroseas shares on the Nasdaq SmallCap Market, The American Stock Exchange Inc. or, if permissible, the Nasdaq National Market (the “Stock Exchange Listing”). Euroseas has filed an application to list its common stock on the Nasdaq National Market. We cannot assure you that Euroseas will be able to obtain such listing. In addition, Euroseas agreed to file a registration statement under the Exchange Act and use its reasonable best efforts to cause the SEC to declare such registration statement effective with respect to the listing of the Euroseas Shares issued in the Merger and the shares of Euroseas common stock issued in the Private Placement (the “Exchange Act Listing”).
Agreement to Cooperate
      Each of the parties has agreed to cooperate and use their respective best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by the Merger Agreement, including using its reasonable efforts to obtain all necessary or appropriate waivers, consents and approvals to effect all necessary registrations, filings and submissions and to lift any injunction or other legal bar to the Merger.
Public Statements
      The parties have agreed to consult with each other prior to issuing any press release or any written public statement with respect to the Merger Agreement or the transactions contemplated thereby.
Corrections to the Proxy Statement and the Euroseas Registration Statement
      Each of Euroseas and Cove and the Cove Principals has agreed to correct promptly any information provided by it to be used specifically in the Euroseas Registration Statement, the Information Statement and the Form 8-K that shall have become false or misleading in any material respect and shall take all steps necessary to file with the SEC and have cleared by the SEC any amendment or supplement to the Euroseas Registration Statement, the Information Statement and the Form 8-K so as to correct the same and to cause appropriate dissemination thereof to the stockholders of Cove, to the extent required by applicable law.
Conditions to the Merger
Conditions to Each Party’s Obligations to Effect the Merger.
      The respective obligation of each party to effect the Merger are subject to the fulfillment at or prior to the closing date of the following conditions:
        (a) Cove shall have obtained approval of the Cove stockholders;
 
        (b) The Euroseas Registration Statement shall have become effective and shall not be the subject of any stop order or proceedings seeking a stop order;
 
        (c) Euroseas shall have applied for the Stock Exchange Listing and the Exchange Act Listing;
 
        (d) No preliminary or permanent injunction or other order or decree by any governmental authority which prevents or materially burdens the consummation of the Merger shall have been issued and remain in effect (each party agreeing to use its reasonable efforts to have any such injunction, order or decree lifted);
 
        (e) No action shall have been taken, and no statute, rule or regulation shall have been enacted, by any governmental authority, which would prevent or materially burden the consummation of the Merger; and

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        (f) All consents, orders and approvals legally required for the consummation of the Merger and the transactions contemplated hereby shall have been obtained and be in effect at the effective time of the Merger without any material limitations or conditions.
Conditions to Obligations of Euroseas to Effect the Merger.
      Unless waived by Euroseas, the obligation of Euroseas to effect the Merger is subject to the fulfillment at or prior to the closing date of the following additional conditions:
        (a) Cove and the Cove Principals shall have performed in all material respects their agreements contained in the Merger Agreement required to be performed on or prior to the closing date and the representations and warranties of Cove and the Cove Principals contained in the Merger Agreement shall be true and correct in all material respects (except for those representations and warranties which are themselves limited by a reference to materiality, which shall be true and correct in all respects other than as modified) on and as of (i) the date made and (ii) the closing date (in each case except in the case of representations and warranties expressly made solely with reference to a particular date which shall be true and correct in all material respects as of such date); and Euroseas shall have received a certificate of the President of Cove to that effect;
 
        (b) Euroseas shall have received an opinion of Kirkpatrick & Lockhart Nicholson Graham, LLP, counsel to Cove, dated the closing date, in form and substance reasonably satisfactory to Euroseas;
 
        (c) Since the date of the Merger Agreement there shall not have been any material adverse effect with respect to Cove, the likelihood of which was not previously disclosed to Euroseas by Cove and which would have a material adverse effect on Euroseas, and Cove shall have engaged in no business activity since the date of its incorporation other than conducting a public offering of its securities, the apparel business and, thereafter, seeking to effect a merger or similar business combination with an operating business;
 
        (d) Euroseas shall have received a certificate from the corporate Secretary of Cove, together with a certified copy of the resolutions duly authorized by Cove’s Board of Directors authorizing the Merger and, if applicable, the transactions contemplated by the Merger Agreement;
 
        (e) Euroseas shall have received a certificate of good standing for Cove from the Secretary of State of the State of Nevada dated as of a date that is within five (5) days of the closing date;
 
        (f) Cove shall have furnished to Euroseas such additional certificates and other customary closing documents as Euroseas may have reasonably requested;
 
        (g) At the effective time of the Merger, Cove shall have approximately $10,000 in cash or cash equivalents after giving effect to the payment or accrual on or prior to the effective time of the Merger of all fees, costs, expenses and liabilities incurred by Cove, including, but not limited to, the fees, costs and expenses of (i) Cove’s manufacturers, suppliers, vendors and third-party providers, (ii) Cove’s attorneys, accountants, investment bankers and consultants in connection with the transactions contemplated by the Merger Agreement and (iii) the repayment of any outstanding loans;
 
        (h) A pledge agreement shall have been executed pursuant to which the Cove Principals shall have pledged or caused Euroseas shares to be pledged to Euroseas by the Cove Principals or pledgors reasonably acceptable to Euroseas and deposited with an independent collateral agent to secure the indemnification obligations of the Cove Principals under the Merger Agreement;
 
        (i) Euroseas shall have raised at least $21 million in the Private Placement on terms reasonably satisfactory to Euroseas;
 
        (j) At closing, Cove’s capitalization shall be unchanged and all loans made to Cove and all other outstanding debt and all other liabilities shall have been paid in full;
 
        (k) Euroseas shall have received written resignations and releases from each of Cove’s directors and officers and which resignations and releases, by their respective terms, shall become effective immedi-

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  ately prior to the effective time of the Merger; provided however that Jodi Hunter shall remain an at will employee of Cove and the Surviving Corporation;
 
        (l) Cove shall have conducted the operation of its business in material compliance with all applicable laws and all approvals required of Cove under applicable law to enable Cove to perform its obligations under the Merger Agreement shall have been obtained;
 
        (m) Cove shall have moved its principal headquarters from California to the Cayman Islands and shall have filed all documentation and paid all fees necessary to locate its principal headquarters in the Cayman Islands and to terminate its authorization to do business in California; and
 
        (n) All corporate proceedings of Cove in connection with the Merger and the other transactions contemplated by the Merger Agreement and all agreements, instruments, certificates, and other documents delivered to Euroseas by or on behalf of Cove pursuant to the Merger Agreement shall be reasonably satisfactory to Euroseas and its counsel.
Conditions to Obligations of Cove to Effect the Merger.
      Unless waived by Cove, the obligations of Cove to effect the Merger are subject to the fulfillment at or prior to the closing date of the additional following conditions:
        (a) Euroseas shall have performed in all material respects its agreements contained in the Merger Agreement required to be performed on or prior to the closing date and the representations and warranties of Euroseas contained in the Merger Agreement shall be true and correct in all material respects (except for those representations and warranties which are themselves limited by a reference to materiality, which shall be true and correct in all respects, other than as modified) on and as of (i) the date made and (ii) the closing date (in each case except in the case of representations and warranties expressly made solely with reference to a particular date which shall be true and correct in all material respects as of such date); and Cove shall have received a certificate of the President of Euroseas to that effect;
 
        (b) Cove shall have received an opinion of Seward & Kissel LLP, counsel to Euroseas, dated the closing date, in form and substance reasonably satisfactory to Cove;
 
        (c) At closing, Euroseas’ capitalization shall be unchanged, except as may be adjusted for the issuance of the shares and warrants, if any, in the Private Placement;
 
        (d) Cove shall have received a certificate of the corporate Secretary of Euroseas, together with a certified copy of the resolutions duly authorized by the Board of Directors and Euroseas authorizing the Merger and the transactions contemplated by the Merger Agreement;
 
        (e) Cove shall have received a certificate of good standing for Euroseas from the Registrar of Corporations of the Republic of the Marshall Islands dated as of a date that is within five (5) days of the closing date;
 
        (f) Euroseas shall have furnished to Cove such additional certificates and other customary closing documents as Cove may have reasonably requested;
 
        (g) Since the date of the Merger Agreement there shall not have been any material adverse effect with respect to Euroseas and its subsidiaries, the likelihood of which was not previously disclosed to Cove by Euroseas; and
 
        (h) All corporate proceedings of Euroseas in connection with the Merger and the other transactions contemplated by the Merger Agreement and all agreements, instruments, certificates and other documents delivered to Cove by or on behalf of Euroseas pursuant to the Merger Agreement shall be in substantially the form called for hereunder or otherwise reasonably satisfactory to Cove and its counsel.

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Termination of the Merger Agreement
      The Merger Agreement may be terminated at any time prior to the closing date, whether before or after approval by the stockholders of Cove:
        (a) by mutual consent in writing of Cove and Euroseas;
 
        (b) unilaterally upon written notice by Cove to Euroseas upon the occurrence of a material adverse effect with respect to Euroseas, the likelihood of which was not previously disclosed to Cove in writing by Euroseas prior to the date of the Merger Agreement;
 
        (c) unilaterally upon written notice by Euroseas to Cove upon the occurrence of a material adverse effect with respect to Cove, the likelihood of which was not previously disclosed to Euroseas in writing by Cove prior to the date of the Merger Agreement;
 
        (d) unilaterally upon written notice by Cove to Euroseas in the event a material breach of any material representation or warranty of Euroseas contained in the Merger Agreement (unless such breach shall have been cured within ten (10) days after the giving of such notice by Cove), or the willful failure of Euroseas to comply with or satisfy any material covenant or condition of Euroseas contained in the Merger Agreement;
 
        (e) unilaterally upon written notice by Euroseas to Cove in the event of a material breach of any material representation or warranty of Cove or the Cove Principals contained in the Merger Agreement (unless such breach shall have been cured by Cove or the Cove Principals within ten (10) days after the giving of such notice by Euroseas), or Cove’s or the Cove Principals’ willful failure to comply with or satisfy any material covenant or condition of Cove or the Cove Principals contained in the Merger Agreement, or if Cove fails to obtain the approval of Cove’s stockholders; or
 
        (f) unilaterally upon written notice by either Cove or Euroseas to the other if the Merger is not consummated for any reason by the close of business on February 28, 2006, provided however that no party may avail itself of this ground for termination if such failure to consummate the Merger is caused by such party either in breach of the Merger Agreement or by not proceeding in good faith towards the consummation of the Merger.
Effect of Termination
      In the event of termination of the Merger Agreement by either Cove or Euroseas, the Merger Agreement shall become void and there shall be no further obligation on the part of either Euroseas or Cove (except with respect to confidential and nonpublic information and payment of expenses, which shall survive such termination). No party shall be relieved from liability for any breach of the Merger Agreement.
Amendment
      The Merger Agreement may not be amended except by an instrument in writing signed on behalf of Euroseas and Cove and in compliance with applicable law.
Expenses
      Whether or not the Merger is consummated, all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby shall be paid by the party incurring such costs and expenses, except as provided in that certain Engagement Agreement dated April 21, 2005 between Roth Capital Partners, LLC and Eurobulk, which provides for the payment of certain expenses of the transaction by Eurobulk, which expenses shall be paid by Euroseas if the Merger is consummated.
Indemnification
      Euroseas has agreed to indemnify and hold harmless Cove and the Cove stockholders (in the aggregate, in proportion to each such Cove stockholder’s ownership of the capital stock of Cove, on a fully diluted basis)

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and each of their affiliates and their respective fiduciaries, directors, officers, controlling persons, representatives and agents against and hold them harmless from any loss, liability, claim, damage or expense (including reasonable legal fees and expenses and costs of investigation) (a “Loss”) arising, directly or indirectly, out of or in connection with (i) any material breach of any representation or warranty of Euroseas contained in the Merger Agreement, or (ii) any breach of any covenant or agreement of Euroseas contained in the Merger Agreement.
      Cove and each of the Cove Principals has jointly and severally agreed to indemnify and hold harmless Euroseas and each of its affiliates and its respective fiduciaries, directors, officers, controlling persons, representatives and agents against and hold them harmless from any Loss arising, directly or indirectly, out of or in connection with (i) any material breach of any representation or warranty of Cove or a Cove Principal contained in the Merger Agreement, (ii) any breach of any covenant or agreement of Cove or a Cove Principal contained in the Merger Agreement, (iii) any liabilities of Cove (other than accounts payable incurred in the ordinary course of business to the extent they do not exceed net current assets) occurring or accruing prior to the effective time of the Merger, including but not limited to any securities law violations, or (iv) any claim by any Cove stockholder related to any sale or transfer of shares of Cove common stock by the Cove Principals prior to the effective time of the Merger. The sole recourse Euroseas shall have against the Cove Principals for any such Loss shall be to the pledged shares, unless the Loss arises, directly or indirectly, out of or in connection with any breach of a representation or warranty that was knowing, intentional, grossly negligent or reckless (each, a “Significant Breach”), in which event Euroseas’ recourse against the Cove Principals shall not be limited to the pledged shares.
      In furtherance of the foregoing, on or prior to the closing date, the Cove Principals have agreed to pledge or cause to be pledged to Euroseas an aggregate of at least 475,000 Euroseas shares (after giving effect to the Merger and the exchange of Cove common stock for Euroseas Shares in connection therewith) by pledgors reasonably acceptable to Euroseas and such pledged shares shall be deposited with an independent collateral agent to secure the indemnification obligations of the Cove Principals under the Merger Agreement.
Other Agreements
      The parties agreed that Cove and its successor, will be maintained by Euroseas as an operating wholly owned subsidiary as may be required in order to achieve continuity of business enterprise of its apparel business, to achieve tax free reorganization treatment under Section 368(a)(2)(D) or 368(a)(2)(E) of the Code. Euroseas has agreed to use its best efforts to employ Jodi Hunter as an at will employee for this purpose of continuing the operations of Cove and Jodi Hunter has agreed to perform such services and to provide an office in the Cayman Islands for this purpose at no cost or expense to Euroseas. The parties further agreed that Euroseas is not required to provide any financing to Cove and its successor, but rather, the Cove Principals are required to provide, or cause to be provided, such financing and office, if necessary, to continue the operations of Cove. If there is any breach of these obligations, Euroseas will have recourse to the pledged shares referred to above.
INDUSTRY
      Drybulk shipping refers to the transport of certain commodities by sea between various ports in bulk. These commodities are often divided into two categories — major bulks and minor bulks. Major bulks include items such as coal, iron ore and grains, while minor bulks include items such as aluminum, phosphate rock, fertilizer raw materials, agricultural and mineral cargo, cement, forest products and some steel products, including scrap.
      There are four main classes of bulk carriers — Handysize, Handymax, Panamax and Capesize. These classes represent the sizes of the vessel carrying the cargo in terms of deadweight ton (“dwt”) capacity, which is defined as the total weight including cargo that the vessel can carry when loaded to a defined load line on the vessel. Handysize vessels are the smallest of the four categories and include those vessels weighing up to 40,000 dwt. Handymax carriers are those vessels that weigh between 40,000 and 55,000 dwt, while Panamax vessels are those ranging from 55,000 dwt to 80,000 dwt. Vessels over 80,000 dwt are called Capesize vessels.

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      Drybulk carriers are ordinarily chartered either through a voyage charter or a time charter, under a longer term contract of affreightment or in pools. Under a voyage charter, the owner agrees to provide a vessel for the transport of cargo between specific ports in return for the payment of an agreed freight rate per ton of cargo or an agreed dollar lump sum amount. Voyage costs, such as canal and port charges and bunker expenses, are the responsibility of the owner. Under a time charter, the ship owner places the vessel at the disposal of a charterer for a given period of time in return for a specified rate (either hire per day or a specified rate per dwt capacity per month) with the voyage costs being the responsibility of the charterer. In both voyage charters and time charters, operating costs (such as repairs and maintenance, crew wages and insurance premiums) are the responsibility of the ship owner. The duration of time charters varies, depending on the evaluation of market trends by the ship owner and by charterers. Occasionally, drybulk vessels are chartered on a bareboat basis. Under a bareboat charter, operations of the vessels and all operating costs are the responsibility of the charterer, while the owner only pays the financing costs of the vessel. A contract of affreightment (“COA”) is another type of charter relationship where a charterer and a ship owner enter into a written agreement pursuant to which identified cargo will be carried over a specified period of time. COA’s benefit charterers by providing them with fixed transport costs for a commodity over an identified period of time. COA’s benefit ship owners by offering ascertainable revenue over that same period of time and eliminating the uncertainty that would otherwise be caused by the volatility of the charter market. A shipping pool is a collection of similar vessel types under various ownerships, placed under the care of a single commercial manager. The manager markets the vessels as a single fleet and collects the earnings which are distributed to individual owners under a pre-arranged weighing system by which each entered vessel receives its share. Pools have the size and scope to combine voyage charters, time charters and contracts of affreightment with freight forward agreements for hedging purposes, to perform more efficient vessel scheduling thereby increasing fleet utilization.
      Containership shipping refers to the transport of ontainerized trade which encompasses mainly the carriage of finished goods, but an increasing number of other cargoes in container boxes. Containerized trade is the fastest growing sector of seaborne trade. Containerships are further categorized by their size measured in teu and whether they have their own gearing. The different categories of containerships are as follows. Post-panamax vessels are vessels with carrying capacity of more than 4,000 teu. Panamax vessels are vessels with carrying capacity from 3,000 to 4,000 teu. Sub-panamax vessels are vessels with carrying capacity from 2,000 to 3,000 teu. Handysize feeder containerships are vessels with carrying capacity from 1,000 to 2,000 teu and are sometimes equipped with cargo loading and unloading gear. Finally, Feeder containerships are vessels with carrying capacity from 500 to 1,000 teu and are usually equipped with cargo loading and unloading gear. Containerships are primarily employed in time charter contracts with liner companies, which in turn employ them as part of the scheduled liner operations. Feeder containership are put in liner schedules feeding containers to and from central regional ports (hubs) where larger containerships provide cross ocean, or, longer haul service. The length of the time charter contract can range from several months to years.
THE PARTIES TO THE MERGER
Cove
General
      Cove was incorporated in Nevada on December 13, 2001 as “Lisa Morrison, Inc.” On January 8, 2002, it changed its name to Cove Apparel, Inc. Cove is a surf apparel company specializing in casual apparel and accessories for men, women and juniors. Cove has nominal operations.
Cove’s Business
      Cove is a surf apparel company specializing in casual apparel and accessories for men, women and juniors. Revenues from inception through September 30, 2005 have been $20,966. Cove currently distributes surf wear and accessories manufactured by third party surf wear manufacturers. However, at this time, Cove does not have any formal written agreement with any supplier. Cove’s stock is listed on the OTCBB and Cove

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has nominal operations. Following the Merger, Cove will continue its historic business or will continue to use its historic business assets in a business.
Cove’s Competition
      The surf apparel industry is highly competitive and fragmented and is subject to rapidly changing consumer demands and preferences. Cove competes with numerous apparel manufacturers, distributors and designers which operate in the beachwear and surf apparel markets. Additionally, Cove does not have exclusive relationships with its suppliers who also sell their own products on a retail basis. Many of the designers, manufacturers, and retailers, domestic and foreign, that Cove competes with are significantly larger and have substantially greater resources than Cove. These companies may be able to engage in larger scale branding, adverting and manufacturing activities than Cove can. Further, with sufficient financial backing, talented designers can become competitors within several years of establishing a new label. Cove competes primarily on the basis of fashion, quality, and service.
Cove’s Employees
      As of September 30, 2005, Cove had one full-time employee and one part-time employee. Cove believes that it has good relations with these employees. Cove is not a party to any collective bargaining agreements. Jodi Hunter has agreed to remain after the Merger as an unpaid at-will employee of the Surviving Corporation and to provide an office in the Cayman Islands at no cost or expense to Euroseas.
Cove’s Facilities
      Cove’s headquarters are located at 1003 Dormador, Suite 21, San Clemente, California, 92672, which is also the personal residence of Kevin Peterson, its president and one of its directors. Cove believes that its facilities are adequate for its needs and that additional suitable space will be available on acceptable terms as required. Cove does not own any real estate. Kevin Peterson, Cove’s president and director, currently provides office space to Cove at no charge. Cove does not have a written lease or sublease agreement and Mr. Peterson does not expect to be paid or reimbursed for providing office facilities. Cove’s financial statements reflect, as occupancy costs, the fair market value of that space, which is approximately $1,000 per month. That amount has been included in Cove’s financial statements as an additional capital contribution by Mr. Peterson.
Cove’s Legal Proceedings
      There are no legal actions pending against Cove nor are any legal actions contemplated by Cove at this time.
Cove’s Management
      Cove’s current directors and executive officers are as follows:
                 
Name   Age   Position
         
Kevin Peterson
    33       President, Secretary, Director  
      Kevin Peterson was appointed as Cove’s president, secretary and one of its directors on January 23, 2004. From 2001 to the present, Mr. Peterson has worked for American Correction Counseling Services located in San Clemente, California, as a recovery representative. Prior to that Mr. Peterson was employed by Soul Technology, a surf, skate and snowboard related company, which owns the Etnies, EMerica, 32 Snowboard Boots and S Footwear brands. He was employed by Soul Technology from 2000 to 2001, and assisted with warehouse operations. Mr. Peterson is a lifelong surfer, and combines his enthusiasm for the sport with his computer graphics knowledge that he brings to Cove. He has earned two certificates in Computer Graphics from Regional Occupational Program in 2002, enabling him to assist with Cove’s graphics art requirements. Mr. Peterson is not an officer or director of any other reporting company. Kevin Peterson is the brother of Shawn Peterson, Cove’s former treasurer and one of its former directors.

