**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
D.C. 20549**


**_____________________________**


**FORM
10-K**


**_____________________________**


**Annual
Report Pursuant to Section 13 or 15(d) of the**


**Securities
Exchange Act of 1934**





**For
      the fiscal year ended**
    **Commission
      file number:****December
      31, 2004**
    **1-10231**


**MC
SHIPPING INC****.**


(Exact
name of the registrant as specified in its charter)


**_____________________________**


**LIBERIA**
    **98-0101881**State
      or other jurisdiction of
      incorporation or organization)
    (IRS
      Employer Identification
      No.)


**_____________________________**


**Richmond
House, 12 Par-la-ville Road, Hamilton HM CX, Bermuda**


(Address
of principal executive offices)


**_____________________________**


**441-295-7933**


(Registrant's
telephone number, including area code)





**Securities
registered pursuant to Section 12(b) of the Act :**





**COMMON
      STOCK $.01 PAR VALUE**
    **AMERICAN
      STOCK EXCHANGE**(Title
      of class)
    (Name
      of exchange on which registered)


**_____________________________**


**Securities
registered pursuant to Section 12(g) of the Act : NONE**


**_____________________________**


Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.


Yes xNo o


Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.


x


Indicate
by a check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).


Yeso No x


The
aggregate market value of the voting stock held by non-affiliates of the
registrant computed by reference to the closing American Stock Exchange price on
March 10, 2005 was: $29,022,309.


_____________________________


Excluded
from this amount are the shares of Common Stock beneficially owned by V.
Investments, Navalmar and by each officer and director of the Company in that
such companies and persons may be deemed to be affiliates of the Company. The
determination of affiliate status for this purpose is not necessarily a
conclusive determination for other purposes.


_____________________________


The
number of shares outstanding of each of the registrant's classes of common stock
as of March 10, 2005 was:





**Common
Stock, $.01 par value: 8,** **766,896**


________________________


1


**PART
I**





**ITEM
1: BUSINESS - GENERAL**





MC
Shipping Inc. (the "Company") was incorporated on March 17, 1989, in the
Republic of Liberia.





Since its
founding, the Company has been engaged in the business of investing in, owning
and operating second-hand vessels. As of December 31, 2004, the Company's fleet
included seven liquid petroleum gas ("LPG") carriers, four containerships and
two multipurpose seariver vessels. Each of
the Company's vessels is owned by a separate wholly owned subsidiary of the
Company.





An LPG
carrier is designed to carry petroleum gases used primarily as low pollution
fuels and as feedstock in the petrochemical and fertiliser industries. A
containership is a vessel designed exclusively to carry containers. A
multipurpose seariver vessel is a small vessel capable of carrying general cargo
and/or bulk cargo both on rivers and at sea.





The
Company generally employs its vessels on time charter, bareboat charter or spot
charter. With time charters, the Company receives a fixed charterhire per
on-hire day and is responsible for meeting all the operating expenses of the
vessels, such as crew costs, voyage expenses, insurance, repairs and
maintenance. In the case of bareboat charters, the Company receives a fixed
charterhire per day for the vessel and the charterer is responsible for all the
costs associated with the vessel's operation during the bareboat charter period.
In the case of voyage charters, the vessel is contracted only for a voyage
between two ports: the Company is paid for the tonnage transported and pays all
voyage costs.





The level
of the Company's revenues and expenses will vary from year to year depending on,
inter alia, the number of vessels controlled by the Company during each year and
the charter rate of those vessels.





**SHIPPING
INDUSTRY BACKGROUND**





The
shipping industry is subject to cyclical fluctuations in charter rates and
vessel values based on changes in supply and demand. The industry has been
experiencing volatility in profitability, vessel values and charter rates
resulting from changes in the supply of, and demand for, shipping capacity. The
demand for ships is influenced by, among other factors, global and regional
economic conditions, developments in international trade, changes in seaborne
and other transportation patterns, weather patterns, crop yields, armed
conflicts, port congestion, canal closures, political developments, conflicts,
embargoes and strikes. The demand for ships is also influenced by, among other
things, the demand for consumer goods and perishable foodstuffs, dry bulk
commodities, crude oil and oil products. Demand for such products is affected
by, among other things, general economic conditions, commodity prices,
environmental concerns, weather and competition from alternative fuels. The
supply of shipping capacity is a function of the delivery of new vessels and the
number of older vessels scrapped, converted to other uses, reactivated or lost.
Such supply may be affected by regulation of maritime transportation practices
by governmental and international authorities. All of these factors which affect
the supply of and demand for vessel capacity are beyond the control of the
Company. In addition, the nature, timing and degree of changes in the shipping
markets, in which the Company operates, as well as future charter rates and
values of its vessels, are not readily predictable.





In 2004,
the market recovery accelerated in the small pressurised LPG sector. Charter
rates have increased substantially since December 31, 2003 and the Company is
slowly able to take advantage of such better rates as the existing charters come
for renewal. Management feels that market strength will remain strong for the
next twelve months. The Company owns six small fully pressurized LPG carriers.
The market for VLGC (very large gas carrier) was also quite strong in 2004,
however, the Company 's very
large LPG carrier is fixed on a long-term charter until September 2006. Vessel
values of the LPG ships have also increased substantially and are currently as a
whole in excess of book value. In January 2005, the Company received appraisals
for its gas fleet from leading independent shipbrokers, which estimated the
total gas fleet value at approximately $60.7 million.


2


In 2004,
the market for containerships remained very strong. Market rates are
substantially in excess of the current charter rates of the Company's container
vessels. High freight rates and limited tonnage supply have also significantly
driven up the prices of the second-hand containerships. To take advantage of
this strong market, the container vessels were sold in January 2005 (see
Subsequent Events).





Certain
of the information contained in this Form 10-K may constitute "forward-looking
statements" as that term is defined under United States federal securities laws.
"Forward-looking statements" are subject to risks, uncertainties and other
factors which could cause actual events to differ materially from those stated
in such statements, including the identification of suitable vessels for
purchase, the availability of additional financing for the Company, if needed,
the cyclical nature of the shipping industry, competition, general economic
conditions and other risk factors detailed elsewhere herein and in the Company's
other filings with the SEC.





**OPERATIONS**





Shipowning
activities entail three separate functions: (i) the overall strategic management
function, which is that of an investment manager and includes the selection,
purchase, financing and sale of vessels and overall supervision of both
chartering and vessel technical management; (ii) the technical management
function, which encompasses the day to day operation, physical maintenance and
crewing of the vessels; and (iii) the commercial management function, which
involves obtaining employment for the vessels and managing relations with the
charterer.





Management
exercises direct control over the Company's overall strategic management
function. The technical management function is sub-contracted to V.Ships or its
affiliates ("V.Ships"), a company affiliated with the Company, or to other
technical managers. Other managers have been engaged to handle the
Company 's two
multipurpose seariver vessels because of the specialised nature of the trade.
Management exercises regular controls over the technical managers of the vessels
to ensure that they are properly maintained. Management exercises direct control
of the commercial management function but may, on a case-by-case basis, engage
the services of V.Ships or independent brokers in order to obtain employment for
the Company's vessels and to manage its relations with its charterers.





The
Company, via its wholly owned subsidiaries, enters into management agreements
with V.Ships and other technical managers for the technical operation of the
Company's fleet. These agreements are "cost-plus" contracts under which the
Company reimburses all costs incurred by V.Ships and other technical managers
for the operation of the Company's vessels and V.Ships and other technical
managers are paid a fixed management fee. In addition, if the Company deems it
necessary to employ the services of V.Ships and/or other technical managers in
the chartering or commercial operation of any of the Company's vessels, V.Ships
and/or other technical managers are entitled to a commercial chartering
commission determined in the light of current industry practice. For the rates
of fees payable to V.Ships, see "COMPENSATION TO AFFILIATES".





The
Company had 11 charters covering the year 2004, all of which commenced prior to
2004, and three charterers provided revenues exceeding 10% of the Company's
total revenues. The Company's multipurpose seariver vessels were engaged on
voyage charters in 2004 and are excluded from these statistics.





**COMPENSATION
TO AFFILIATES**








Until May
2004, the Vlasov Group was the main shareholder of the Company. On May 13, 2004,
Vlasov Investment Corporation sold all of its 4,168,000 shares of Common Stock
of MC Shipping (approximately 47.78%).





As of May
14, 2004, V. Investments Limited ("V. Investments") V. Ships Group LTD., V
Holdings Limited, Greysea Limited, Close Securities Limited, Close Investment
Partners Limited, Navalmar (UK) Limited ("Navalmar"), Bogazzi Fimpar SpA, and
Enrico Bogazzi filed a joint Form 13D to report that they might be deemed to
have shared beneficial ownership of 4,308,790 common shares, which represented
approximately 49.39% of the common stock outstanding. Following the purchase of
additional shares in the open market by Navalmar in the later part of 2004, V.
Investments and Navalmar control now over 50% of the outstanding stock of the
Company.