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      There are no orders, judgments, or decrees of any governmental agency or administrator, or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining any of Cove’s officers or directors from engaging in or continuing any conduct, practice or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security, or any aspect of the securities business or of theft or of any felony. Nor are any of the officers or directors of any corporation or entity affiliated with Cove so enjoined.
Compensation
Executive Compensation
      For the year ended September 30, 2005, Cove’s President, Kevin Peterson, received nominal compensation for services provided to Cove. No other officer received any compensation during the year. Kevin Peterson is not subject to any employment agreement with Cove. After the Merger, there will not be any salaried employees of Cove.
Director Compensation
      Cove’s current director is also its employee and receives no extra compensation for his service on Cove’s board of directors.

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Cove Principal Stockholders
      The following table sets forth information based on a total of 10,480,500 shares outstanding as of December 31, 2005, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of Cove common stock by (i) each person known by Cove to be the owner of more than 5% of outstanding shares of common stock, (ii) each director and (iii) all officers and directors as a group. Except as indicated in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
                                 
        Pre-Merger Cove   Pre-Merger   Post-Merger
    Name and Address of   Amount of Shares   Cove Percent of   Euroseas Percent
Title of Class   Beneficial Owner(1)   Beneficially Owned   Class   of Class(2)
                 
Common Stock
    Kevin Peterson       None       0 %     None  
      President, Director, Secretary                          
      1003 Dormador, Suite 21                          
      San Clemente, CA 92672                          
 
Common Stock
    Seward Ave Partners, LLC(3)       1,405,395       13.41 %     *  
      c/o Winnie Huang                          
      175 South Lake Avenue, Suite 307                          
      Pasadena, California 91101                          
 
Common Stock
    Jonathan Spanier       1,385,396       13.22 %     *  
      269 S. Beverly Dr., Suite 1102                          
      Beverly Hills, CA 90212                          
 
Common Stock
    Olive Grove, LLC(4)       1,609,209       15.35 %     *  
      P.O. Box 5303                          
      Beverly Hills, CA 90209                          
 
Common Stock
    Blue Star Investors Limited(5)       2,650,000       25.29 %     *  
      c/o James Loughran                          
      38 Hertford Street                          
      London W1JSG, England                          
 
Common Stock
    Jodi Hunter       900,000       8.58 %     *  
      1003 Dormador, Suite 21                          
      San Clemente, CA 92672                          
 
Common Stock
    All directors and officers and 5%       7,950,000       75.85 %     2.09 %
      owners as a group                          
 
  * Indicates less than 1.0%.
(1)  Beneficial ownership is determined in accordance with the Rule 13d-3(a) of the Exchange Act and generally includes voting or investment power with respect to securities. Except as set forth below or subject to community property laws, where applicable, the person named above has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by him/her.
 
(2)  The post-Merger percentages are based on a total of 37,860,326 Euroseas shares outstanding after the Merger.
 
(3)  Seward Ave Partners, LLC is a Delaware limited liability company. Beneficial ownership of these securities is as follows: 92% Jesse Grossman; 4% Anthony Salandra; and 4% Winnie Huang who share investment power and voting control in the same proportions as beneficial ownership.
 
(4)  Olive Grove, LLC is a limited liability company organized under the laws of the State of California. Olive Grove, LLC is beneficially owned by the following members in the following approximate percentages: 85% by Peter G. Geddes and 15% by David Graber. Peter G. Geddes has investment power and voting control over these securities.
 
(5)  James A. Loughran and Barry Taleghany each acting singly has investment power and voting control over these securities, and has beneficial ownership of these securities.

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Certain Related Transactions of Cove
      Cove occupies office space provided by an officer. Accordingly, occupancy costs of $1,000 per month have been allocated to the Company.
      A stockholder made a loan to Cove in the amount of $45,000. The loan is non-interest bearing and is expected to be repaid within one year. There is no written agreement between Cove and the stockholder. Under the Merger Agreement, the Cove Principals are required to repay all loans and costs until the effective time of the Merger, leave Cove with $10,000 in cash and transfer its headquarters to the Cayman Islands.
      After the Merger, the Cove Principals are required to provide, or cause to be provided, at their expense, such financing and office space to continue the operations of Cove.
      Under the Merger Agreement, the Cove Principals agreed to pledge, and cause their transferees to pledge, 475,000 shares of Euroseas stock to be received by them, or their transferees, in the Merger as security for certain indemnification obligations to Euroseas. Under the Merger Agreement, the persons named above in the “Cove Principal Stockholders” table are transferees of the Cove Principals and as such pledged their proportionate share of an aggregate of 475,000 Euroseas shares as required of the Cove Principals and their transferees.

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Management’s Discussion and Analysis of Financial Condition and Results of Operation
      The following discussion should be read in conjunction with Cove’s financial statements and footnotes thereto contained in this joint Information Statement/ prospectus.
Recent Events
      On August 25, 2005, Cove executed a definitive agreement with Euroseas for the merger of Cove with EuroSub. The definitive merger agreement for the Merger contemplates Cove’s merger with and into EuroSub, with Cove’s stockholders receiving 0.102969 shares of Euroseas for each share they presently own, subject to adjustment in case of a stock split by Euroseas prior to the Merger. After giving effect to the Merger, Cove’s stockholders will own approximately 2.8% of Euroseas. The Merger is subject to, among other things, the Euroseas registration statement being declared effective by the SEC and approval of the Merger by Cove’s stockholders.
For the Year Ended September 30, 2005 as Compared to the Year Ended September 30, 2004.
      Revenues. For the year ended September 30, 2005, we did not generate any revenues from our operations. We realized $6,500 in revenues during the year ended September 30, 2004.
      Operating Expenses. For the year ended September 30, 2005, we had $232,538 in general and administrative expenses, making our net loss for that period $233,338, after $800 provision for the minimum state income tax. This is in comparison to the year ended September 30, 2004, where we had $83,228 in general and administrative expenses, making our net loss $77,528 after $800 provision for income taxes. The increase in our net loss is due to the fact that we incurred significant legal and administrative expenses during the year because of the merger transaction that we have been contemplating.
      Off-Balance Sheet Arrangements. There are no off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
      Critical Accounting Policy and Estimates. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to them consolidated financial statements included in our Annual Report on Form 10-KSB for the period ended September 30, 2005.
      Liquidity and Capital Resources. We had cash of $4,096 as of September 30, 2005, which also equaled our total assets. Our total current liabilities were $74,480 as of September 30, 2005, of which all $74,480 was represented by accounts payable and accrued expenses. During the year ended September 30, 2005, we obtained $120,000 in cash and converted a $45,000 loan, for no other consideration, as additional paid-in capital for our continuing working capital needs. Specifically, we obtained this capital to help pay our higher expenses that we have incurred recently because of the merger discussions we have undertaken in recent months. We had no long term commitments or contingencies.

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      Our Plan of Operation for the Next Twelve Months. We have generated $20,966 in revenues from operations since our inception on December 13, 2001, but none in the last year.
      On August 25, 2005, we executed a definitive agreement with Euroseas for the merger of Cove with EuroSub. The definitive merger agreement for the Merger contemplates our merger with and into EuroSub, with our stockholders receiving 0.102969 shares of Euroseas for each share they presently own, subject to adjustment in case of a stock split by Euroseas prior to the Merger. After giving effect to the Merger, our stockholders would own approximately 2.8% of Euroseas. We cannot assure you that the Merger will be consummated.
      We have cash of $4,096 as of September 30, 2005. In the opinion of management, available funds will not satisfy our working capital requirements for the next twelve months. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors. During the fourth quarter of the year ended September 30, 2005, we obtained $120,000 in additional paid-in capital and reclassified a loan from stockholder to additional paid-in capital from a stockholder for working capital purposes. We obtained these funds to help pay our higher expenses that we have incurred recently because of our merger discussions.
      If we do not complete the merger transaction discussed herein, we may look for another merger or acquisition target. Otherwise, we will need to raise funds to complete production of our new line of apparel. We plan to raise these funds through private and institution or other equity offerings. We may attempt to secure other loans from lending institutions or other sources. There is no guarantee that we will be able to raise additional funds through offerings or other sources. If we are unable to raise funds, our ability to continue with product development will be hindered.
      In the event that we experience a shortfall in our capital, we anticipate that our officers, directors and shareholders will contribute funds to pay for our expenses to achieve our objectives over the next twelve months. However, our officers and directors are not committed to contribute funds to pay for our expenses. We believe that our officers and directors will continue to pay our expenses as long as they maintain their ownership of our common stock. Any additional capital contributed by our management would be contributed without any consideration. However, our officers and directors are not committed to contribute additional capital.
      We are not currently conducting any research and development activities. We do not anticipate that we will purchase or sell any significant equipment. In the event that we generate significant revenues and expand our operations, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment.
For the Three Months Ended June 30, 2005 Compared to the Same Period Ended June 30, 2004.
      Revenues. For the three months ended June 30, 2005, we did not generate any revenue from our clothing sales operations, nor did we generate any revenues during the three months ended June 30, 2004.
      Operating Expenses. For the three months ended June 30, 2005, our total expenses were $84,358 which were represented by general and administrative expenses. Our net loss for this period is also $84,358. This is in comparison to the three months ended June 30, 2004, where we had $20,515 in general and administrative expenses, which also represented our total net loss for that period. The increase in our net loss is due to the fact that we incurred significant legal and administrative expenses during the most recent three month period because of the merger transaction that we have been contemplating in recent months.
For the Nine Month Period Ending June 30, 2005 Compared to the Same Period Ended June 30, 2004.
      Revenues. For the nine months ended June 30, 2005, we did not generate any revenues from our operations, nor did we generate any revenues during the nine months ended June 30, 2004.
      Operating Expenses. For nine months ended June 30, 2005, we had $116,306 in general and administrative expenses, making our net loss for that period $117,106, after $800 provision for income taxes.

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This is in comparison to the nine months ended June 30, 2004, where we had $45,827 in general and administrative expenses, making our net loss $46,627 after $800 provision for income taxes. The increase in our net loss is due to the fact that we incurred significant legal and administrative expenses during the most recent three month period because of the merger transaction that we have been contemplating in recent months.
      Off-Balance Sheet Arrangements. There are no off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
      Critical Accounting Policy and Estimates. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to them consolidated financial statements included in our Quarterly Report on Form 10-QSB for the period ended June 30, 2005.
      Liquidity and Capital Resources. We had cash of $21,759 as of June 30, 2005, which also equaled our total assets. Our total current liabilities were $140,911 as of June 30, 2005, of which $95,911 was represented by accounts payable and accrued expenses, and $45,000 was represented by a loan from a stockholder. The loan is non-interest bearing and is expected to be repaid within one year. We entered into this loan to help pay our higher expenses that we have incurred recently because of the merger discussions we have undertaken in recent months. We had no long term commitments or contingencies.
      Our Plan of Operation for the Next Twelve Months. We have generated $20,966 in revenues from operations since our inception on December 13, 2001, but none in the last year. In recent months, we have begun researching potential acquisitions or other suitable business partners which will assist us in realizing our business objectives. We have recently been engaged in discussions and negotiations with another company with the goal to acquire that company, which we hope will diversify our business operations and improve our total value to our shareholders. Even though we have incurred significant legal expenses related to those negotiations, we have not yet entered into any formal or binding agreement with that company. We cannot guaranty that we will acquire that company or any other third party, or enter into any similar transaction, or that in the event that we acquire another entity, this acquisition will increase the value of our common stock.
      Otherwise, to effectuate our business plan during the next three to nine months, we must continue to market our products and increase our product offerings. We are currently marketing our surf wear to people that participate in water sports and recreational activities such as professional surfing, waterskiing, snowboarding and skateboarding. To expand our marketing activities, we hope to develop sponsor relationships with professional athletes who participate in water sports and recreational activities. We believe that we can develop additional sponsor relationships with those athletes because traditional consumer product companies typically overlook those athletes. We are also seeking to expand our product line: Mr. Kevin Peterson is assisting us with the development of a new line of infant apparel featuring a surf and skate theme.
      We have cash of $21,759 as of June 30, 2005. In the opinion of management, available funds will not satisfy our working capital requirements for the next twelve months. Our forecast for the period for which our

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financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors. During the quarter ended June 30, 2005, we borrowed $45,000 from a stockholder. The loan is non-interest bearing and is expected to be repaid within one year. We entered into this loan to help pay our higher expenses that we have incurred recently because of the merger discussions we have undertaken in recent months.
      If we do not complete the merger transaction discussed herein, we may look for another merger or acquisition target. Otherwise, we will need to raise funds to complete production of our new line of apparel. We plan to raise these funds through private and institution or other equity offerings. We may attempt to secure other loans from lending institutions or other sources. There is no guarantee that we will be able to raise additional funds through offerings or other sources. If we are unable to raise funds, our ability to continue with product development will be hindered.
      In the event that we experience a shortfall in our capital, we anticipate that our officers, directors and shareholders will contribute funds to pay for our expenses to achieve our objectives over the next twelve months. However, our officers and directors are not committed to contribute funds to pay for our expenses. Our belief that our officers and directors will pay our expenses is based on the fact that our officers and directors collectively own 10,200,000 shares of our common stock, which equals approximately 97% of our outstanding common stock. We believe that our officers and directors will continue to pay our expenses as long as they maintain their ownership of our common stock. Any additional capital contributed by our management would be contributed without any consideration. However, our officers and directors are not committed to contribute additional capital.
      We are not currently conducting any research and development activities. We do not anticipate that we will purchase or sell any significant equipment. In the event that we generate significant revenues and expand our operations, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment.
For the Year Ended September 30, 2004 as Compared to the Year Ended September 30, 2003.
      Revenues. We have realized $6,500 in revenues during the year ended September 30, 2004. This is in comparison to $8,466 in revenues we realized during the year ended September 30, 2003. We hope to continue to generate additional revenues as we commence our sales operations from our website.
      Operating Expenses. For the year ended September 30, 2004, our total expenses were $83,228, which were represented solely by general and administrative expenses. After $800 as provision for income taxes, we had a net loss of $77,528 for the year ended September 30, 2004. This is in comparison to the year ended September 30, 2003, where our total expenses were $43,102, which were represented by general and administrative expenses. Our net loss increased over the most recent period because our revenues decreased due to lower sales and our operating expenses increased.
      Off-Balance Sheet Arrangements. There are no off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
      Critical Accounting Policy and Estimates. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management-evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from

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other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate amounts to accrue for accounting and legal expenses. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to them consolidated financial statements included in our Annual Report on Form 10-KSB for the year ended September 30, 2004.
      Liquidity and Capital Resources. As of September 30, 2004, we have cash of $15,186 and $6,500 representing accounts receivable. We do not believe that our available cash is sufficient to pay our day -to-day expenditures for the next twelve months. As of September 30, 2004, our total liabilities were $23,732, which was represented by $21,497 of accounts payable and accrued payroll and related expenses of $2,236.
For the Period From Our Inception on December 13, 2001 to September 30, 2004
      Revenues. We have realized $20,966 in revenues for the period from our inception on December 13, 2001 to September 30, 2004.
      Operating Expenses. For the period from our inception on December 13, 2001 to September 30, 2004, our total expenses were $177,495, which were represented solely by general and administrative expenses. Therefore, from our inception on December 13, 2001 to September 30, 2004, we experienced a cumulative net loss of $157,329, which includes $800 as provision for income taxes.
      Off-Balance Sheet Arrangements. There are no off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
      Our Plan of Operation for the Next Twelve Months. We have generated minimal revenues from operations. In management’s opinion, to effectuate our business plan in the next twelve months, the following events should occur or we should reach the following milestones in order for us to become profitable:
  1. We must continue to expand our distribution network in the Caribbean Islands to market, distribute and sell surf-inspired clothing and other accessories that we distribute.
 
  2. We must continue to develop relationships with third party surf wear and accessories manufacturers to expand the product lines that we distribute.
 
  3. We must continue developing our own collection of men’s apparel under a new brand name, which we will sell and distribute throughout the United States, Japan and our established distribution network in the Caribbean.
 