3


Prior to
March 28, 2003, V.Ships had been an affiliate of the Company, as it was 39%
owned by the Vlasov Group, the main shareholder of the Company at that time.
V.Ships was also owned 31% by Greysea Limited ("Greysea"), a Guernsey
corporation controlled by certain senior officers and former officers of
V.Ships, 19% by General Electric Capital Corporation and 11% by some officers of
V.Ships. Following a change in the shareholding structure of V.Ships, V.Ships is
now controlled 50% by Greysea and management and 50% by a third party
independent investor group (4% warrants are held by lending banks).





The
disclosure on related parties transaction in the form 10-K as of December
31,2003 was limited to the period ending March 28, 2003, because the Company was
affiliated with V Ships only until such date. In this report, we have reinstated
the year 2003 as a whole for comparison purposes.





Certain
of the directors and executive officers of the Company are involved in outside
business activities similar to those conducted by the Company. Mr. Antony
Crawford (Chief Executive Officer, President and Director) is also the Chief
Executive Officer of V. Investments, a subsidiary of V Ships handling the
financial, commercial and investment activities of the group; he is a Director
and minority shareholder of V. Holdings Limited, the holding company of the V.
Ships group; he is joint managing director of AL Ships, a marketing company
jointly owned by V Ships and KGAL; he is a director of Finship, a Rotterdam
based financial advisory company jointly owned by V Ships and ING Bank. Mr Biggi
is the President and Chief Executive Officer of V. Holdings Ltd and an executive
officer of its principal subsidiaries which provide management related services
to the Company. Mr Biggi is also President and Managing Director of V.Ships Inc.
and a shareholder of Greysea, which owns a participation in V.Ships. Mr
Bogazzi (Director) is involved in the business of purchasing, owning and selling
cargo vessels through the Bogazzi Group of shipping companies. As a result of
these affiliations, such persons may experience conflicts of interest in
connection with the selection, purchase, operation and sale of the Company's
vessels and those of other entities affiliated with such persons.





The
By-Laws of the Company provide that any of the transactions giving rise to
potential conflicts of interest are subject to review by the Audit Committee of
the Company's Board of Directors which is also charged with the responsibility
of monitoring and reviewing transactions to be entered into with affiliates.








The
Company, via its wholly owned subsidiaries, has entered into Management
Agreements (the "Agreements") with V.Ships for the technical operation of all
the Company's fleet, excluding the seariver vessels which are managed by another
independent vessel manager because of the specialised nature of the trade, and
excluding the vessels which are on bareboat charter which are managed by the
charterer.





The
Agreements are "cost-plus" contracts under which the Company reimburses all
costs incurred by V. Ships for the operation of the Company's vessels and
V.Ships is paid a fixed management fee. For 2004,
the management fees were fixed at the rate of $8,855 per vessel/per month for
the container ships and the La Forge, and at the rate of $8,753 per vessel/per
month for the other LPG carriers managed by V.Ships (in 2003, $8,600 and $8,500
respectively). In 2004, the Company paid $1,150,926 to V.Ships for services
provided to the Company pursuant to the Agreements (2003 - $1,128,000; 2002 -
$1,233,510).





If the
Company deems it necessary to employ the services of V.Ships in the chartering
or commercial operation of any of the Company's vessels, V.Ships is entitled to
a commercial chartering commission determined in the light of current industry
practice. This commission can vary between 0.5% and 1.25% of such
vessels ' gross
charter revenue and demurrage. In 2004 no commercial chartering commissions were
paid by the Company to V.Ships (2003 - $4,500; 2002 - $81,714).





If the
Company deems it necessary to employ the services of V.Ships in the acquisition
or disposal of vessels, the Company will pay commissions and legal fees
determined in light of current industry practice. In 2004, legal fees and
expenses totalling $33,443 were paid by the Company to affiliates of V.Ships
(2003 - $9,220; 2002 - $35,493).


4


The
Company leases office space from and reimburses telecommunication expenses to
various affiliates of V.Ships. In 2004, the rental cost and telecommunications
expenses paid to affiliates of V. Ships were approximately $133,416 (2003 -
$101,218; 2002 - $88,365).





In August
2004, the Company entered into a service agreement with V. Investments Limited
whereby the Company pays a fee of £10,000 per month in consideration of V. Ships
permitting the Chief Executive Officer to provide his services to the Company. V
Ships is also entitled to reimbursement of all business expenses incurred by the
CEO in the provision of his services.





The
Company outsources some bookkeeping functions to an affiliate of V.Ships. In
2004, the Company paid a total of approximately $31,000 for such accounting
services (2003 - $31,000; 2002 - $32,375). In 2003, $5,700 were paid to the
Vlasov Group for the outsourcing of some bookkeeping tasks.





In
addition, on a case by case basis, as technical manager of the Company's fleet,
V.Ships uses on behalf of the Company the services of other V.Ships affiliates
to arrange for insurance, crew and staff travelling, port agency services,
manning, safety and training services, and miscellaneous services described
below. The payments described below represent part fees and for the most part
payments to third parties.





Up to the
later part of 2004, t he
Company placed
part of its vessel hull and machinery insurance, increased value insurance and
war risk insurance through a captive insurance company, affiliated with V.
Ships. In 2004,  the
Company was charged with insurance premiums of approximately $706,946
which were included in vessel operating expenses (2003 -
$919,127; 2002 - $ 993,595 ).





The
Company uses, for crew and staff travelling, the services of a company
affiliated with V.Ships. In 2004, such travelling expenses amounted to
approximately $267,670 and were included in vessel operating expenses or in
general and administrative expenses (2003 - $278,831; 2002 -
$144,577).








The
Company uses from time to time the port agency services of various companies
affiliated with V.Ships. In 2004, the Company paid to these companies
approximately $313,754 for port and other costs, which were included in vessel
operating expenses (2003 - $480,660; 2002 - $344,018).





The
Company uses various companies affiliated with V.Ships for manning, safety and
training. . In 2004, such expenses amounted to approximately $346,129 and were
included in vessel operating expenses (2003 - $347,179; 2002 -
$563,954).





At
December 31, 2004, the Company had intercompany balances of trade accounts
receivables of $80,492 due from affiliates ($76,094 in 2003).








**INSURANCE
AND CLASSIFICATION**





The
business of the Company is affected by the risks of mechanical failure of the
Company's vessels, collisions, property losses to the vessels, cargo loss or
damage, and business interruption due to political action in foreign countries
and labour strikes. In addition, the operation of any ocean-going vessel entails
an inherent risk of catastrophic marine disaster. The Company maintains Hull and
Machinery Insurance, War Risk Insurance, Protection and Indemnity Insurance,
Freight Demurrage and Defence Insurance and Loss of Earnings Insurance on its
vessels consistent with industry practice. The Company maintains total or
constructive total loss coverage for each of its vessels. The insurance
underwriters may require that additional premiums be paid for Hull and Machinery
and War Risk Insurance prior to any vessels entering certain geographical areas
subject to unstable political or military conditions. **** Although
the Company has had no difficulty in obtaining such insurance for its vessels,
there can be no assurance that the Company will be able to continue to procure
sufficient amounts of insurance to cover the repair and replacement cost of any
vessel which is damaged or destroyed, loss of earnings on a vessel or the
Company's liability in the event of a catastrophic marine or ecological
disaster.


5


The
Company's insurers require that the Company's vessels meet certain requirements
set by maritime classification societies as a condition to obtaining insurance.
The classification societies determine that the vessels are safe and seaworthy
in accordance with the International Maritime Organisation and the Safety of
Life at Sea Convention. All LPG carriers, containerships and multipurpose
carriers are inspected by a surveyor of the classification society every year
("Annual Survey"), every two and one half years ("Intermediate Survey"), and
every five years ("Special Survey"). The Company has purchased and intends to
purchase only vessels which are able to comply with such classification society
requirements. It is expected that, under classification society rules, the
Company's vessels will be required to undergo dry-docking at least once every
three years. Normal dry-docking takes one to two weeks. The Company estimates
that current dry-docking costs in the geographical areas where the Company
anticipates having such work performed will vary between approximately $150,000
and $1,600,000 per vessel, depending upon the size and complexity of the vessel
concerned. This estimate is based on a dry-docking cycle of two and one half to
three years between each visit to a dry-dock facility and assumes regular but no
extraordinary expenses for maintenance and repairs. In addition to dry-docking,
the Company is required to purchase spare parts and perform repairs on its
vessels from time to time. In the case of bareboat charter arrangements, the
bareboat charterer undertakes, at its expense, to ensure that the vessel is
regularly dry-docked and is properly maintained.