  4. We must begin researching potential acquisitions or other suitable business partners which will assist us in realizing our business objectives. We hope to acquire several, smaller and more established surf apparel companies with already established product lines.
      We have cash of $15,186 as of September 30, 2004. In the opinion of management, available funds will not satisfy our working capital requirements for the next twelve months. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors.
      We need to raise additional capital for our operations, and we believe that such additional capital may be raised through public or private financing as well as borrowings and other sources. We hope that we will have access to capital financing because our common stock is eligible for quotation on the OTC Bulletin Board, although we cannot guaranty that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to expand our operations may be adversely affected. If adequate funds are not available, we hope that our officers and directors will contribute funds to pay for our expenses, although we cannot guarantee that our officers will pay for those expenses.
      We are not currently conducting any research and development activities. We do not anticipate that we will purchase or sell any significant equipment. In the event that we generate significant revenues and expand

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our operations, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment.
Quantitative and Qualitative Disclosures About Market Risk.
      Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. Cove does not believe it is exposed to significant market risk.
Controls and Procedures.
      Cove has limited operations for which it believes its controls and procedures are adequate.
Euroseas
General
      Euroseas is a privately-held, independent commercial shipping company that operates in the drybulk and container shipping markets through its wholly-owned subsidiaries. Euroseas was formed on May 5, 2005 under the laws of the Republic of the Marshall Islands. Its principal offices are located in Maroussi, Greece and its telephone number is 011 30 210 6105110.
Corporate Structure
      Euroseas owns its eight vessels through eight separate wholly-owned subsidiaries. The operations of the vessels are managed by Eurobulk, an affiliated company, under management contracts with each ship-owning company. These services include technical management, such as managing day-to-day vessel operations including supervising the crewing, insuring the fleet, supplying, maintaining and drydocking of vessels, commercial management regarding identifying suitable vessel charter opportunities and certain accounting services. The names of the wholly owned subsidiaries that own each vessel and the vessel each owns are as follows:
                     
    Country of   Vessel Name   Flag
Owner   Incorporation        
             
  1 )   Diana Trading Ltd.    Republic of the   IRINI   Marshall Islands
            Marshall Islands        
  2 )   Alterwall Business Inc.    Republic of Panama   YM QINGDAO I   Panamanian
  3 )   Allendale Investments S.A.    Republic of Panama   KUO HSIUNG   Panamanian
  4 )   Alcinoe Shipping Limited   Republic of Cyprus   PANTELIS P.   Cypriot
  5 )   Searoute Maritime Limited   Republic of Cyprus   ARIEL   Cypriot
  6 )   Oceanpride Shipping Limited   Republic of Cyprus   JOHN P.   Cypriot
  7 )   Oceanopera Shipping Limited   Republic of Cyprus   NIKOLAOS P.   Cypriot
  8 )   Salina Shipholding Corp.    Republic of the   ARTEMIS   Marshall Islands
            Marshall Islands        

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Euroseas’ Fleet
      Euroseas’ fleet consist of five drybulk carriers and three containerships with an aggregate of 190,904 deadweight tons, or dwt, for the five drybulk carriers and 66,100 dwt and 4,636 twenty-foot equivalent units, or teu, total capacity, for the three containerships. The following table describes Euroseas’ current fleet:
                                         
        Country            
Vessel   Dwt   Built   Year Built   Type   TEU Capacity
                     
IRINI
    69,734       Japan       1988       Dry Bulk       N/A  
YM QINGDAO I
    18,253       Japan       1990       Containership       1,269  
KUO HSIUNG
    18,154       Japan       1993       Containership       1,269  
PANTELIS P
    26,354       Scotland       1981       Dry Bulk       N/A  
ARIEL
    33,712       Japan       1977       Dry Bulk       N/A  
JOHN P
    26,354       Scotland       1981       Dry Bulk       N/A  
NIKOLAOS P
    34,750       Spain       1984       Dry Bulk       N/A  
ARTEMIS
    29,693       Croatia       1989       Containership       2,098  
Competitive Strengths
      Euroseas believes that it possesses the following competitive strengths:
  •  Experienced Management Team. Euroseas’ management team has significant experience in operating drybulk carriers and expertise in all aspects of commercial, technical, operational and financial areas of its business. The main shareholding family of Euroseas has over 100 years experience in shipping and enjoys a well established reputation. The Pittas family roots in shipping go back four generations to the 19th century. Nikolaos Pittas started the family business more than 125 years ago and has been followed by his sons and his grandsons, one of whom is Mr. John Pittas, a controlling shareholder of Friends, the largest shareholder of Euroseas. Aristides J. Pittas, his son, is the CEO, President, Chairman of the Board and a Director of Euroseas. Aristides P. Pittas, his nephew, is the Vice-Chairman of the Board and a Director of Euroseas. This experience enables management, among other things, to identify suitable shipping opportunities and time its investments in an efficient manner.
 
  •  Strong Customer Relationships. Euroseas, through Eurobulk, its ship management company, and Eurochart, its chartering broker, each has many long-established customer relationships with major charterers and shipping pools (Klaveness), and Euroseas believes it is well regarded within the international shipping community.
 
  •  Profitable Operations to Date. The Pittas family, the principal owners of Eurobulk and of Euroseas’ largest shareholder, has operated vessels over the past 125 years. The vessels have been operated through various partnerships and different entities over these years. In 1995, the Pittas family separated its interests from Oceanbulk Maritime S.A. and formed Eurobulk in order to manage and operate its own vessels. Since the inception of Eurobulk, all vessel acquisitions have been profitable and the group’s results, on a consolidated basis, have been profitable for each of the last five years. This was achieved by carefully selecting secondhand vessels, competitively commissioning and actively supervising cost-efficient shipyards to perform repair, reconditioning and systems upgrading work, together with a proactive preventive maintenance program both ashore and at sea, and employing professional, well-trained masters, officers and crews. Euroseas believes that this combination allows it to minimize off-hire periods, effectively manage insurance costs, and control overall operating expenses.
Business Strategy
      Euroseas’ business strategy is focused on providing consistent shareholder returns by carefully selecting the timing and the structure of its investments in drybulk and feeder containership vessels and by reliably, safely and competitively operating the vessels it owns, through its affiliate, Eurobulk. Representing a continuous shipowning and management history that dates back to the 19th century, Euroseas believes that one

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of its advantages in the industry is its ability to select and safely operate dry bulk and containership vessels of any age. Euroseas continuously evaluates sale-and-purchase opportunities, as well as long term employment opportunities for its vessels. Additionally, with the proceeds from the Private Placement, Euroseas plans to expand its fleet to increase its revenues and make its drybulk carrier and containership feeder fleet more cost efficient and more attractive to its customers. In furtherance of our business strategy, Euroseas signed a memorandum of agreement to purchase a containership called m/v Roseleen (ex Sea Arrow, to be renamed Artemis) that was built in 1987, with 2,098 teu. The vessel was delivered into Euroseas’ fleet on November 25, 2005. The vessel cost approximately $20.65 million and will initially be paid for through the proceeds of the Private Placement and Euroseas’ working capital. Or December 28, 2005, we concluded debt financing for approximately $15.5 million to fund part of the acquisition of the vessel and thus released these funds for further acquisitions. Euroseas is presently in negotiations for the purchase of additional vessels but none of these negotiations has yet resulted in a binding contract.
Vessel Employment
      Euroseas employs its vessels in the spot charter market and under time charters and pool arrangements. Presently, seven of Euroseas’ vessels are employed under time charters, while one is employed in the Klaveness run Baumarine pool (m/v Irini). The owning company of m/v Irini participates in three short funds managed by Klaveness.
      A spot charter is a contract to carry a specific cargo for a per ton carry amount. Under spot charters, Euroseas pays voyage expenses such as port, canal and fuel costs. A time charter is a contract to charter a vessel for an agreed period of time at a set daily rate. Under time charters, the charterer pays these voyage expenses. A pool charter is essentially a time charter with a floating charter rate. The actual charter hire the pool vessel receives is its corresponding share of all the income generated by all vessels that participate in the pool. A short fund comprises of one or more contracts of affreightment (“COA”). These are contracts secured by the pool manager for carrying some specific types and quantities of cargo over a fixed time horizon at a fixed rate per ton of cargo carried. The combined effect of having a vessel in a spot pool and securing COA’s can be equivalent to establishing a long term time charter.
      Under all types of charters, Euroseas will pay for vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs. Euroseas is also responsible for each vessel’s intermediate drydocking and special survey costs.
      Vessels operating on time charter provide more predictable cash flows, but can yield lower profit margins than vessels operating in the spot market during periods characterized by favorable market conditions. Vessels operating in the spot market generate revenues that are less predictable but may enable Euroseas to increase profit margins during periods of improvements in drybulk rates. However, Euroseas would then be exposed to the risk of declining drybulk rates, which may be higher or lower than the rates at which Euroseas chartered its vessels. Although it does not presently do so, Euroseas may in the future enter into freight forward agreements in order to hedge its exposure to market volatility. Euroseas is constantly evaluating opportunities for time charters, but only expects to enter into additional time charters if Euroseas can obtain contract terms that satisfy its criteria.
International Operations
      Our vessels trade worldwide and at times may need to trade to areas where there is an increased risk of civil conflict, war or war-like operations. However, our vessels are at all times covered by war risk insurance and, in case a decision is taken to sail to a perceived higher risk area, an additional war risk premium might be payable by the Company. The Company’s vessels have never traded to any port sanctioned by the United Nations and the Company has never experienced any significant problem due to its worldwide trading pattern.
      Specifically, our three containerships are on regular lines calling the following ports:
  •  Vessel m/v YM Qingdao I: Japan (Tokyo, Kobe, Osaka, Yokohama), Taiwan (Kaohsiung, Keelung, Taichung), Hong Kong, China (Tianjin, Dalian), Vietnam (Ho Chi Mingh)

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  •  Vessel m/v Kuo Hsiung: Japan (Tokyo, Kobe, Osaka, Yokohama), Taiwan (Kaohsiung, Keelung, Taichung), Hong Kong, Thailand (Bangkok, Laem Chabang)
 
  •  Vessel m/v Artemis: Italy (Cagliari, Leghorn, Genoa), France (Fos), Spain (Valencia), Portugal (Lisbon), United States (New York, Norfolk, Savannah, Miami)
      While two of our containerships operate in the Far East, our recent acquisition of m/v Artemis has extended our containership operations to Western Europe and the United States.
      The 5 bulk carriers also trade worldwide. Most frequent ports of call by region are as follows:
  •  Far East: all major Chinese ports, Taiwan, South Korea, Singapore, Indonesia (various ports), Malaysia (Port Kelang), Bangladesh, all major Indian ports, Philippines (Manila), Sri Lanka
 
  •  Australia: Newcastle, Port Lincoln
 
  •  Middle East: UAE (Dubai, Fujairah), Saudi Arabia, Jordan (Aqaba), Turkey (Eregli, Istanbul, Izmir)
 
  •  Europe: all seaport nations, mostly Italy, Spain, France, Greece, UK, Netherlands, Belgium, Germany, Poland, Scandinavian countries, Russia, Ukraine, Romania, etc.
 
  •  Africa: South Africa, Sudan, Egypt, Morocco, Nigeria, Guinea, Ghana. However, with respect to Sudan, we have not had any material contact with such country and do not anticipate having any such contact in the future. Our prior contact was an indirect contact that was limited to a one-time discharge of a cargo of bulk sugar. Generally, Sudan is an excluded destination from our charter party contracts, but in this one instance, the charterer requested that we give them an exemption. We do not maintain any connections with Sudan whatsoever and do not anticipate any future contacts with Sudan so long as Sudan is subject to U.S. sanctions.
 
  •  North and South America: USA (all major ports), Canada (all major ports), Mexico (all major ports), Caribbean, Venezuela, Colombia, Brazil (all major ports), Argentina, Chile, Peru
Customers
      Euroseas’ major charterer customers during the last three years include Bulkhandling/ Klaveness, Cheng Lie, Swiss Marine, Hamburg Bulk Carriers, and Phoenix. Euroseas is a relationship driven company, and its top five customers in the first quarter of 2005 include four of its top five customers from 2004 (Cheng Lie, Swiss Marine, HBC, Pancoast, and Phoenix). Euroseas’ top five customers accounted for approximately 68% of its total revenues for 2004 and 54% of its total revenues for 2003. During the half of 2005, Euroseas’ top five customers accounted for 60% of its total revenues.
Euroseas’ Ship Management
      Euroseas’ eight vessel fleet is managed by Eurobulk, an affiliate for which Euroseas pays 590 Euros per vessel per day to provide all ship operations management and oversight, including supervising the crewing, supplying, maintaining and drydocking of vessels, commercial management regarding identifying suitable vessel charter opportunities and certain accounting services. Eurobulk is an ISO 9001:2000 certified ship management company.
Euroseas’ Employees
      Euroseas’ has no direct employees. Its CEO, CFO and Secretary are provided by Eurobulk. Euroseas has entered into a written agreement with Eurobulk whereby Euroseas pays Eurobulk $500,000 per year for these services.
      Euroseas’ subsidiary shipowning companies recruit through Eurobulk either directly or through a crewing agent, the senior officers and all other crew members for Euroseas’ vessels.
Euroseas’ Property
      Euroseas does not at the present time own or lease any real property. As part of the management services provided by Eurobulk during the period in which Euroseas conducted business to date, Euroseas has shared, at

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no additional cost, offices with Eurobulk. Euroseas does not have current plans to lease or purchase space for its offices, although it may do so in the future.
Euroseas’ Competitors
      Euroseas operates in markets that are highly competitive and based primarily on supply and demand. Euroseas competes for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on its reputation. Eurobulk arranges Euroseas’ charters (whether spot charters, time charters or pools) through the use of Eurochart, an affiliated broking company who negotiates the terms of the charters based on market conditions. Euroseas competes primarily with other owners of drybulk carriers in the drybulk Handysize, Handymax and panamax sectors and the feeder containership sector. Ownership of drybulk carriers and feeder containerships is highly fragmented and is divided among state controlled and independent bulk carrier owners. Some of Euroseas’ publicly owned competitors include:
  •  Diana Shipping (NYSE: DSX) — larger vessels (13).
 
  •  Dryships (Nasdaq: DRYS) — larger vessels (27).
 
  •  Excel Maritime (NYSE: EXM) — mix of vessels (17) primarily larger size.
 
  •  Eagle Bulk Shipping (Nasdaq: EGLE) — handymaxes (14)
Euroseas’ Seasonality
      Coal, iron ore and grains, which are the major bulks of the drybulk shipping industry, are somewhat seasonal in nature. The energy markets primarily affect the demand for coal, with increases during hot summer periods when air conditioning and refrigeration require more electricity and towards the end of the calendar year in anticipation of the forthcoming winter period. The demand for iron ore tends to decline in the summer months because many of the major steel users, such as automobile makers, reduce their level of production significantly during the summer holidays. Grains are completely seasonal as they are driven by the harvest within a climate zone. Because three of the five largest grain producers (the United States of America, Canada and the European Union) are located in the northern hemisphere and the other two (Argentina and Australia) are located in the southern hemisphere, harvests occur throughout the year and grains require drybulk shipping accordingly.
Environmental and Other Regulations
      Government regulation significantly affects the ownership and operation of Euroseas’ vessels. The vessels are subject to international conventions and national, state and local laws and regulations in force in the countries in which Euroseas’ vessels may operate or are registered.
      A variety of governmental and private entities subject Euroseas’ vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (U.S. Coast Guard, harbor master or equivalent), classification societies, flag state administration (country of registry) and charterers. Certain of these entities require Euroseas to obtain permits, licenses and certificates for the operation of its vessels. Failure to maintain necessary permits or approvals could require Euroseas to incur substantial costs or temporarily suspend operation of one or more of its vessels.
      Euroseas believes that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to the stricter environmental standards. Euroseas is required to maintain operating standards for all of its vessels that will emphasize operational safety, quality maintenance, continuous training of its officers and crews and compliance with U.S. and international regulations. Euroseas believes that the operation of its vessels is in substantial compliance with applicable environmental laws and regulations; however, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, such future requirements may limit its ability to do business, increase its operating costs, force the early retirement of its vessels, and/or affect their resale value, all of which could have a material adverse effect on Euroseas’ financial condition and results of operations.

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Environmental Regulation — International Maritime Organization (“IMO”)
      The IMO has negotiated international conventions that impose liability for oil pollution in international waters and a signatory’s territorial waters. In September 1997, the IMO adopted Annex VI to the International Convention for the Prevention of Pollution from Ships to address air pollution from ships. Annex VI was ratified in May 2004, and became effective in May 2005. Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. Euroseas had developed a plan to comply with the Annex VI regulations, which became effective once Annex VI became effective. Additional or new conventions, laws and regulations may be adopted that could adversely affect Euroseas’ ability to operate its ships.
      The operation of Euroseas’ vessels is also affected by the requirements set forth in the ISM Code. The ISM Code requires shipowners and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a shipowner or management company to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels, and may result in a denial of access to, or detention in, certain ports. Currently, each of Euroseas’ vessels is ISM Code-certified. However, there can be no assurance that such certification will be maintained indefinitely.
Environmental Regulations — The United States of America Oil Pollution Act of 1990
      OPA established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all owners and operators whose vessels trade in the United States of America, its territories and possessions or whose vessels operate in waters of the United States of America, which includes the United States’ territorial sea of the United States of America and its 200 nautical mile exclusive economic zone.
      Under OPA, vessel owners, operators, charterers and management companies are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels, including bunkers (fuel).
      OPA limits the liability of responsible parties for drybulk vessels that are over 3,000 gross tons to the greater of $1,200 per gross ton or $10 million (subject to possible adjustment for inflation). These limits of liability do not apply if an incident was directly caused by violation of applicable United States federal safety, construction or operating regulations or by a responsible party’s gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with oil removal activities.
      Euroseas currently maintains for each of its vessels pollution liability coverage insurance in the amount of $1 billion per incident. If the damages from a catastrophic pollution liability incident exceed its insurance coverage, the payment of those damages may materially decrease Euroseas’ net income.
      OPA requires owners and operators of vessels to establish and maintain with the United States Coast Guard evidence of financial responsibility sufficient to meet their potential liabilities under OPA. In December 1994, the Coast Guard implemented regulations requiring evidence of financial responsibility in the amount of $1,500 per gross ton, which includes the OPA limitation on liability of $1,200 per gross ton and the U.S. Comprehensive Environmental Response, Compensation, and Liability Act liability limit of $300 per gross ton. Under the regulations, vessel owners and operators may evidence their financial responsibility by showing proof of insurance, surety bond, self-insurance, or guaranty.
      OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills. In some cases, states, which have enacted such legislation, have not yet issued implementing

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regulations defining vessels owners’ responsibilities under these laws. Euroseas currently complies, and intends to comply in the future, with all applicable state regulations in the ports where its vessels call.
Vessel Security Regulations
      Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the Maritime Transportation Security Act of 2002 (“MTSA”), came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States of America. Similarly, in December 2002, amendments to the International Convention for the Safety of Life at Sea (“SOLAS”) created a new chapter of the convention dealing specifically with maritime security. The new chapter went into effect in July 2004, and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the newly created ISPS Code. Among the various requirements are:
  •  on-board installation of automatic information systems (“AIS”), to enhance vessel-to-vessel and vessel-to-shore communications;
 
  •  on-board installation of ship security alert systems;
 
  •  the development of vessel security plans; and
 
  •  compliance with flag state security certification requirements.
      The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures provided such vessels have on board, by July 1, 2004, a valid International Ship Security Certificate (“ISSC”) that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. Euroseas’ vessels are in compliance with the various security measures addressed by the MTSA, SOLAS and the ISPS Code. Euroseas does not believe these additional requirements will have a material financial impact on its operations.
Inspection by Classification Societies
      The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and SOLAS. Euroseas’ vessels are currently classed with Lloyd’s Register of Shipping, Bureau Veritas and Nippon Kaiji Kyokai. ISM and International Ship and Port Facilities Security (“ISPS”) certification have been awarded by Bureau Veritas and the Panama Maritime Authority to Euroseas’ vessels and Eurobulk, Euroseas’ ship management company.
      A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be drydocked every two to three years for inspection of the underwater parts of such vessel. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause Euroseas to be in violation of certain covenants in its loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on Euroseas’ financial condition and results of operations.
Risk of Loss and Liability Insurance
General
      The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster,

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including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon owners, operators and bareboat charterers of any vessel trading in the exclusive economic zone of the United States of America for certain oil pollution accidents in the United States of America, has made liability insurance more expensive for ship owners and operators trading in the United States of America market. While Euroseas believes that its present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that it will always be able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery Insurance
      Euroseas procures hull and machinery insurance, protection and indemnity insurance, which includes environmental damage and pollution insurance and war risk insurance and FD&D insurance for its fleet. Euroseas does not maintain insurance against loss of hire, which covers business interruptions that result in the loss of use of a vessel.
Protection and Indemnity Insurance
      Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, which covers Euroseas’ third-party liabilities in connection with its shipping activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or “clubs.”
      Euroseas’ current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The 14 P&I Associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. Euroseas’ vessels are members of the UK Club. Each P&I Association has capped its exposure to this pooling agreement at $4.5 billion. As a member of a P&I Association, which is a member of the International Group, Euroseas is subject to calls payable to the associations based on its claim records as well as the claim records of all other members of the individual associations and members of the pool of P&I Associations comprising the International Group.
Euroseas’ Legal Proceedings
      To Euroseas’ knowledge, there are no material legal proceedings to which it is a party or to which any of its properties are subject, other than routine litigation incidental to its business. In Euroseas’ management opinion, the disposition of these lawsuits should not have a material impact on Euroseas’ consolidated results of operations, financial position and cash flows.
Euroseas’ Exchange Controls
      Under Marshall Island law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of Euroseas’ shares.