**REGULATION**





The
Company's business is materially affected by government regulation in the form
of international conventions, national, state or local laws and regulations, and
laws and regulations of the flag nations of its vessels, including laws relating
to the discharge of materials into the environment. Because such conventions,
laws and regulations are often revised, the Company is unable to predict the
ultimate costs of complying with such conventions, laws and regulations. Under
certain regulations, a vessel owner may be liable for property and environmental
damages and all of its assets could be subject to claim for such damages.
Moreover, in certain jurisdictions, under the "sister ship" doctrine, all of the
affiliates in a fleet of ships may be liable for damages caused by, or debts
incurred with respect to, a ship owned by one affiliate, and the ships and other
assets of all the affiliates may be subject to attachments.





In
addition, the Company is required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with respect to
its operations. The Company believes that it will readily be able to obtain all
such permits, licenses and certificates as may be required.





Some
countries have laws or practices which restrict the carriage of cargoes
depending upon the nationality of a vessel or its crew or the origin or
destination of the vessel, as well as other considerations relating to
particular national interests. The Company cannot predict the effect that such
laws or practices may have on its ability to obtain cargoes. It is expected that
the Company's vessels, all of which are non-United States flag vessels, will be
permitted to enter the territorial waters of the United States, but will not be
permitted, under the Merchant Marine Act, 1920 (the Jones Act), to
transport **** cargoes
between United States ports. Such restriction is not expected to have a material
adverse impact on the Company's operations *.* None of
the Company's vessels made any call to a United States port in
2004.





**COMPETITION**





Competition
in the operation of containerships and LPG carriers is intense. Typically, each
of the numerous owners of such vessels owns a relatively small number of
vessels. However, a few large and experienced operators, with greater financial
resources than those of the Company, dominate the LPG and containership sectors,
particularly in the larger ship segments, and there is no assurance that the
Company will be able to compete successfully with other shipping
firms.





As
shipping rates are not materially different among competitors, competition is
based primarily upon the reputation of the vessel and its operators and the
operator's relationship with charterers.





It is the
opinion of Management that the most effective technique in dealing with
competitive pressures is to maintain its vessels to a very high standard and to
develop strong long-term relationships with charterers of high standing.
Management believes that its reputation and extensive experience contributes to
the Company's ability to compete effectively.


6




**EMPLOYEES**





At the
end of 2004, the Company employed four persons on a full-time basis and one
person on a part time basis, three of whom are officers of the
Company.





The
Company, through its vessel-owning subsidiaries, hires officers and crews for
each of the Company's vessels. Seamen from India, Latvia, Russia, Ukraine and
the United Kingdom currently man the Company's vessels and a total of
approximately two hundred and fifty seafarers currently serve on the Company's
vessels. These seamen are generally unionised and the Company believes its
relationships with the seamen who serve on board its vessels are
good.


______________________________





**ITEM
2: PROPERTIES**





The
Company, through its wholly owned subsidiary MC Shipping S.A.M., directly rents
office space from V.
Ships and procures administrative services in Monaco. In 2004, the Company
leased office space at a cost of $87,206 (2003 - $76,078; 2002 - $75,889).
Additionally, the Company has at its disposal office space and administrative
services in Bermuda.





At
December 31, 2004, the Company's wholly-owned fleet consisted of the following
vessels:





**Name**
    **Type**
    **Year
      Built**
    **DWT**Deauville
    LPG
      Carrier
    1995
    2,601Auteuil
    "****
    1995
    2,588Coniston
    "
    1991
    4,833Cheltenham
    "
    1990
    4,318Longchamp
    "****
    1990
    4,316Malvern
    "
    1990
    4,148La
      Forge
    "
    1981
    45,587Maersk
      Belawan
    Container
      Carrier
    1983
    37,212Maersk
      Brisbane
    "
    1976
    37,129Maersk
      Barcelona
    "
    1976
    37,115Maersk
      Bahrain
    "
    1975
    37,116Bay
      Trader
    Multipurpose
      Seariver Carrier
    1980
    1,579Link
      Trader
    "
    1980
    1,579


**______________________________**





**ITEM
3:** **LEGAL
PROCEEDINGS**








The
Company has no material legal proceedings.





______________________________





**ITEM
4:** **SUBMISSION
OF MATTERS TO A VOTE OF SECURITYHOLDERS**





**** None


**_________________________**


7




**PART
II**








**ITEM
      5:**
    **MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER
  MATTERS**





***PRICE
RANGE OF COMMON STOCK***





Since May
31, 1989, the Company's Common Stock has traded on the American Stock Exchange.
The ticker symbol for the Company's Common Stock is "MCX". As of February 28,
2005, there were 63 record holders of Common Stock.