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Description of Management of Euroseas
      The following sets forth the name and position of each of Euroseas’ directors and executive officers immediately after the effective date of the Merger.
             
Name   Age   Position
         
Aristides J. Pittas
    46     Chairman, President and CEO; Director
Dr. Anastasios Aslidis
    45     CFO and Treasurer; Director
Aristides P. Pittas
    53     Vice Chairman; Director
Stephania Karmiri
    37     Secretary
George Skarvelis
    44     Director
George Taniskidis
    44     Director
Gerald Turner
    57     Director
Panagiotis Kyriakopoulos
    45     Director
      Aristides J. Pittas has been a member of the board of directors and Chairman and CEO of Euroseas since its inception on May 5, 2005. Since 1997, Mr. Pittas has also been the President of Eurochart S.A., an affiliate of Euroseas. Eurochart is a shipbroking company specializing in chartering and selling and purchasing ships. Since 1997, Mr. Pittas has also been the President of Eurotrade, a ship operating company and an affiliate of Euroseas. Since January 1995, Mr. Pittas has been the President and Managing Director of Eurobulk Ltd., an affiliate of Euroseas. He resigned as Managing Director in June 2005. Eurobulk is a ship management company that provides ocean transportation services. From September 1991 to December 1994, Mr. Pittas was the Vice President of Oceanbulk Maritime SA, a ship management company. From March 1990 to August 1991, Mr. Pittas served both as the Assistant to the General Manager and the Head of the Planning Department of Varnima International SA, a shipping company operating tanker vessels. From June 1987 until February 1990, Mr. Pittas was the head of the Central Planning department of Eleusis Shipyards S.A. From January 1987 to June 1987, Mr. Pittas served as Assistant to the General Manger of Chios Navigation Shipping Company in London, a company that provides ship management services. From December 1985 to January 1987, Mr. Pittas worked in the design department of Eleusis Shipyards S.A. where he focused on shipbuilding and ship repair. Mr. Pittas has a B.Sc. in Marine Engineering from University of Newcastle — Upon-Tyne and a MSc in both Ocean Systems Management and Navel Architecture and Marine Engineering from the Massachusetts Institute of Technology.
      Dr. Anastasios Aslidis has been a partner at Marsoft, an international consulting firm focusing on investment and risk management in the maritime industry. As of August 2005, he joined Euroseas as a director and the CFO. Dr. Aslidis has more than 17 years of experience in the maritime industry. Since 2003, he has been working on financial risk management methods for shipowners and banks lending to the maritime industry, especially as pertaining to compliance to the Basel II Capital Accords. He has been consultant to the Board of Directors of shipping companies (public and private) advising in strategy development, asset selection and investment timing. Between 1993 and 2003, as part of his work at Marsoft, he worked on various projects including development of portfolio and risk management methods for shipowners, establishment of investments funds and structuring private equity in the maritime industry and business development for Marsoft’s services. Between 1991 and 1993, Dr. Aslidis work on the economics of the offshore drilling industry. Between 1989 and 1991, he worked on the development of a trading support system for the dry bulk shipping industry on behalf of a major European owner. Dr. Aslidis holds a diploma in Naval Architecture and Marine Engineering from the National Technical University of Athens (1983), M.S. in Ocean Systems Management (1984) and Operations Research (1987) from MIT, and a Ph.D. in Ocean Systems Management (1989) also from MIT.
      Aristides P. Pittas has been a member of the board of directors since its inception on May 5, 2005 and Vice Chairman of Euroseas since September 1, 2005. Mr. Pittas has been a shareholder in over 70 oceangoing vessels during the last 20 years. Since February 1989, Mr. Pittas has been the Vice President of Oceanbulk Maritime SA, a ship management company. From November 1987 to February 1989, Mr. Pittas was employed in the supply department of Drytank SA, a shipping company. From November 1981 to June 1985,

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Mr. Pittas was employed at Trust Marine Enterprises, a brokerage house as a S+P broker. From September 1979 to November 1981, Mr. Pittas worked at Gourdomichalis Maritime SA in the operation and Freight Collection department. Mr. Pittas has a B.Sc in Economics from Athens School of Economics.
      Stephania Karmiri has been Secretary of Euroseas since its inception on May 5, 2005. Since July 1995, Mrs. Karmiri has been executive secretary to Eurobulk Ltd., an affiliate of Euroseas. Eurobulk is a ship management company that provides ocean transportation services. At Eurobulk, Mrs. Karmiri has been responsible for dealing with sale and purchase transactions, vessel registrations/deletions, bank loans, supervision of office administration and office/vessel telecommunication. From May 1992 to June 1995, she was secretary to the technical department of Oceanbulk Maritime SA, a ship management company. From 1988 to 1992, Mrs. Karmiri served as assistant to brokers for Allied Shipbrokers, a company that provides shipbroking services to sale and purchase transactions. Mrs. Karmiri has taken assistant accountant and secretarial courses from Didacta college.
      George Skarvelis has been a director of Euroseas since its inception. He has been active in shipping since 1982. In 1992, he founded Marine Spirit S.A., a ship management company. Between 1999 and 2003, Marine Spirit acted as one of the crewing managers for Eurobulk. From 1986 until 1992, Mr. Skarvelis was operations director at Markos S. Shipping Ltd. From 1982 until 1986, he worked with Glysca Compania Naviera, a management company of five vessels. Over the years Mr. Skarvelis has been a shareholder in numerous ships. He has a B.sc. in economics from the Athens University Law School.
      George Taniskidis has been a director of Euroseas since its inception. He is the Chairman and Managing Director of NovaBank and a member of the Board of Directors of BankEuropa (subsidiary bank of NovaBank in Turkey). He is a member of the Executive Committee of the Hellenic Banks Association. From 2003 until 2005, he was a member of the Board of Directors of Visa International Europe, elected by the Visa issuing banks of Cyprus, Malta, Portugal, Israel and Greece. From 1990 to 1998, Mr. Taniskidis worked at XIOSBANK (until its acquisition by Piraeus Bank in 1998) in various positions, with responsibility for the bank’s credit strategy and network. Mr. Taniskidis studied Law in the National University of Athens and in the University of Pennsylvania Law School, where he received a LL.M. After law school, he joined the law firm of Rogers & Wells in New York, where he worked until 1989 and was also a member of the New York State Bar Association. He is also a member of the Young Presidents Organization.
      Gerald Turner has been a director of Euroseas since its inception. Since 1999, he has been the Chairman and Managing Director of AON Turner Reinsurance Services. From 1987 to 1999, he was the Chairman and sole owner of Turner Reinsurance services. From 1977 to 1987, he was the Managing Director of E.W.Payne Hellas (member of the Sedgwik group).
      Panagiotis Kyriakopoulos has been a director of Euroseas since its inception. Since July 2002, he has been the C.E.O. of New Television S.A., one of the leading Mass Media Companies in Greece, running television and radio stations. From July 1997 to July 2002 he was the C.E.O. of the Hellenic Post Group, the Universal Postal Service Provider, having the largest retail network in Greece for postal and financial services products. From March 1996 until July 1997, Mr. Kyriakopoulos was the General Manager of ATEMKE SA, one of the leading construction companies in Greece listed on the Athens Stock Exchange. From December 1986 to March 1996, he was the Managing Director of Globe Group of Companies, a group active in the areas of shipowning and management, textiles and food and distribution. The company was listed on the Athens Stock Exchange. From June 1983 to December 1986, Mr. Kyriakopoulos was an assistant to the Managing Director of Armada Marine S.A., a company active in international trading and shipping, owning and managing a fleet of 12 vessels. Presently he is a member of the Board of Directors of the Hellenic Post and General Secretary of the Hellenic Private Television Owners Union. He has also been an investor in the shipping industry for more than 20 years. Mr. Kyriakopoulos has a B.Sc. degree in Marine Engineering from the University of Newcastle upon Tyne and a MSc. degree in Naval Architecture and Marine Engineering with specialization in Management from the Massachusetts Institute of Technology.

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Euroseas’ Family Relationships
      Aristides P. Pittas is the cousin of Aristides J. Pittas, the CEO of Euroseas.
Audit Committee
      Euroseas currently has an audit committee comprised of three independent members of its board of directors.
Code of Ethics
      Euroseas has adopted a code of ethics that complies with the applicable guidelines issued by the SEC.
Euroseas’ Director Compensation
      Directors who are employees of Euroseas or have executive positions or beneficially own greater than 10% of the outstanding common stock will receive no compensation for serving on the Board or its committees.
      Directors who are not employees of Euroseas, do not have any executive position and do not beneficially own greater than 10% of the outstanding common stock will receive the following compensation: an annual retainer of $10,000, plus an additional retainer of $5,000, if serving as Chairman of the Audit Committee.
      All directors are reimbursed reasonable out-of-pocket expenses incurred in attending meetings of the Euroseas Board of Directors or any committee of the Board of Directors.
Euroseas’ Executive Compensation and Employment Agreements
      Euroseas was formed in 2005 and therefore no compensation was paid in 2004. Euroseas’ expects to pay Eurobulk for the provision of the services of its executives, Mr. Aristides J. Pittas, Mr. Anastasios Aslidis and Mrs. Stephania Karmiri, an aggregate of $500,000 per year (before bonuses), commencing July 2005.
Euroseas’ Options
      Euroseas was formed in 2005 and therefore no options were granted by Euroseas during the fiscal year ended December 31, 2004. There are currently no options outstanding to acquire any Euroseas shares.
Euroseas’ Option Plans
      Euroseas does not currently have any option plans. However, it expects to adopt an equity incentive plan which will entitle its officers, key employees and directors to receive options to acquire shares of Euroseas common stock, restricted shares and stock appreciation rights.
Corporate Governance
      Euroseas’ corporate governance practices are in compliance with, and are not prohibited by, the laws of the Republic of the Marshall Islands. Therefore, Euroseas is exempt from many of Nasdaq’s corporate governance practices other than the requirements regarding the disclosure of a going concern audit opinion, submission of a listing agreement, notification of material non-compliance with Nasdaq corporate governance practices, and the establishment and composition of an audit committee and a formal written audit committee charter. The practices followed by Euroseas in lieu of Nasdaq’s corporate governance rules are described below.
  •  Euroseas will have a board of directors with a majority of independent directors which holds at least one annual meeting at which only independent directors are present, consistent with Nasdaq corporate governance requirements. Euroseas is not required under Marshall Islands law to maintain a board of directors with a majority of independent directors, and it cannot guarantee that it will always in the future maintain a board of directors with a majority of independent directors.

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  •  In lieu of a compensation committee comprised of independent directors, Euroseas’ board of directors will be responsible for establishing the executive officers’ compensation and benefits. Under Marshall Islands law, compensation of the executive officers is not required to be determined by an independent committee.
 
  •  In lieu of a nomination committee comprised of independent directors, Euroseas’ board of directors will be responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees. Shareholders may also identify and recommend potential candidates to become candidates to become board members in writing. No formal written charter has been prepared or adopted because this process is outlined in Euroseas’ bylaws.
 
  •  In lieu of obtaining an independent review of related party transactions for conflicts of interests, consistent with Marshall Islands law requirements,a related party transaction will be permitted if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors and the board in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, or, if the votes of the disinterested directors are insufficient to constitute an act of the board as defined in Section 55 of the Marshall Islands Business Corporations Act, by unanimous vote of the disinterested directors; or (ii) the material facts as to his relationship or interest are disclosed and the shareholders are entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a simple majority vote of the shareholders; or (iii) the contract or transaction is fair as to Euroseas as of the time it is authorized, approved or ratified, by the board, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board or of a committee which authorizes the contract or transaction.
 
  •  As a foreign private issuer, Euroseas is not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall Islands law. Consistent with Marshall Islands law, Euroseas will notify its shareholders of meetings between 15 and 60 days before the meeting. This notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, Euroseas’ bylaws provide that shareholders must give it advance notice to properly introduce any business at a meeting of the shareholders. Euroseas’ bylaws also provide that shareholders may designate in writing a proxy to act on their behalf.
 
  •  In lieu of holding regular meetings at which only independent directors are present, Euroseas’ entire board of directors, a majority of whom are independent, will hold regular meetings as is consistent with the laws of the Republic of the Marshall Islands.
Other than as noted above, Euroseas is in full compliance with all other applicable Nasdaq corporate governance standards.

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Euroseas Principal Shareholders
      The following table sets forth certain information regarding the beneficial ownership of Euroseas’ common stock before and after giving effect to the Merger and the Private Placement by each person or entity known by it to be the beneficial owner of more than 5% of the outstanding shares of Euroseas’ common stock, each of Euroseas’ directors and executive officers, and all of its directors and executive officers as a group.
                             
        Pre-Merger and        
        Private Placement   Pre-Merger and    
        Euroseas Amount   Private   Post-Merger and
        of Shares   Placement   Private Placement
    Name and Address of   Beneficially   Euroseas Percent   Euroseas Percent
Title of Class   Beneficial Owner(1)   Owned   of Class   of Class
                 
Common Stock
  Friends Investment Company Inc.(2)     29,754,166       100 %     78.59 %
Common Stock
  Aristides J. Pittas(3)     714,100       2.4 %     1.89 %
Common Stock
  George Skarvelis(4)     1,576,971       5.3 %     4.16 %
Common Stock
  George Taniskidis(5)     29,754       *       *  
Common Stock
  Gerald Turner(6)     422,509       1.42 %     1.11 %
Common Stock
  Panagiotis Kyriakopoulos (7)     178,525       *       *  
Common Stock
  Aristides P. Pittas(8)     2,439,842       8.2 %     6.44 %
Common Stock
  Anastasios Aslidis     0       0 %     0 %
Common Stock
  Stephania Karmiri(9)     5,951       *       *  
Common Stock
  All directors and officers and 5% owners as a group     29,754,166       100 %     78.59 %
 
  * Indicates less than 1.0%.
(1)  Beneficial ownership is determined in accordance with the Rule 13d-3(a) of the Exchange Act and generally includes voting or investment power with respect to securities. Except as subject to community property laws, where applicable, the person named above has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by him/her.
 
(2)  John Pittas has investment power and voting control over these securities.
 
(3)  Includes 714,100 shares of common stock held of record by Friends, by virtue of Mr. Pittas’ ownership interest in Friends. Mr. Pittas disclaims beneficial ownership except to the extent of his pecuniary interest.
 
(4)  Includes 1,576,971 shares of common stock held of record by Friends, by virtue of Mr. Skarvelis’ ownership interest in Friends. Mr. Skarvelis disclaims beneficial ownership except to the extent of his pecuniary interest.
 
(5)  Includes 29,754 shares of common stock held of record by Friends, by virtue of Mr. Taniskidis’ ownership in Friends. Mr. Taniskidis disclaims beneficial ownership except to the extent of his pecuniary interest.
 
(6)  Includes 422,509 shares of common stock held of record by Friends, by virtue of Mr. Turner’s ownership interest in Friends. Mr. Turner disclaims beneficial ownership except to the extent of his pecuniary interest.
 
(7)  Includes 178,525 shares of common stock held of record by Friends, by virtue of Mr. Kyriakopoulos’ ownership in Friends. Mr. Kyriakopoulos disclaims beneficial ownership except to the extent of his pecuniary interest.
 
(8)  Includes 2,439,842 shares of common stock held of record by Friends, by virtue of Mr. Pittas’ ownership interest in Friends. Mr. Pittas disclaims beneficial ownership except to the extent of his pecuniary interest.
 
(9)  Includes 5,951 shares of common stock held of record by Friends, by virtue of Mrs. Karmiri’s ownership in Friends. Mrs. Karmiri disclaims beneficial ownership except to the extent of his pecuniary interest.

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Certain Related Transactions of Euroseas
      Each of Euroseas’ vessel owning subsidiaries has entered into a management contract with Eurobulk, a company affiliated with Euroseas. Pursuant to the management contracts, Eurobulk is responsible for all aspects of management and maintenance for each of the vessels. Pursuant to the management agreements, Euroseas is obligated to pay Eurobulk 590 Euros per vessel per day to provide all ship operations management and oversight, including supervising the crewing, supplying, maintaining and drydocking of vessels, commercial management regarding identifying suitable vessel charter opportunities and certain accounting services. These agreements were renewed on January 31, 2005, with an initial term of 5 years and will be automatically extended after the initial term. Termination is not effective until 2 months following notice having been delivered in writing by either party after the initial 5 year period.
      Euroseas receives chartering and S&P services from Eurochart SA, an affiliate, and pays a commission of 1.25% on charter revenue and 1% on vessel sales price. Euroseas will pay commissions to major charterers and their brokers as well that usually range from 3.75%-5.00%.
      More Maritime Agencies Inc. are crewing agents and Sentinel Marine Services Inc. are insurance brokering companies and affiliates to whom Euroseas will pay a fee of $50 per crew member/month and a commission on premium not exceeding 5%, respectively.
      Euroseas believes that the fees it pays to affiliated entities are no greater than what it would pay to non-affiliated third parties and are standard industry practice. However, there could be conflicts due to these affiliations.
      Aristides J. Pittas, Euroseas’ President, CEO and Chairman has provided personal guarantees for all of Euroseas’ debts. Eurobulk has also provided corporate guarantees for such debts.
      Euroseas has entered into a registration rights agreement with Friends, its largest shareholder, pursuant to which it granted Friends the right, under certain circumstances and subject to certain restrictions, including restrictions included in the lock-up agreement to which Friends is a party, to require Euroseas to register under the Securities Act shares of Euroseas common stock held by Friends. Under the registration rights agreement, Friends has the right to request Euroseas to register the sale of shares held by it on its behalf and may require Euroseas to make available shelf registration statements permitting sales of shares into the market from time to time over an extended period. In addition, Friends has the ability to exercise certain piggyback registration rights in connection with registered offerings initiated by Euroseas.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
      The following discussion should be read in conjunction with Euroseas’ financial statements and footnotes thereto contained in this joint Information Statement/ prospectus. This discussion contains forward-looking statements, which are based on our assumptions about the future of our business. Our actual results will likely differ materially from those contained in the forward-looking statements and such differences may be material. Please read “Forward-Looking Statements” for additional information regarding forward-looking statements used in this joint Information Statement/ prospectus. Reference in the following discussion to “our” and “us” refer to Euroseas, our subsidiaries and the predecessor operations of Euroseas Ltd, except where the context otherwise indicates or requires.
General
      We are Euroseas, a newly formed Marshall Islands company incorporated in May 2005. We are a provider of international seaborne transportation services, carrying various drybulk cargoes including, among others, iron ore, coal, grain, bauxite, phosphate and fertilizers, as well as containerized cargoes. As of June 30, 2005, our fleet consisted of five drybulk carriers, comprised of one Panamax drybulk carrier and four Handysize drybulk carriers, and two feeder containerships. The total cargo carrying capacity of the five bulk carriers is 190,904 deadweight tons, or dwt, and of the two containerships is 36,407 dwt and 2,538 twenty-foot equivalent units, or teu. All of our vessels were acquired before January 1, 2004 and were controlled by the Pittas family interests. On June 29, 2005, the shareholders of the seven vessels transferred their shares in each

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of the vessels to Euroseas in exchange for shares in Friends Investment Company, Inc. (“Friends”), a 100% owner of Euroseas at that time.
Recent Events
     Private Placement
      On August 25, 2005, Euroseas raised approximately $21 million in gross proceeds from the Private Placement of its securities to a number of institutional and accredited investors. In the Private Placement, we issued 7,026,993 shares of common stock at a price of $3.00 per share, as well as warrants to purchase an additional 1,756,743 shares of common stock. The warrants have a five year term and an exercise price of $3.60 per share.
Merger With Cove
      Considering the size of our company and the number of shareholders, our placement agent, Roth Capital, advised us that a merger with a public shell company, such as Cove, was necessary to have a successful Private Placement. Roth Capital advised us that the merger with Cove would give us access to a company with a public listing whose shares could trade and help develop a market for our common stock. It would also increase the number of shareholders that could participate in the merger and become Euroseas’ shareholders, thus increasing the likelihood of obtaining a listing on a national stock exchange and providing greater liquidity for the shareholders. This type of transaction would also reduce the uncertainty attendant to an underwritten initial public offering and the possibility that any such offering might not be successfully consummated in view of our size and the then prevailing market conditions. As part of the Private Placement transaction documents, the investors included a condition that we enter into such a merger agreement. The Private Placement would not have occurred unless we agreed to enter into the merger with Cove.
      As a condition to the Private Placement, Euroseas agreed to execute a merger agreement with Cove. On August 25, 2005, Euroseas executed a definitive agreement with Cove for the merger of Cove with EuroSub. The Merger contemplates Cove’s merger with and into EuroSub, with Cove’s stockholders receiving 0.102969 shares of Euroseas common stock for each share of Cove they presently own. Up to 1,079,167 newly issued shares of Euroseas common stock may be issued to stockholders of Cove in connection with the Merger, assuming all Cove stockholders participate in the Merger. The Company is registering the offering of all 1,079,167 newly issued shares pursuant to this prospectus. Under the Company’s F-1 registration statement, the Company is also registering for resale 818,604 of these 1,079,167 shares since they will be issued to certain affiliates of Cove in connection with the Merger and since these shares would otherwise be subject to a one year holding period under Rule 145 of the Securities Act. The remaining 260,563 shares of Euroseas stock that may be issued in the Merger are not being registered for resale under the F-1 since such shares will be issued to non-affiliates of Cove and, therefore, should not be subject to the one year holding period under Rule 145. The Merger is subject to a number of conditions, including this registration statement being declared effective by the SEC and approval of the Merger by Cove’s stockholders. We cannot assure you that the Merger will be consummated.
Declaration And Payment of Dividend
      Euroseas’ Board of Directors recently declared a dividend in the amount of $0.07 per share which (i) was paid on or about December 19, 2005 to those holders of record of common stock of Euroseas on December 16, 2005, and (ii) (A) is payable to the stockholders of Cove who are entitled to receive shares of Euroseas common stock in connection with Cove’s Merger with EuroSub, with such payment being made only to those holders of record of Cove common stock as of the effective date of the Merger and such dividend payment being made upon exchange of their Cove shares for shares of Euroseas common stock (assuming such merger is consummated), or (B) is payable to Friends Investment Company Inc. (“Friends”) if such Merger is not consummated since Friends will be issued the shares that would have otherwise been issued in the Merger.

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Authorization Of 1:2 Reverse Stock Split
      On November 2, 2005, our Board of Directors authorized a 1:2 reverse stock split. Management was authorized to decide not to proceed with the reverse stock split if it determines that it is no longer in the best interests of the Company and its shareholders. No date for the split has been set and management has not indicated whether it will or will not proceed with the split. No effect has been given in this prospectus to the proposed reverse stock split.
Acquisition of Vessel
      On November 25, 2005, we took delivery of a containership called m/v Roseleen (ex Sea Arrow, to be renamed Artemis) that was built in 1987, with 2,098 teu and 29,693 dwt. The purchase price of the vessel was approximately $20.65 million as compared to a book value of $32.98 million of our other seven vessels as of June 30, 2005 and reflects the type and age of the vessel and market conditions at the time of the acquisition.
      M/V Artemis is larger but older than our other two containerships. It is larger than three of our dry bulk carriers in terms of dwt capacity and younger than four of our dry bulk carriers. Generally, the larger and younger a vessel is, the higher its market value. Additionally, containerships are typically more expensive than dry bulk carriers of the same age and size (in terms of dwt capacity). Furthermore, vessel market values and rates during 2005 have been significantly higher than in the period 1993-2002 for both containerships and dry bulk carriers. All of these factors explain the higher book value of m/v Artemis as compared to other vessels which were purchased over the period 1993-2002 at different market conditions and have since been depreciated as required.
      The acquisition of m/v Artemis increases our containership fleet to three vessels, all under long term contracts, and expands the fixed revenue base of our operations. The acquisition was initially to be paid for with the proceeds of the Private Placement and our working capital. On December 28, 2005, we concluded debt financing for $15.5 million to fund part of the acquisition of the vessel. We are presently in negotiations for the purchase of additional vessels but none of these negotiations has yet resulted in a binding contract.
Operations
Lack of Historical Operating Data for Vessels Before their Acquisition
      Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification society records, we do not conduct historical financial due diligence when we acquire vessels. Accordingly, we do not obtain the historical operating data for the vessels from the sellers because that information is not material to our decision to make acquisitions, nor do we believe it would be helpful to potential investors in our common shares in assessing our business or profitability. Most vessels are sold under a standard agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessel’s classification society records. The standard agreement does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to the delivery of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related to the vessel. In addition, the technical management agreement between the seller’s technical manager and the seller is automatically terminated and the vessel’s trading certificates are revoked by its flag state following a change in ownership.
      Consistent with shipping industry practice, we treat the acquisition of a vessel (whether acquired with or without charter) as the acquisition of an asset rather than a business. Although vessels are generally acquired free of charter, we may acquire vessels with a time charter. Where a vessel has been under a voyage charter, the vessel is delivered to the buyer free of charter, and it is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer’s consent and the buyer’s entering into a separate direct agreement with the charterer to assume the charter. The purchase of a vessel itself does not transfer the charter, because it is a separate service agreement between the vessel owner and the charterer.

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      When we purchase a vessel and assume or renegotiate a related time charter, we must take the following steps before the vessel will be ready to commence operations:
  •  obtain the charterer’s consent to us as the new owner;
 
  •  obtain the charterer’s consent to a new technical manager;
 
  •  obtain the charterer’s consent to a new flag for the vessel;
 
  •  arrange for a new crew for the vessel;
 
  •  replace all hired equipment on board, such as gas cylinders and communication equipment;
 
  •  negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;
 
  •  register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state;
 
  •  implement a new planned maintenance program for the vessel; and
 
  •  ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state.
Factors Affecting Our Results of Operations
      We believe that the important measures for analyzing trends in the results of our operations consist of the following:
  •  Calendar days. We define calendar days as the total number of days in a period during which each vessel in our fleet was in our possession including off-hire days associated with major repairs, drydockings or special or intermediate surveys. Calendar days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during that period.
 
  •  Available days. We define available days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with scheduled repairs, drydockings or special or intermediate surveys. The shipping industry uses available days to measure the number of days in a period during which vessels were available to generate revenues.
 
  •  Voyage days. We define voyage days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with scheduled and unscheduled repairs, drydockings or special or intermediate surveys or days waiting to find employment. The shipping industry uses voyage days to measure the number of days in a period during which vessels actually generate revenues.
 
  •  Fleet utilization. We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our available days during that period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off hire for reasons such as unscheduled repairs or days waiting to find employment.
 
  •  Spot Charter Rates. Spot charter rates are volatile and fluctuate on a seasonal and year to year basis. The fluctuations are caused by imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes.
 
  •  Time Charter Equivalent. A standard maritime industry performance measure used to evaluate performance is the daily time charter equivalent, or daily TCE. Daily TCE revenues are voyage revenues minus voyage expenses divided by the number of voyage days during the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter. We believe that the daily TCE neutralizes the variability created by unique costs associated with particular voyages or the employ-

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  ment of drybulk carriers on time charter or on the spot market (containership are chartered on a time charter basis) and presents a more accurate representation of the revenues generated by our vessels.
Basis of Presentation and General Information
  •  Voyage revenues. Our voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days during which our vessels generate revenues and the amount of daily charter hire that our vessels earn under charters, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels, levels of supply and demand in the transportation market and other factors affecting spot market charter rates in both the drybulk carrier and containership markets.
 
  •  Commissions. We pay commissions on all chartering arrangements of 1-1.25% to Eurochart, one of our affiliates, plus additional commission of usually up to 5% to other brokers involved in the transaction. These additional commissions, as well as changes to charter rates will cause our commission expenses to fluctuate from period to period. Eurochart also receives a fee equal to 1% calculated as stated in the relevant memorandum of agreement for any vessel bought or sold by them on our behalf.
 
  •  Voyage expenses. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage which would otherwise be paid by the charterer under a time charter contract, as well as commissions. Under time charters, the charterer pays voyage expenses whereas under spot market voyage charters, we pay such expenses. The amounts of such voyage expenses are driven by the mix of charters undertaken during the period.
 
  •  Vessel Operating Expenses. Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses, which generally represent fixed costs, have historically changed in line with the size of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general, (including, for instance, developments relating to market prices for insurance or inflationary increases) may also cause these expenses to increase.
 
  •  Management fees. These are the fees that we pay to Eurobulk, our ship manager and an affiliate, under our management agreement with Eurobulk for the technical and commercial management that Eurobulk performs on our behalf. The fee is 590 Euros per vessel per day and is payable monthly in advance.
 
  •  Depreciation. We depreciate our vessels on a straight-line basis with reference to the cost of the vessel, age and scrap value as estimated at the date of acquisition. Depreciation is calculated over the remaining useful life of the vessel, which is estimated to range from 25 to 30 years from the date of original construction. Remaining useful lives of property are periodically reviewed and revised to recognize changes in conditions, new regulations or other reasons. Revisions of estimated lives are recognized over current and future periods. During 2004, management changed its estimate of the scrap value of its vessels.
 
  •  Amortization of deferred drydocking costs. Our vessels are required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are trading. We capitalize the costs associated with drydockings as they occur and amortize these costs on a straight-line basis over the period between drydockings. Costs capitalized as part of the drydocking include actual costs incurred at the drydock yard; cost of hiring riding crews to effect repairs on a vessel and parts used in making such repairs that are reasonably made in anticipation of reducing the duration or cost of the drydocking; cost of travel, lodging and subsistence of our personnel sent to the drydocking site to supervise; and the cost of hiring a third party to oversee a drydocking. We believe that these

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  criteria are consistent with industry practice and that our policy of capitalization reflects the economics and market values of the vessels. Commencing January 1, 2006, we have revised our policy to exclude the cost of hiring riding crews and the cost of parts used by riding crews from amounts capitalized as drydocking cost. We have not restated any historical financial statements because we determined that the impact of such a revision is not material to our operating income and net income for any periods presented.
 
  •  Interest expense. We traditionally finance vessel acquisitions partly with debt on which we incur interest expense. The interest rate we pay is generally linked to the 3-month LIBOR rate, although from time to time we utilize fixed rate loans or could use interest rate swaps to eliminate or interest rate exposure. Interest due is expensed in the period is accrued. Loan cost are amortized over the period of the loan; the un-amortized portion is written-off if the loan is prepaid early.
 
  •  General and administrative expenses. We will incur expenses consisting mainly of executive compensation, professional fees, directors liability insurance and reimbursement of our directors’ and officers’ travel-related expenses. General and administrative expenses will increase following the completion of our Private Placement and anticipated Merger due to the duties typically associated with public companies. We acquire executive services, our CEO, CFO and Secretary, through Eurobulk. In 2005, executive compensation for services to us as a public company is estimated to be $500,000 on an annualized basis, starting July 2005, incremental to the management fee.
Results from Operations
      The Company operated the following types of vessel during the six month period to June 30, 2005:
                         
Vessel Type   Bulkers   Containerships   Total
             
Average number of vessels
    5       2       7  
Number of vessels at end of period
    5       2       7  
Dwt (in thousands)/ teu at end of period
    190.9       2,538          
Average age at end of period (years)
    22.6       14.0       20.1  
      The contributions of the vessels to the results for the six months to June 30, 2005 and 2004 and the years 2004, 2003 and 2002 were as follows:
                                         
Vessel Type   2005 H1   2004 H1   2004   2003   2002
                     
Utilization in period
    99.8 %     99.4 %     99.5 %     99.3 %     99.7 %
TCE per ship per day
  $ 19,099     $ 15,956     $ 17,839     $ 8,965     $ 6,049  
Operating expenses per ship per day including management fees $
  $ 4,133     $ 4,129     $ 4,064     $ 3,595     $ 3,467  
Voyage revenues ($ thousand)
  $ 23,834     $ 21,322     $ 45,718     $ 25,951     $ 15,292  
Net income ($ thousand)
  $ 14,763     $ 14,910     $ 30,612     $ 8,427     $ 892  
Voyage days
    1,239.4       1,333       2,542       2,846       2,440  
Available Days
    1,242       1,338       2,554       2,867       2,448  
Calendar days
    1,267       1,389       2,677       2,920       2,490  
Six month period ended June 30, 2005 compared to six month period ending June 30, 2004.
      Voyage revenues. Voyage revenues for the period were $23.83 million, up 11.8% compared to the same period in 2004 during which voyage revenues amounted to $21.32 million. The increase was primarily due to the higher charter rates our vessels achieved and despite the fact that we operate on average fewer vessels compared to the same period in 2004. Our fleet of 7 vessels had throughout the period less than 3 unscheduled offhire days and 25 days of scheduled offhire for the drydocking of Irini, generating an average TCE rate per vessel of $19,099 per day compared to $15,956 per day per vessel for the same period in 2004.

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      Commissions. Commissions for the period were $1.34 million. At 5.62% of voyage revenues, commissions were higher than in the same period in 2004. For the six months ended June 30, 2004 commissions amounted to $1.02 million, or 4.78% of voyage revenues. The higher level of commissions in 2005 is due to the fact that fewer vessels operated in pools (where commissions are paid by the pool thus reducing the commissions paid by the Company).
      Voyage expenses. Voyage expenses for the period were $0.13 million related to expenses for certain voyage charters. For the six months ended June 30, 2004 voyage expenses amounted to $0.06 million. Because our vessels are generally chartered under time charter contracts, voyage expenses represent a small fraction of voyage revenues.
      Vessel operating expenses. Vessel operating expenses were $4.27 million for the period. Daily vessel operating expenses per vessel were $3,371 per day. For the same period in 2004, vessel operating expenses were $4.73 million, or $3,403 per day.
      Management fees. These are the fees we pay to Eurobulk under our management agreement with it. As of June 30, 2005, Eurobulk charged us 590 Euros per day per vessel totaling $0.97 million for the period, or $762 per day per vessel reflecting a higher US dollar per Euro exchange rate, but lower number of shipdays than in the same period of 2004. For the same period in 2004, management fees amounted to $1.01 million, or $726 per day per vessel based on the same daily rate per vessel of 590 Euros.
      Depreciation and amortization. Depreciation and amortization for the period was $1.82 million. This consists of $1.19 million of depreciation and $0.63 million of amortization of deferred drydocking expenditures. Comparatively, depreciation and amortization for the same period in 2004 amounted to $1.33 million and $0.31 respectively for a total of $1.64 million. Depreciation in the six month period to June 30, 2005 is lower that in the same period in 2004 because Widar, a 1,000 teu containership, was sold on April 24, 2004. Amortization for the six month period to June 30, 2005 is higher than the same period in 2004 due to the amortization of additional drydocking expenditures incurred in 2004 and 2005.
      Gain or Loss from vessel sales. There were no vessel sales in the six months ended June 30, 2005. During the same period in 2004, Widar was sold on April 24 for a gain of $2.32 million.
      Interest and finance costs, net. Interest and finance costs, net for the period were $0.46 million. Of this amount, $0.55 million relates to interest incurred and loan fees and expenses paid and deferred loan fees written-off during the period partly offset by $0.09 million of interest income during the period. Comparatively, during the same period in 2004, net interest and finance costs amounted to $0.28 million, comprised by $0.30 million of interest incurred and loan fees and offset by $0.02 million of interest income. Interest incurred and loan fees are higher in six month period to June 30, 2005 due to the higher loan amount outstanding as a result of the new loans undertaken in May 2005.
      Derivative and Foreign Exchange Gains or Losses. During the period, we had a derivative loss due to an interest rate swap on a notional amount of $5 million of $0.08 million, and, foreign exchange gains of less than $0.01 million. In the same period in 2004, there was a net derivative gain of $0.01 million (same interest rate swap), and, foreign exchange losses of less than $0.01 million.
      Net income. As a result of the above, net income for the six month period ended on June 30, 2005 was $14.76 million compared to $14.91 million for the same period in 2004 representing a decrease of 1%.
Cash Flows
      As of June 30, 2005, we had a cash balance of $5.45 million, funds due from related companies of $4.00 million and $1.30 million cash in restricted retention accounts. The $4.00 million due from related companies primarily reflects charter hire for m/v Nikolaos P, John P and Pantelis P up to May 31, 2005, and for m/v Irini P up to June 30, 2005 that is deposited in the bank accounts of Silvergold Shipping Ltd., the company that owned Widar which was sold on April 24, 2004. The present financial statements consolidate the accounts of Silvergold Shipping Ltd. until May 31, 2005, when Silvergold Shipping Ltd. paid a final dividend of $35,000 to its shareholders. Silvergold Shipping Ltd., as the related company, continued to

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perform a treasury function for us as of June 30, 2005, and therefore the cash balance at that date remained in the related party’s account. The funds remained in the Silvergold Shipping Ltd. account solely for purposes of convenience as charters were effecting payments to us in that account. With the opening of new Euroseas accounts, and after completing the necessary paperwork, these funds will be transferred to our accounts or accounts of our subsidiaries. As of December 31, 2005, approximately $3.50 million of the $4.00 million had been repaid, leaving a balance of approximately $530,000, which is expected to be repaid by the end of January 2006. Working capital is current assets minus current liabilities, including the current portion of long term debt. We have a working capital deficit of $7.07 million including the current portion of long term debt which was $14.78 million as of June 30, 2005. The working capital deficit is due to the payment of dividends to our existing shareholders. All of the $44.23 million dividend/return of capital declared was paid as of June 30, 2005. We consider our liquidity sufficient for our operations.
Net cash from operating activities.
      Our net cash from operating activities for the period was $8.16 million. This represents the net amount of cash, after expenses, generated by chartering our vessels. Eurobulk and another related party, on our behalf, collect our chartering revenues and pays our chartering expenses. Net income for the period was $14.76 million, which was reduced by amounts due from related parties of $8.62 million. The increase in the amounts due from related companies is primarily due to a payment of the amount due to related companies of $4.63 million as of December 31, 2004 and the accumulation of the charter hire of two of our vessels in the bank accounts of a related party. In the same period in 2004, net cash flow from operating activities was $13.38 million based on a contribution of net income of $14.91 million.
Net cash from investing activities.
      We had to put in retention accounts $1.23 million to satisfy requirements of our new loan facilities. During the same period in 2004, cash flow from investing activities amounted to $6.72 million reflecting the sale of Widar in April 2004.
Net cash used in financing activities.
      Net cash used in financing activities was $16.97 million. This mainly relates to the dividend of $44.23 million that was paid to existing shareholders on April 10, 2005 and May 15, 2005, and the net proceeds from re-financing long term debt of $27.41 million. In the same period in 2004, net cash used in financing activities amounted to $17.23 million reflecting dividend payments of $11.76 million and repayment of debt of $5.47 million.
Debt Financing
      We operate in a capital intensive industry which requires significant amounts of investment and we fund a major portion of this investment through long term debt. We maintain debt levels we consider prudent based on our market expectations, cash flow, interest coverage and percentage of debt to capital. During May 2005, we repaid loans of $1.40 million and refinanced another $8.89 million and drew down $37.70 million of new loans in addition to $3.70 million of a continuing credit facility.
      As of June 30, 2005, after considering the loan refinancing and new loans discussed in the preceding paragraph, we had four outstanding loans with a combined outstanding balance of $41.4 million. These loans have maturity dates between 2008 and 2011. Our long-term debt as of June 30, 2005 comprises bank loans granted to our vessel-owning subsidiaries.
      Diana Trading Ltd. (the owner of M/ V Irini) entered into a loan agreement amounting to $4,200,000 which was drawn down on May 9, 2005. The loan is repayable in twelve consecutive quarterly installments being four installments of $450,000 each, and eight installments of $300,000 each with the last installment due in May 2008. The first installment is payable in August 2005. The interest is calculated at LIBOR plus 1.25% per annum. Diana Trading Ltd also has a continuing credit facility of $3,700,000.

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      Alcinoe Shipping Ltd (the owner of M/ V Pantelis P.), Oceanpride Shipping Ltd. (the owner of M/V John P.), Searoute Maritime Ltd. (the owner of M/ V Ariel) and Oceanopera Shipping Ltd. (the owner of M/ V Nikolaos P) jointly and severally entered into a new eurodollar loan amounting to $13,500,000 which was drawn down on May 16, 2005. Prior to obtaining the loan, an amount of $1,400,000 was paid in settlement of the outstanding loans as at March 31, 2005 for Alcinoe Shipping Ltd. and Oceanpride Shipping Ltd. The new loan is repayable in twelve consecutive quarterly installments being two installments of $2,000,000 each, one installment of $1,500,000, nine installments of $600,000 each and a balloon payment of $2,600,000 payable with the last installment in May 2008. The first installment is due in August 2005. Interest is calculated on LIBOR plus 1.5% per annum.
      Allendale Investments S.A. (the owner of M/ V Kuo Hsiung) and Alterwall Business Inc. (the owner of M/ V HM Qingdao1 (ex Kuo Jane)) jointly and severally entered into a loan agreement amounting to $20,000,000 when the outstanding amount of the old loans were $3,600,000 which was drawn down on May 26, 2005. The loan is repayable in twenty-four unequal consecutive quarterly installments of $1,500,000 each in the first year, $1,125,000 each in the second year, $775,000 in the third year, $450,000 each in the forth through to the sixth year and a balloon payment of $1,000,000 payable with the last installment in May 2011. The interest is calculated at LIBOR plus 1.25% per annum as long as the outstanding amount remains below 60% of the fair market value (FMV) of the vessel and 1.375% if the outstanding amount is above 60% of the FMV of the vessel.
      The loan agreements contain ship finance covenants including restrictions as to changes in management and ownership of the vessels, distribution of dividends or any other distribution of profits or assets, additional indebtedness and mortgaging of vessels without the lender’s prior consent, the sale of vessels, as well as minimum requirements regarding the hull ratio cover. We are not in default of any credit facility covenant as of June 30, 2005.
Dividend Policy
      Our policy is to declare and pay quarterly dividends to shareholders from our net profits each February, May, August and November, beginning after the Merger is consummated in amounts the Board of Directors may from time to time determine are appropriate. The timing and amount of dividend payments will be dependent upon Euroseas’ earnings, financial condition, cash requirement and availability, restrictions in its loan agreements, growth strategy, the provisions of Marshall Islands law affecting the payment of distributions to shareholders and other factors, such as the acquisition of additional vessels. However, we do not believe that the acquisition of vessels to our fleet will impact our dividend policy of paying quarterly dividends to our shareholders out of our net profits. We believe that the addition of vessels to our fleet in the future should enable us to pay a higher dividend per share than we would otherwise be able to pay without additional vessels since such additional vessels should increase our earnings. However, we cannot give any current estimate of what dividends may be in the future since any such dividend amounts will depend upon the amount of revenues those vessels are able to generate and the costs incurred in operating such vessels. The payment of dividends is not guaranteed or assured, and may be discontinued at any time at the discretion of Euroseas’ Board of Directors. Because Euroseas is a holding company with no material assets other than the stock of its subsidiaries, Euroseas’ ability to pay dividends will depend on the earnings and cash flow of its subsidiaries and their ability to pay dividends to Euroseas. If there is a substantial decline in the drybulk or containership charter market, Euroseas’ earnings would be negatively affected, thus limiting its ability to pay dividends. Marshall Islands law generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent upon the payment of such dividends. Dividends may be declared in conformity with applicable law by, and at the discretion of, Euroseas’ Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, stock or other property of Euroseas. Euroseas paid $687,500, $1,200,00, $26,962,500 and $44,225,000 (consisting of $27,525,000 of dividends and $16,700,000 as return of capital) in 2002, 2003, 2004 and in the first six months of 2005, respectively. Over the period January 1, 2002 to June 30, 2005, Euroseas paid substantially all of its net income as dividends. While Euroseas has paid dividends on an annual basis during the time it has been a private company, it intends to pay dividends on a quarterly basis once it has become a public company.

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      Euroseas’ Board of Directors recently declared a dividend in the amount of $0.07 per share which (i) was paid on or about December 19, 2005 to those holders of record of common stock of Euroseas on December 16, 2005, and (ii) (A) is payable to the stockholders of Cove who are entitled to receive shares of Euroseas common stock in connection with Cove’s merger with EuroSub, with such payment being made only to those holders of record of Cove common stock as of the effective date of the merger and such dividend payment being made upon exchange of their Cove shares for shares of Euroseas common stock (assuming such merger is consummated), or (B) is payable to Friends if such merger is not consummated since Friends will be issued the shares that would have otherwise been issued in the Merger. The aggregate amount of such dividend is anticipated to be $2,650,223.
Liquidity and Capital Resources
      Historically, our sources of funds have been equity provided by our shareholders, operating cash flows and long-term borrowings. Our principal use of funds has been capital expenditures to establish and expand our fleet, maintain the quality of our drybulk carriers and containerships, comply with international shipping standards and environmental laws and regulations, fund working capital requirements, make principal repayments on outstanding loan facilities, and pay dividends. We expect to rely upon funds raised from our recent Private Placement, operating cash flows, long term borrowings, as well as future offerings to implement our growth plan and meet our liquidity needs going forward. In our opinion, our working capital is sufficient for our present requirements.
Off-Balance Sheet Arrangements
      As of June 30, 2005 Euroseas did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.
For the year ended December 31, 2004 compared to the year ended December 31, 2003
      Voyage revenues. Voyage revenues for the year ended December 31, 2004 were $45.72 million, up 76%, compared to $25.95 million for the year ended December 31, 2003. Results for 2004 reflect contributions from Widar up to April 24, as the vessel was sold on that day. Our fleet operated throughout the period, with less than 12 unscheduled offhire days and about 123 days of scheduled drydocking resulting in an fleet utilization rate of 99.5% and averaging a TCE rate per vessel of $17,839 per day; the corresponding fleet utilization and average TCE equivalent for the year ended December 31, 2003 are 99.3% and $8,965 per vessel per day.
      Commissions. Commissions in 2004 were $2.22 million and amounted to 4.85% of voyage revenues. Commissions for 2003 were $0.91 million amounting to 3.49% of voyage revenues. Commissions were higher as a percentage in 2004 than in 2003 due the fact that fewer vessels participated in shipping pools in 2004. Shipping pools pay most commissions before distribution of profits, and, thus the distribution to the pool participants is net of third party commissions (we paid only commission to Eurochart for our pool derived revenues).
      Voyage expenses. Voyage expenses in 2004 of $0.37 million relate to expenses for certain voyage charters. Voyage expenses for 2003 were $0.44 million.
      Vessel operating expenses. Vessel operating expenses in 2004 were $8.91 million reflecting the operation of an average of 7.31 vessels. Daily vessel operating expenses per vessel were $3,327 per day, about 11% higher than daily vessel operating expenses for 2003 which were $3,005 an increase primarily due to higher insurance costs of $98 per vessel per day, higher costs for spare parts and consumable stores of $87 per vessel per day and an increase of $101 per vessel per day for crew and related expenses. The total operating expenses in 2003 were $8.78 million reflecting the operation of 8 vessels for the full year.
      Management fees. These are the fees we pay to Eurobulk under our management agreement with it. Management fees in 2004 amounted to $1.97 million or $740 per calendar day per vessel based on our contract rate of 590 euros per day and the prevailing exchange rate of dollar to euro. In 2003, management fees amounted to $1.72 million or $590 per calendar day per vessel. The difference of the fee on a per day per

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vessel basis is primarily attributed to the fact that the management fee was changed from $590 in 2003 to 590 Euros per day per vessel in 2004, the different number of shipdays and the U.S. dollar to Euro exchange rate.
      Depreciation and amortization. Depreciation and amortization in 2004 was $3.46 million. As vessel m/v Widar was sold in April 2004, the depreciation charge was reduced for the period after the sale of the vessel and amounted to $2.53 million for the year. In 2004, we have revised upwards (from $170/ton to $300/ton) our estimate of the scrap price per lightweight ton, and, the expected life for Ariel from 28 to 30 years (as it had gone through a special survey and was not expected to be sold before 2007); as a result the depreciation charge was lower by $1.40 million reflecting the above adjustments and, consequently, net income for the period was $1.40 million higher or $0.05 per share. Amortization of deferred drydock expenses for the period amounted to $0.93 million, 55% higher than in 2003 due to additional drydocking expenditures during 2003 and 2004. Depreciation for 2003 was $4.16 million while amortization of deferred drydocking costs was $0.60 million.
      Gain or loss on vessel sales. m/v Widar was sold on April 24, 2004 for a net gain of $2.32 million. There were no vessel sales during 2003.
      Interest and finance costs, net. Interest and finance costs, net in 2004 were $0.50 million. Of this amount, $0.71 million relates to interest incurred and loan fees and expenses paid and deferred loan fees written-off during the period offset by $0.19 million of interest income during the period. Net interest expense for the period ended December 31, 2003 was $0.76 million reflecting primarily lower interest income of $0.04 million and higher interest incurred and loan fees of $0.79 million.
      Derivative and Foreign Exchange Gains or Losses. During the year ended December 31, 2004, we had a derivative gain due to an interest rate swap on a notional amount of $5 million of $0.03 million, and, foreign exchange losses of less than $0.01 million. In the year ended to December 31, 2003, there was no derivative exposure and foreign exchange losses of less than $0.01 million.
      Net income. Net income for the year ended December 31, 2004 was $30.61 million compared to $8.43 million for the year ended December 31, 2003, an increase of 263%.
Cash Flows
      As of December 31, 2004, we had a cash balance of $15.50 million. Working capital is current assets minus current liabilities, including the current portion of long term debt. The current portion of long term debt included in our current liabilities was $6.03 million as of December 31, 2004. The working capital was $2.70 million as of December 31, 2004. All of the $26.96 million dividend declared was paid as of December 31, 2004.
Net cash from operating activities.
      Our net cash from operating activities during 2004 was $34.21 million. This is primarily attributable to the favorable trading conditions which contributed net income of $30.61 million, a gain of $2.32 million from the sale of m/v Widar in April, deferred drydocking expenses of $2.27 million, and, a further increase of funds due to related companies by $3.54 million during the period. During 2003, net cash flow from operating activities was $10.96 million, primarily attributable to net income of $8.43 million.
Net cash from investing activities.
      Net cash from investing activities during 2004 was $6.76 million reflecting the proceeds from the sale of the vessel m/v Widar in April 2004 compared to no investment activities in 2003 except release of $0.21 of restricted funds.
Net cash used in financing activities.
      Net cash used in financing activities during 2004 was $33.56 million. This mainly relates to a dividend of $26.96 million that was paid to existing shareholders, repayment of long term debt of $6.61 million which

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included the repayment of the balance of the loan of Widar when the vessel was sold. During 2003, net cash used in financing activities was $4.78 million reflecting primarily a dividend of $1.2 million that was paid to existing shareholders, repayment of long term debt of $6.25 million and new debt incurred of $3.00 million and a repayment of an advance from shareholders of $0.30 made in the prior year.
Liquidity and Capital Resources
      Historically, our sources of funds have been equity provided by our shareholders, operating cash flows and long-term borrowings. Our principal use of funds has been capital expenditures to establish and expand our fleet, maintain the quality of our drybulk carriers, comply with international shipping standards and environmental laws and regulations, fund working capital requirements, make principal repayments on outstanding loan facilities, and pay dividends. We expect to rely upon funds raised from our recent Private Placement, operating cash flows, long term borrowings, as well as future offerings to implement our growth plan and meet our liquidity needs going forward.
Off-Balance Sheet Arrangements
      As of December 31, 2004 Euroseas did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.
For the year ended December 31, 2003 compared to the year ended December 31, 2002
      Voyage revenues. Voyage revenues for the year ended December 31, 2003 were $25.95 million, up 70%, compared to $15.29 million for the year ended December 31, 2002 . This was primarily due to more favorable market conditions; also, results for 2002 reflect partial contributions from Irini and Kuo Hsiung which were bought in October and May respectively of that year. During 2003, our fleet operated throughout the period, with less than 21 unscheduled offhire days and about 53 days of scheduled drydocking resulting in an fleet utilization rate of 99.3%% and averaging a TCE rate per vessel of $8,965 per day; the corresponding fleet utilization and average TCE equivalent for the year ended December 31, 2002 are 99.7% and $6,049.
      Commissions. Commissions in 2003 were $0.91 million amounting to 3.49% of voyage revenues. Commissions for 2002 were $0.42 million amounting to 2.75% of voyage revenues; the lower level of commissions during 2002 is due to the fact that a larger number of vessel participated in pools where most of the commissions are paid by the pool before distribution of profits, and, thus the distribution to the pool participants is net of third party commissions (we paid only commission to Eurochart for our pool derived revenues).
      Voyage expenses. Voyage expenses in 2003 were $0.44 million relate to expenses for certain voyage charters. Voyage expenses for 2002 were $0.53 million.
      Vessel operating expenses. Vessel operating expenses were $8.78 million in 2003 reflecting the operation of a fleet of 8 vessels. Daily vessel operating expenses per vessel were $3,005 per day. Daily vessel operating expenses for 2002 were $2,877 for a total of $7.16 million reflecting the operation of an average of about 6.8 vessels during the year as a result of the purchase of Irini in November 2002 and Kuo Hsiung in May 2002. The increase in the operating costs was primarily due to increased insurance costs of $105 per vessel per day.
      Management fees. These are the fees we pay to Eurobulk under our management agreement with it. Management fees in 2003 amounted to $1.72 million or $590 per calendar day per vessel based on our contract rate of $590 per day per vessel. In 2002, management fees amounted to $1.47 million or $590 per calendar day per vessel. The difference is due to the larger number of shipdays in 2003 compared to 2002.
      Depreciation and amortization. Depreciation and amortization in 2003 was $4.76 million and consisted of $4.16 million of depreciation of vessel value and $0.60 amortization of deferred drydocking costs. In 2002, depreciation amounted to $3.51 million reflecting the fact that two vessels were purchased during 2002 and did not contribute to the depreciation for the full year. In 2002, amortization of deferred drydocking expenses amounted to $0.54 million.

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      Interest and finance costs, net. Interest and finance costs, net in 2003 were $0.76 million. Of this amount, $0.79 million relates to interest incurred and loan fees and expenses paid and deferred loan fees written-off during the year offset by $0.04 million of interest income during the year. Net interest expense for the period ended December 31, 2002 was $0.79 million reflecting primarily lower interest income of $0.01 million.
      Net income. Net income for the year ended December 31, 2003 was $8.43 million compared to $0.89 million for the year to December 31, 2002, an increase of 845%.
Cash Flows
      As of December 31, 2003, we had a cash balance of $8.10 million. Working capital is current assets minus current liabilities, including the current portion of long term debt. The current portion of long term debt included in our current liabilities was $5.10 million as of December 31, 2003. The working capital was $0.93 million as of December 31, 2003. All of the $1.20 million dividend declared was paid as of December 31, 2003.
Net cash from operating activities.
      Our net cash from operating activities during 2003 was $10.96 million. This is primarily attributable to the favorable trading conditions which contributed net income of $8.43 million. Net cash flow from operations during 2002 was $5.63 million.
Net cash from investing activities.
      Net cash from investing activities during 2003 was $0.21 million reflecting release of cash from retention accounts. In 2002, net cash used in investing activities amounted to $17.04 million reflecting the purchase of vessels, Irini and Kuo Hsiung.
Net cash used in financing activities.
      Net cash used in financing activities during 2003 was $4.78 million. This mainly relates to the dividend of $1.2 million that was paid to existing shareholders, repayment of long term debt of $6.25 million, new debt incurred of $3.00 million and a repayment of an advance from shareholders of $0.30 made in 2002. During 2002, net cash available from financing activities was $12.25 million reflecting new debt of $11.90 million and additional paid-in capital of $4.50 million to finance the acquisition of Irini and Kuo Hsiung, a $0.30 advance from shareholders, repayment of debt of $3.65 million and $0.69 million dividend distribution.
Liquidity and Capital Resources
      Historically, our sources of funds have been equity provided by our shareholders, operating cash flows and long-term borrowings. Our principal use of funds has been capital expenditures to establish and expand our fleet, maintain the quality of our drybulk carriers, comply with international shipping standards and environmental laws and regulations, fund working capital requirements, make principal repayments on outstanding loan facilities, and pay dividends. We expect to rely upon funds raised from our recent Private Placement, operating cash flows, long term borrowings, as well as future offerings to implement our growth plan and meet our liquidity needs going forward.
Off-Balance Sheet Arrangements
      As of December 31, 2003 Euroseas did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.

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Contractual Obligations and Commitments
        Euroseas’ contractual obligations are set forth in the following table as of June 30, 2005, as related to the future annual loan repayments:
                                         
        Less Than   One to   Three to   More Than
In U.S. Dollars   Total   One Year   Three Years   Five Years   Five Years
                     
Bank debt
  $ 41,400,000     $ 14,780,000     $ 19,160,000     $ 4,660,000     $ 2,800,000  
Interest Payment(1)
  $ 4,295,771     $ 1,790,505     $ 2,217,505     $ 194,250     $ 93,188  
Management Fees(2)
  $ 11,176,241     $ 2,022,192     $ 4,419,631     $ 4,734,418        
 
(1)  Assuming the amortization of the loan described above and an estimated average effective interest rate of 5.3%, 5.4% and 5.1% for the three periods respectively.
 
(2)  Refers to our obligation for management fees of 590 Euros per day per vessel (approximately $718) for the seven vessels owned by Euroseas at June 30, 2005 and the eighth vessel we acquired on November 25, 2005, under our five-year management contract. For years two to five we have assumed no change in the number of vessels, on inflation rate of 3.5% per year and no changes in the U.S. Dollar to Euro exchange rate (assumed approximately at 1.218 USD/Euro).
Critical Accounting Policies
      The discussion and analysis of our financial condition and results of operations is based upon our consolidated condensed financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
      Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies that involve a high degree of judgment and the methods of their application.
Depreciation
      Depreciation. We record the value of our vessels at their cost (which includes acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for its initial voyage) less accumulated depreciation. We depreciate our vessels on a straight-line basis over their estimated useful lives, estimated to range from 25 to 30 years from date of initial delivery from the shipyard. We believe that the 25 to 30 year range of depreciable life is consistent with that of other ship owners. One of our vessels has already reached an age of 28 years and continues to be employed. Depreciation is based on cost less the estimated residual scrap value. In 2004, the estimated scrap value of the vessels was increased from $170 to $300 per LWT to better reflect market price developments in the scrap metal market. An increase in the useful life of the vessel or in the residual value would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the useful life of the vessel or in the residual value would have the effect of increasing the annual depreciation charge. For example, the effects of the charge in estimate in 2004 was to reduce 2004 depreciation expense by $1.40 million and increase 2004 net income by the same amount or $0.05 per share.
Revenue and expense recognition
      Revenues are generated from voyage and time charter agreements. Time charter revenues are recorded over the term of the charter as service is provided. Under a voyage charter the revenues and associated voyage costs are recognized on a pro-rata basis over the duration of the voyage. Probable losses on voyages are provided for in full at the time such losses can be estimated. A voyage is deemed to commence upon the completion of discharge of the vessel’s previous cargo and is deemed to end upon the completion of discharge

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of the vessel’s previous cargo and is deemed to end upon the completion of discharge of the current cargo. Demurrage income represents payments by the charterer to the vessel owner when loading or discharging time exceeded the stipulated time in the voyage charter and is recognized as incurred.
      Charter revenue received in advance is recorded as a liability until charter services are rendered.
      Vessels’ operating expenses comprise all expenses relating to the operation of the vessels, including crewing, repairs and maintenance, insurance, stores, lubricants and miscellaneous expenses. Operating expenses are recognized as incurred; payments in advance of services or use are recorded as prepaid expenses. Voyage expenses comprise all expenses relating to particular voyages, including bunkers, port charges, canal tolls, and agency fees.
      For the Company’s vessels operating in chartering pools, revenues and voyage expenses are pooled and allocated to each pool’s participants on a time charter equivalent basis in accordance with an agreed-upon formula.
Deferred drydock costs
      Our vessels are required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are trading. We capitalize the costs associated with drydockings as they occur and amortize these costs on a straight-line basis over the period between drydockings. Costs capitalized as part of the drydocking include actual costs incurred at the drydock yard; cost of hiring riding crews to perform specific tasks determined by us in accordance with the requirements of the classification society in connection with the drydocking and parts used in performing such tasks, cost of travel, lodging and subsistence of our personnel sent to the drydocking site to supervise; and the cost of hiring a third party to oversee a drydocking. We believe that these criteria are consistent with US GAAP guidelines and with industry practice and that our policy of capitalization reflects the economics and market values of the vessels. Commencing January 1, 2006, we have revised our policy to exclude the cost of hiring riding crews and the cost of parts used by riding crews from amounts capitalized as drydocking cost. We have not restated any historical financial statements because we determined that the impact of such a revision is not material to our operating income and net income for any periods presented.
Impairment of long-lived assets
      We evaluate the carrying amounts and periods over which long-lived assets are depreciated to determine if events have occurred which would require modification to their carrying values or useful lives. In evaluating useful lives and carrying values of long-lived assets, we review certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. We determine undiscounted projected net operating cash flows for each vessel and compare it to the vessel carrying value. In the event that impairment occurred, we would determine the fair value of the related asset and we record a charge to operations calculated by comparing the asset’s carrying value to the estimated fair market value. We estimate fair market value primarily through the use of third party valuations performed on an individual vessel basis.
Recent accounting pronouncements
      In January 2003, the Financial Accounting Standards Board (FASB) issued FIN 46, “Consolidation of Variable Interest Entities,” which clarified the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to address perceived weaknesses in accounting for entities commonly known as special-purpose or off-balance sheet entities. It provides guidance for identifying the party with a controlling financial interest resulting from arrangements or financial interests rather than voting interests. It requires consolidation of Variable Interest Entities (“VIEs”) only if those VIEs do not effectively disperse the risks and benefits amount the various parties involved. On December 24, 2003, the FASB issued a complete replacement of FIN 46 (“FIN 46R), which clarified certain complexities of FIN 46. FIN 46R is applicable for financial statements issued for reporting periods that end after March 5, 2004. The Company has reviewed FIN 46R and determined that the adoption of the standard will not have a material impact on the financial statements.
      In December 2004, the FASB issued SFAS No. 123 (revised 2004), Shared Based Payments (SFAS 123R). This statement eliminates the option to apply the intrinsic value measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” to stock

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compensation awards issued to employees. Rather, SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award-the requisite service period (usually the vesting period). SFAS No. 123R applies to all awards granted after the required effective date, as of the beginning of the first interim or annual reporting period that begins after June 15, 2005, and to awards modified, repurchased, or cancelled after that date. SFAS 123R will be effective for our fiscal year 2006. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows.
      On December 16, 2004, FASB issued SFAS No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions (“FAS 153”). This statement amends APB Opinion N°29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. Under SFAS No. 153, if a non-monetary exchange of similar productive assets meets a commercial-substance criterion and fair value is determinable, the transaction must be accounted for at fair value resulting in recognition of any gain or loss. SFAS No. 153 is effective for non-monetary transactions in fiscal periods that begin after June 15, 2005. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows.
      The FASB has issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion N°20 and SFAS No. 3. The Statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle.
      SFAS No. 154 requires retrospective applications to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. Opinion 20 previously required that most voluntary change in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS No. 154 improves financial reporting because its requirements enhance the consistency of financial information between periods. The Company is analyzing the effect which this pronouncement will have on its financial condition, statement of operations, and cash flows. This statement will be effective for the Company on January 1, 2006. The Company does not believe that this pronouncement will have and effect on it’s financial condition, results of operation or cash flows.
      On March 29, 2005, the SEC released a Staff Accounting Bulletin (SAB) relating to the FASB accounting standard for stock options and other share-based payments. The interpretations in SAB No. 107, “Share-Based Payment,” (SAB 107) express views of the SEC Staff regarding the application of SFAS No. 123 (revised 2004), “Share-Based Payment “(Statement 123R). Among other things, SAB 107 provides interpretive guidance related to the interaction between Statement 123R and certain SEC rules and regulations, as well as provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. The Company does not anticipate that adoption of SAB 107 will have any effect on its financial position, results of operations or cash flows.
      In March 2005, the FASB issued FASB Interpretation No. (“FIN”) 47 “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143”, which clarifies the term “conditional asset retirement obligation” as used in SFAS No. 143 “Accounting for Asset Retirement Obligations”. Specifically, FIN 47 provides that an asset retirement obligation is conditional when either the timing and (or) method of settling the obligation is conditioned on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. Management is currently evaluating the effect that adoption of FIN 47 will have on the Company’s financial position and results of operations.

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Quantitative and Qualitative Disclosures About Market Risk
      In the normal course of business, the Company faces risks that are non-financial or non-quantifiable. Such risks principally include country risk, credit risk and legal risk. The operations of the Company may be affected from time to time in varying degrees by these risks but their overall effect on the Company is not predictable. We have identified the following market risks as those which may have the greatest impact upon our operations:
        Interest Rate Fluctuation Risk The international drybulk industry is a capital intensive industry, requiring significant amounts of investment. Much of this investment is provided in the form of long term debt. Our debt usually contains interest rates that fluctuate with LIBOR. We do not use financial instruments such as interest rate swaps to manage the impact of interest rate changes on earnings and cash flows and increasing interest rates could adversely impact future earnings.
 
        As at June 30, 2005, we had $41.4 million of floating rate debt outstanding with margins over LIBOR ranging from 1.25% to 1.60%. Our interest expense is affected by changes in the general level of interest rates. As an indication of the extent of our sensitivity to interest rate changes, an increase of 100 basis points would have decreased our net income and cash flows in the three-month period to June 30, 2005 by approximately $120,000 assuming that the current debt level was the same throughout the quarter.
 
        In March, 2004, we entered into an interest rate swap agreement on a notional amount of $3,000,000. Under this swap agreement, we receive interest based on the 3-month LIBOR rate and we pay based on 1.10% fixed rate if the 1 year LIBOR remains below 4.02%: otherwise we pay the 1-year LIBOR rate. This agreement expires in March, 2007, and can be terminated at any time.
 
        Foreign Exchange Rate Risk The international drybulk and containership shipping industry’s functional currency is the U.S. Dollar. We generate all of our revenues in U.S. dollars, but incur approximately 28% of our expenses in currencies other than U.S. dollars. At June 30, 2005, approximately 27% of our outstanding accounts payable were denominated in currencies other than the U.S. dollar, mainly in Euros. The Company does not make use of currency exchange contracts to reduce the risk of adverse foreign currency movements but we believe that our exposure from market rate fluctuations is unlikely to be material. Net foreign exchange gains for the six-month period to June 30, 2005 were $312.
 
        Inflation Risk The general rate of inflation has been relatively low in recent years and as such its associated impact on costs has been minimal. The Company does not believe that inflation has had, or is likely to have in the foreseeable future, a significant impact on expenses. Should inflation increase, it will increase our expenses and subsequently have a negative impact on our earnings.
 
        The following table sets forth the sensitivity of loans in U.S. dollars to a 100 basis points increase in LIBOR during the next five years:
         
Year Ended June 30,   Amount
     
2006
    340,100  
2007
    221,300  
2008
    125,500  
2009
    60,300  
2010 and thereafter
    51,000  
       
      On December 30, 2005, we drew down $15.5 million under our loan agreement signed on December 28, 2005 to finance our acquisition of m/v Artemis. This increased the sensitivity of our loans to 100 basis points increases in LIBOR by: $155,000 until June 30, 2006; $129,000 year ended June 30, 2007; $94,000 year ended June 30, 2008; $59,000 year ended June 30, 2009; and $55,000 for 2010 and thereafter.

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DESCRIPTION OF EUROSEAS SECURITIES
      Cove stockholders who receive shares of Euroseas in the Merger will become shareholders of Euroseas. Euroseas is a corporation organized under the laws of the Republic of the Marshall Islands and is subject to the provisions of Marshall Islands law. Given below is a summary of the material features of the Euroseas shares. This summary is not a complete discussion of the charter documents and other instruments of Euroseas that create the rights of its shareholders. You are urged to read carefully those documents and instruments. Please see “Where You Can Find Additional Information” for information on how to obtain copies of those documents and instruments.
      Euroseas’ authorized capital stock consists of 100,000,000 shares of common stock, par value, $.01 per share, of which 36,781,159 shares are currently issued and outstanding and 20,000,000 shares of preferred stock, par value, $.01 per share, none of which are outstanding. All of Euroseas’ shares of stock are in registered form.
Common Stock
      As of the date of this joint Information Statement/ prospectus, Euroseas is authorized to issue up to 100,000,000 shares of common stock, par value $.01 per share, of which 36,781,159 shares are currently issued and outstanding. Upon consummation of the Merger, Euroseas will have outstanding anywhere from 36,781,159 to 37,860,326 shares of common stock, depending on whether any Cove stockholders exercise their dissenters’ rights. In the event the Merger does not occur or any Cove stockholders dissent from the Merger, Friends is entitled to receive for no additional consideration 1,079,167 shares of common stock (or such lesser amount with respect to those shares of dissenting stockholders) that would have otherwise been issued in connection with the Merger. In addition, Euroseas will have 1,756,743 shares of common stock reserved for issuance upon the exercise of warrants issued in the Private Placement. Each outstanding share of common stock will be entitled to one vote, either in person or by proxy, on all matters that may be voted upon by their holders at meetings of the shareholders. Holders of Euroseas’ common stock (i) have equal ratable rights to dividends from funds legally available therefore, if declared by the Board of Directors; (ii) are entitled to share ratably in all of Euroseas’ assets available for distribution upon liquidation, dissolution or winding up; and (iii) do not have preemptive, subscription or conversion rights or redemption or sinking fund provisions. All issued shares of Euroseas’ common stock when issued will be fully paid for and non-assessable.
Preferred Stock
      As of the date of this joint Information Statement/ prospectus, Euroseas is authorized to issue up to 20,000,000 shares of preferred stock, par value $0.01 per share, of which no shares are currently issued and outstanding. The preferred stock may be issued in one or more series and Euroseas’ Board of Directors, without further approval from its shareholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights, liquidation preferences and other rights and restrictions relating to any series. Issuances of preferred stock, while providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of Euroseas common stock.
Warrants
      On August 25, 2005, Euroseas issued warrants to a number of institutional and accredited investors to purchase 1,756,743 shares of common stock as part of a Private Placement in which Euroseas raised approximately $21 million in gross proceeds. The warrants have a five year term and an exercise price of $3.60 per share. The warrants provide for adjustment to the exercise price and the number of shares issuable upon exercise of the warrants in the event Euroseas (a) pays a stock dividend or otherwise makes a distribution or distributions on shares of its common stock or any other equity or equity equivalent securities payable in shares of common stock, (b) subdivides outstanding shares of common stock into a larger number of shares, (c) combines (including by way of reverse stock split) outstanding shares of common stock into a smaller number of shares, or (d) issues by reclassification of shares of the common stock any shares of its capital

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stock. The warrants (i) are exercisable apart from the shares of common stock sold in the Private Placement (they are legally detachable), and (ii) may be exercised through a cashless exercise mechanism after one year from the issuance date only if the common shares trade publicly.
Certain Provisions of Euroseas’ Articles of Incorporation and Bylaws
      Certain provisions of Marshall Islands law and Euroseas’ articles of incorporation and bylaws could make more difficult the acquisition of it by means of a tender offer, a proxy contest, or otherwise, and the removal of incumbent officers and directors. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of Euroseas.
      Euroseas’ articles of incorporation and bylaws include provisions that:
  •  allow the Board of Directors to issue, without further action by the shareholders, up to 20,000,000 shares of undesignated preferred stock;
 
  •  require that special meetings of its shareholders be called only by the Board of Directors or the Chairman of the Board; and
 
  •  establish an advance notice procedure for shareholder proposals to be brought before an annual meeting of shareholders.
      Euroseas’ articles of incorporation also prohibit it from engaging in any “business combination” with any interested shareholder for a period of three years following the date the shareholder became an interested shareholder, unless:
  •  prior to such time, the Board of Directors of Euroseas approved either the Business Combination or the transaction which resulted in the shareholder becoming an Interested Shareholder; or
 
  •  upon consummation of the transaction which resulted in the shareholder becoming an Interested Shareholder, the Interested Shareholder owned at least 85% of the voting stock of Euroseas outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
 
  •  at or subsequent to such time, the Business Combination is approved by the Board of Directors and authorized at an annual or special meeting of shareholders, and not by written consent, by the affirmative vote of at least 51% of the outstanding voting stock that is not owned by the interested shareholder; or
 
  •  the shareholder became an Interested Shareholder prior to the consummation of the initial public offering of Euroseas’ common stock under the Securities Act.
      These restrictions shall not apply if:
  •  A shareholder becomes an Interested Shareholder inadvertently and (i) as soon as practicable divests itself of ownership of sufficient shares so that the shareholder ceases to be an Interested Shareholder; and (ii) would not, at any time within the three-year period immediately prior to a Business Combination between Euroseas and such shareholder, have been an Interested Shareholder but for the inadvertent acquisition of ownership; or
 
  •  The Business Combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction which (i) constitutes one of the transactions described in the following sentence; (ii) is with or by a person who either was not an Interested Shareholder during the previous three years or who became an Interested Shareholder with the approval of the Board; and (iii) is approved or not opposed by a majority of the members of the Board then in office (but not less than one) who were Directors prior to any person becoming an Interested Shareholder during the previous three years or were recommended

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  for election or elected to succeed such Directors by a majority of such Directors. The proposed transactions referred to in the preceding sentence are limited to:
        (a) a merger or consolidation of Euroseas (except for a merger in respect of which, pursuant to the BCA, no vote of the shareholders of Euroseas is required);
 
        (b) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of Euroseas or of any direct or indirect majority-owned subsidiary of Euroseas (other than to any direct or indirect wholly-owned subsidiary or to Euroseas) having an aggregate market value equal to 50% or more of either that aggregate market value of all of the assets of Euroseas determined on a consolidated basis or the aggregate market value of all the outstanding shares; or
 
        (c) a proposed tender or exchange offer for 50% or more of the outstanding voting shares of Euroseas.
      Euroseas’ articles of incorporation defines a “business combination” to include:
  •  Any merger or consolidation of Euroseas or any direct or indirect majority-owned subsidiary of Euroseas with (i) the Interested Shareholder or any of its affiliates, or (ii) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by the Interested Shareholder;
 
  •  Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a shareholder of Euroseas, to or with the Interested Shareholder, whether as part of a dissolution or otherwise, of assets of Euroseas or of any direct or indirect majority-owned subsidiary of Euroseas which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all the assets of Euroseas determined on a consolidated basis or the aggregate market value of all the outstanding shares;
 
  •  Any transaction which results in the issuance or transfer by Euroseas or by any direct or indirect majority-owned subsidiary of Euroseas of any shares, or any share of such subsidiary, to the Interested Shareholder, except: (i) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares, or shares of any such subsidiary, which securities were outstanding prior to the time that the Interested Shareholder became such; (ii) pursuant to a merger with a direct or indirect wholly-owned subsidiary of Euroseas solely for purposes of forming a holding company; (iii) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares, or shares of any such subsidiary, which security is distributed, pro rata to all holders of a class or series of shares subsequent to the time the Interested Shareholder became such; (iv) pursuant to an exchange offer by Euroseas to purchase shares made on the same terms to all holders of said shares; or (v) any issuance or transfer of shares by Euroseas; provided however, that in no case under items (iii)-(v) of this subparagraph shall there be an increase in the Interested Shareholder’s proportionate share of the any class or series of shares;
 
  •  Any transaction involving Euroseas or any direct or indirect majority-owned subsidiary of Euroseas which has the effect, directly or indirectly, of increasing the proportionate share of any class or series of shares, or securities convertible into any class or series of shares, or shares of any such subsidiary, or securities convertible into such shares, which is owned by the Interested Shareholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares not caused, directly or indirectly, by the Interested Shareholder; or
 
  •  Any receipt by the Interested Shareholder of the benefit, directly or indirectly (except proportionately as a shareholder of Euroseas), of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted above) provided by or through Euroseas or any direct or indirect majority-owned subsidiary.

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      Euroseas’ articles of incorporation defines an “interested shareholder” as any person (other than Euroseas and any direct or indirect majority-owned subsidiary of Euroseas) that:
  •  is the owner of 15% or more of the outstanding voting shares of Euroseas; or
 
  •  is an affiliate or associate of Euroseas and was the owner of 15% or more of the outstanding voting shares of Euroseas at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an Interested Shareholder; and the affiliates and associates of such person; provided, however, that the term “Interested Shareholder” shall not include any person whose ownership of shares in excess of the 15% limitation set forth herein is the result of action taken solely by Euroseas; provided that such person shall be an Interested Shareholder if thereafter such person acquires additional shares of voting shares of Euroseas, except as a result of further Company action not caused, directly or indirectly, by such person.
DESCRIPTION OF COVE SECURITIES
      Given below is a summary of the material features of Cove’s securities. This summary is not a complete discussion of the certificate of incorporation and bylaws of Cove that create the rights of its stockholders. You are urged to read carefully the certificate of incorporation and bylaws, which have been filed as exhibits to SEC reports filed by Cove. Please see “Where You Can Find Additional Information” for information on how to obtain copies of those reports.
Common Stock
      As of the date of this joint Information Statement/ prospectus, Cove is authorized to issue 50,000,000 registered shares of common stock, par value US $.001 per share, of which 10,480,500 shares are outstanding. Each stockholder of Cove is entitled to one vote for each share of stock owned. Each stockholder of Cove common stock is entitled to a pro rata share of cash distributions made to shareholders, including dividend payments. Holders of shares of Cove common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to Cove’s common stock.
Preferred Stock
      As of the date of this joint Information Statement/ prospectus, Cove is authorized to issue 5,000,000 shares of preferred stock, par value US $.001 per share, of which no shares are currently issued and outstanding. Cove’s Board of Directors is authorized and empowered, subject to limitations prescribed by law and the provisions of its articles of incorporation, to provide for the issuance of shares of preferred stock in series, and by filing a certificate pursuant to the applicable law of the State of Nevada, to establish from time to time the number of shares to be included in each such series, and to fix the designations, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions of each such series.
Cove’s Transfer Agent
      The transfer agent for Cove’s securities is Pacific Stock Transfer, Inc, Las Vegas Nevada 89119.
COMPARISON OF COVE AND EUROSEAS STOCKHOLDER RIGHTS
      In the Merger, shares of Cove common stock will be exchanged for Euroseas shares and the stockholders of Cove will become shareholders of Euroseas. Cove is a Nevada corporation. The rights of its stockholders derive from Cove’s certificate of incorporation and bylaws and from the NRS. Euroseas is a Marshall Islands corporation. The rights of its shareholders derive from Euroseas’ articles of incorporation and bylaws and from the BCA.
      The following is a comparison of certain rights of Cove stockholders and Euroseas shareholders. Certain significant differences in the rights of Cove stockholders and those of Euroseas shareholders arise from

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differing provisions of Cove’s and Euroseas’ respective governing corporate instruments. The following summary does not purport to be a complete statement of the provisions affecting, and differences between, the rights of Cove stockholders and those of Euroseas shareholders. The identification of specific provisions or differences is not meant to indicate that other equally or more significant differences do not exist. This summary is qualified in its entirety by reference to the NRS and the BCA and to the respective governing corporate instruments of Cove and Euroseas, to which stockholders are referred.
Authorized Capital Stock
      Cove. Cove is authorized to issue 50,000,000 registered shares of common stock, par value US $.001 per share, and 5,000,000 shares of preferred stock, par value US $.001 per share. As of the date of this joint Information Statement/ prospectus, 10,480,500 shares of Cove’s common stock are outstanding and no shares of its preferred stock are outstanding.
      Each stockholder of Cove is entitled to one vote for each share of stock owned. Each stockholder of Cove common stock is entitled to a pro rata share of cash distributions made to shareholders, including dividend payments. Holders of shares of Cove common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to Cove’s common stock.
      Euroseas. Euroseas is authorized to issue 100,000,000 registered shares of common stock, par value US $.01 per share, and 20,000,000 shares of preferred stock, par value US $.01 per share. As of the date of this joint Information Statement/ prospectus, 36,781,159 shares of Euroseas’ common stock are outstanding and no shares of its preferred stock are outstanding.
      Upon consummation of the Merger, Euroseas will have outstanding anywhere from 36,781,159 to 37,860,326 shares of common stock, depending on whether any Cove stockholders exercise their dissenters’ rights. In the event the Merger does not occur, Friends is entitled to receive for no additional consideration 1,079,167 shares of common stock (or such lesser amount with respect to those shares of dissenting stockholders) that would have otherwise been issued in connection with the Merger. In addition, Euroseas will have 1,756,743 shares of common stock reserved for issuance upon the exercise of warrants issued in the Private Placement. Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of shareholders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of shares of common stock are entitled to receive ratably all dividends, if any, declared by Euroseas’ Board of Directors out of funds legally available for dividends. Holders of common stock do not have conversion, redemption or preemptive rights to subscribe to any of Euroseas’ securities. All outstanding shares of common stock are, and the shares to be issued in the Merger when issued will be, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of any shares of preferred stock which Euroseas may issue in the future.
Board of Directors
      Cove. Cove’s bylaws provide that its Board of Directors shall consist of no less than one and no more than fifteen directors, the specific number to be set by resolution of the Board of Directors. The terms of the directors expire at the next annual shareholder’s meeting following their election. Cove’s Board of Directors currently has one member. There is no cumulative voting with respect to the election of Cove’s directors. Therefore, the holders of more than 50% of the shares voted for the election of those directors can elect all of the directors.
      Euroseas. The Board of Directors of Euroseas is required to consist of at least three members. The Board is divided into three classes that are as nearly equal in number as possible. Directors are elected by a plurality of the votes cast at a meeting of the shareholders by the holders of shares entitled to vote in the election. Cumulative voting is not used to elect directors. The initial term of office of each class of directors is as follows: the directors first designated as Class A directors serve for a term expiring at the 2006 annual meeting of the shareholders, the directors first designated as Class B directors serve for a term expiring at the 2007 annual meeting, and the directors first designated as Class C directors serve for a term expiring at the

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2008 annual meeting. At each annual meeting after such initial term, directors to replace those whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting.
Special Meetings of Stockholders
      Cove. Cove’s bylaws provide that the Board, the President, or the Chairperson of the Board, may call special meetings of the shareholders for any purpose. The holders of not less than ten percent (10%) of all the outstanding shares of Cove entitled to vote for or against any issue proposed to be considered at the proposed special meeting, if they date, sign and deliver to Cove’s Secretary a written demand for a special meeting specifying the purpose or purposes for which it is to be held, may call a special meeting of the shareholders for such specified purpose.
      Euroseas. A special meeting of Euroseas’ shareholders may be called at any time by the Board of Directors, or by the Chairman of the Board, or by the President. No other person or persons are permitted to call a special meeting. No business may be conducted at the special meeting other than business brought before the meeting by the Board of Directors, the Chairman of the Board or the President.
Mergers, Share Exchanges and Sales of Assets
      Cove. The NRS generally requires a majority vote of the outstanding shares of the corporation entitled to vote to effectuate a merger or a sale, lease or exchange all of its property and assets.
      Euroseas. The BCA provides that a merger in which the Marshall Islands corporation is not the surviving corporation requires the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the Marshall Islands corporation entitled to vote thereon. The BCA further provides that a sale, lease, exchange or other disposition of all or substantially all the assets of the Marshall Islands corporation, if not made in the usual or regular course of the business actually conducted by Euroseas, requires the affirmative vote of the holders of at least 662/3% of the outstanding shares of capital stock of the Marshall Islands corporation entitled to vote thereon, unless any class of shares is entitled to vote thereon as a class, in which event such authorization shall require the affirmative vote of the holders of a majority of the shares of each class of shares entitled to vote as a class thereon and of the total shares entitled to vote thereon.
Dividends
      Cove. The NRS allows the board of directors of a Nevada corporation to authorize a corporation to declare and pay dividends and other distributions to its stockholders, unless after giving it effect: (i) the corporation would not be able to pay its debts as they become due in the usual course of business; or (ii) except as otherwise specifically allowed by the articles of incorporation, the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution.
      The holders of Cove common stock are entitled to receive dividends when, as and if declared by its Board of Directors from funds legally available therefore. Cash dividends are at the sole discretion of Cove’s Board of Directors.
      Euroseas. Declaration and payment of any dividend is subject to the discretion of Euroseas’ Board of Directors. The timing and amount of dividend payments will be dependent upon Euroseas’ earnings, financial condition, cash requirement and availability, restrictions in its loan agreements, growth strategy, the provisions of Marshall Islands law affecting the payment of distributions to shareholders and other factors. The payment of dividends is not guaranteed or assured, and may be discontinued at any time at the discretion of Euroseas’ Board of Directors. Because Euroseas is a holding company with no material assets other than the stock of its subsidiaries, Euroseas’ ability to pay dividends will depend on the earnings and cash flow of its subsidiaries and their ability to pay dividends to Euroseas. If there is a substantial decline in the drybulk charter market, Euroseas’ earnings would be negatively affected, thus limiting its ability to pay dividends. Marshall Islands law

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generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent upon the payment of such dividends.
      Dividends may be declared in conformity with applicable law by, and at the discretion of, Euroseas’ Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, stock or other property of Euroseas.
Indemnification of Directors and Officers and Limitation of Liability
      Cove. Cove’s bylaws, each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative , by reason of the fact that he or she is or was a director or officer of Cove or is or was serving at the request of Cove as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer shall be indemnified and held harmless by Cove to the fullest extent authorized by the Nevada General Corporation Law, as the same exists or may hereafter be amended, (but, in the case of any such amendment, only to the extent that such amendment permits Cove to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorney’s fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.
      Euroseas. Euroseas’ bylaws provide that any person who is or was a director or officer of Euroseas, or is or was serving at the request of Euroseas as a director or officer of another, partnership, joint venture, trust or other enterprise shall be entitled to be indemnified by Euroseas upon the same terms, under the same conditions, and to the same extent as authorized by Section 60 of the Business Corporation Act of the Marshall Islands, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of Euroseas, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
Amendments to Certificate of Incorporation and Bylaws
      Cove. Generally, the NRS provides that amendment of Cove’s Articles of Incorporation may be authorized by a majority of the stockholders entitled to vote. If any proposed amendment would adversely alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series adversely affected by the amendment regardless of limitations or restrictions on the voting power thereof. The amendment does not have to be approved by the vote of the holders of shares representing a majority of the voting power of each class or series whose preference or rights are adversely affected by the amendment if the articles of incorporation specifically deny the right to vote on such an amendment. Provision may be made in the articles of incorporation requiring, in the case of any specified amendments, a larger proportion of the voting power of stockholders than that required under the NRS.
      Cove’s bylaws may be altered, amended or repealed and new bylaws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors; provided, however, that the shareholders, in amending or repealing a particular bylaw, may provide expressly that the Board of Directors may not amend or repeal that bylaw. The shareholders may also make, alter, amend and repeal the bylaws of the Corporation at any annual meeting or at a special meeting called for that purpose. All bylaws made by the Board of Directors may be amended, repealed, altered or modified by the shareholders at any regular or special meeting called for that purpose.

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      Euroseas. Generally, the BCA provides that amendment of Euroseas’ Articles of Incorporation may be authorized by a vote of the holders of a majority of all outstanding shares entitled to vote thereon at a meeting of shareholders or by written consent of all shareholders entitled to vote thereon.
      Euroseas’ Board of Directors is expressly authorized to make, alter, amend or repeal bylaws by a vote of not less than 51% of the entire Board of Directors, and the shareholders may make additional bylaws and may alter, amend or repeal any bylaw by a vote of not less than 51% of the outstanding shares of capital stock of Euroseas entitled to vote.
CERTAIN MARSHALL ISLANDS COMPANY CONSIDERATIONS
      Euroseas’ corporate affairs are governed by its articles of incorporation and bylaws and by the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. For example, the BCA allows the adoption of various anti-takeover measures such as shareholder “rights” plans. While the BCA also provides that it is to be in interpreted according to the laws of the State of Delaware and other states with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands and we can not predict whether Marshall Islands courts would reach the same conclusions as U.S. courts. Thus, you may have more difficulty in protecting your interests in the face of actions by the management, directors or controlling stockholders than would stockholders of a corporation incorporated in a United States jurisdiction which has developed a substantial body of case law. The following table provides a comparison between the statutory provisions of the BCA and the RRS relating to stockholders’ rights.
       
Marshall Islands   Nevada
     
Shareholder Meetings
• Held at a time and place as designated in the bylaws
  • May be held in the manner provided in the bylaws. The articles of incorporation may designate any place for such meetings and, in the absence of such designation, as directed by the bylaws.
• May be held within or outside the Marshall Islands
  • May be held within or outside Nevada
• Notice:
  • Notice:
 
• Whenever shareholders are required to take action at a meeting, written notice shall state the place, date and hour of the meeting and indicate that it is being issued by or at the direction of the person calling the meeting
    • Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of electronic communication, if any by which stockholders and proxies may be deemed to be present and vote at such meeting
 
• A copy of the notice of any meeting shall be given personally or sent by mail not less than 15 nor more than 60 days before the meeting
    • Written notice shall be given not less than 10 nor more than 60 days before the date of the meeting
Shareholders’ Voting Rights
• Any action required to be taken by meeting of shareholders may be taken without meeting if consent is in writing and is signed by all the shareholders entitled to vote
  • Stockholders may act by majority written consent with respect to any action required or permitted to be taken at a meeting of stockholders
• Any person authorized to vote may authorize another person to act for him by proxy
  • Any person authorized to vote may authorize another person or persons to act for him by proxy

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Marshall Islands   Nevada
     
• Unless otherwise provided in the articles of incorporation, a majority of shares entitled to vote constitutes a quorum. In no event shall a quorum consist of fewer than one third of the shares entitled to vote at a meeting
   
• The Articles of Incorporation may provide for cumulative voting
  • The voting power present in person or by the proxy at the meeting shall constitute a quorum
    • The articles of incorporation may provide for cumulative voting
Directors
• Board must consist of at least one member
  • Board must consist of at least one member
• Number of members can be changed by an amendment to the bylaws, by the shareholders, or by action of the board
  • A corporation may provide in its articles of incorporation or in its bylaws for a fixed or variable number of directors and for the manner in which the number may be increased or decreased
• If the board is authorized to change the number of directors, it can only do so by an absolute majority (majority of the entire board)
   
Dissenters’ Rights of Appraisal
• Shareholder’s have a right to dissent from a merger or sale of all or substantially all assets not made in the usual course of business, and receive payment of the fair value of their shares
  • Stockholders have right to dissent in a merger, a plan of exchange and in any corporate action if such action requires a vote of stockholders or to the extent that the articles, bylaws or board resolutions provide for dissenter’s rights.
• A holder of any adversely affected shares who does not vote on or consent in writing to an amendment to the articles of incorporation has the right to dissent and to receive payment for such shares if the amendment:
   
 
• Alters or abolishes any preferential right of any outstanding shares having preference; or
   
 
• Creates, alters, or abolishes any provision or right in respect to the redemption of any outstanding shares; or
   
 
• Alters or abolishes any preemptive right of such holder to acquire shares or other securities; or
   
 
• Excludes or limits the right of such holder to vote on any matter, except as such right may be limited by the voting rights given to new shares then being authorized of any existing or new class
   

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Marshall Islands   Nevada
     
Shareholder’s Derivative Actions
• An action may be brought in the right of a corporation to procure a judgement in its favor, by a holder of shares or of voting trust certificates or of a beneficial interest in such shares or certificates. It shall be made to appear that the plaintiff is such a holder at the time of bringing the action and that he was such a holder at the time of the transaction of which he complains, or that his shares or his interest therein devolved upon him by operation of law
  • In any derivative suit instituted by a stockholder of a corporation, it shall be averred in the complaint that the plaintiff was a stockholder of the corporation at the time of the transaction of which he complains or that such stockholder’s stock thereafter devolved upon such stockholder by operation of law
• Complaint shall set forth with particularity the efforts of the plaintiff to secure the initiation of such action by the board or the reasons for not making such effort
   
• Such action shall not be discontinued, compromised or settled, without the approval of the High Court of the Republic
   
• Attorney’s fees may be awarded if the action is successful
   

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Marshall Islands   Nevada
     
• Corporation may require a plaintiff bringing a derivative suit to give security for reasonable expenses if the plaintiff owns less than 5% of any class of stock and the shares have a value of less than $50,000
   
DISSENTERS’ RIGHTS
      As an owner of Cove common stock, you have the right to dissent from the Merger and obtain cash payment for the “fair value” of your shares, as determined in accordance with the NRS. Below is a description of the steps you must take if you wish to exercise dissenters’ rights with respect to the share exchange under NRS Sections 92A.300 to 92A.500, the Nevada dissenters’ rights statute. The text of the statute is set forth in Appendix B. If you are considering exercising your dissenters’ rights, you should review NRS Sections 92A.300 to 92A.500 carefully, particularly the steps required to perfect dissenters’ rights. Failure to take any one of the required steps may result in termination of your dissenters’ rights under Nevada law. If you are considering dissenting, you should consult with your own legal advisor.
      To exercise your right to dissent after you receive a dissenters’ notice from us, you must:
        (a) demand payment;
 
        (b) certify whether you or the beneficial owner on whose behalf you are dissenting, as the case may be, acquired beneficial ownership of the shares before the date required to be set forth in the dissenter’s notice for this certification; and
 
        (c) deposit your certificates, if any, in accordance with the terms of the notice.