The high
and low sales prices for the Company's Common Stock for the last two fiscal
years are set forth below:


**Quarter
      ended**
    **2004**
    **2003****High**
    **Low**
    **High**
    **Low**March
      31
    3.00
    2.00
    1.15
    0.87June
      30
    2.90
    2.16
    1.34
    1.01September
      30
    4.61
    1.86
    1.75
    1.05December
      31
    5.82
    3.28
    2.32
    1.47





***DIVIDENDS***





In March
2005, the Company's Board of Directors declared a dividend of $0.25 per share to
be paid in four equal quarterly instalments commencing in April 2005. In March
2004, the Company's Board of Directors decided to distribute a stock dividend of
1 share for every 20 shares owned, rounded up to the nearest multiple of 20:
415,513 shares were issued to that effect. In March
2003, the Company's Board of Directors determined that no dividends would be
paid out of the 2002 results.





The
Company has been advised that distributions to shareholders who are not citizens
or residents of Liberia will not be subject to tax by Liberia under its laws as
currently in effect. There is no income tax treaty between Liberia and the
United States.





***SECURITIES
AUTHORISED UNDER EQUITY COMPENSATION PLAN***





As of
December 31, 2004


Plan
      category
    (a)
      Number of securities to
      be
      issued upon exercise of outstanding options
    (b)
      Weighted average exercise price of outstanding options
    (c)
      Number of securities remaining available for future issuance under equity
      compensation
      plans
      (excluding securities reflected in column (a)Equity
      compensation plans approved by security holders
    142,411
    $1.84
    186,945Equity
      compensation plans not approved by security holders
    -
    -
    -Total
    142,411
    $1.84
    186,945




8




**ITEM
6: SELECTED FINANCIAL DATA**





The
following selected financial data for the years ended December 31, 2004, 2003,
2002, 2001 and 2000 are derived from the Consolidated Financial Statements of
the Company. The Company's books and records are maintained in U.S. dollars,
which is the Company's functional currency. The data should be read in
conjunction with the Consolidated Financial Statements, related notes and other
information included herein.





**Consolidated
Statements of Operations Data**





**Years
      ended December 31****2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000**Charterhire
      and Other Income
    
    $
    31,895,393
    
    $
    35,797,522
    
    $
    41,858,999
    
    $
    44,823,301
    
    $
    59,482,840Commission
      on Charterhire
    
    
    (759,673
    )
    
    (895,394
    )
    
    (1,100,422
    )
    
    (1,223,268
    )
    
    (1,667,349
    )Vessel
      Operating Expenses
    
    
    (16,821,562
    )
    
    (17,875,984
    )
    
    (19,547,436
    )
    
    (22,321,851
    )
    
    (30,879,820
    )Amortisation
      of Dry- docking Costs
    
    
    (1,433,150
    )
    
    (1,176,659
    )
    
    (575,185
    )
    
    (895,802
    )
    
    (1,133,126
    )Depreciation
    
    
    (5,140,639
    )
    
    (8,295,583
    )
    
    (9,127,713
    )
    
    (10,761,040
    )
    
    (16,194,411
    )General
      and Administrative Expenses
    
    
    (2,577,213
    )
    
    (1,419,368
    )
    
    (1,382,587
    )
    
    (1,652,622
    )
    
    (1,558,510
    )Impairment
      Loss
    
    
    -
    
    
    (2,693,650
    )
    
    (1,687,370
    )
    
    (10,712,007
    )
    
    (17,876,067
    )Gains
      /(Losses) on disposals of vessels
    
    
    -
    
    
    1,785,253
    
    
    -
    
    
    2,084,283
    
    
    (3,931,641
    )Operating
      Income
    
    
    5,163,156
    
    
    5,226,137
    
    
    8,438,286
    
    
    (659,006
    )
    
    (13,758,084
    )Interest
      Expense
    
    
    (3,463,491
    )
    
    (4,866,062
    )
    
    (6,418,537
    )
    
    (7,953,745
    )
    
    (12,483,936
    )Interest
      Income
    
    
    156,964
    
    
    110,603
    
    
    127,559
    
    
    373,589
    
    
    664,718Equity
      in Loss from Associated Companies
    
    
    -
    
    
    -
    
    
    -
    
    
    (296,378
    )
    
    (90,314
    )(Loss)/Gains
      on debt extinguishment
    
    
    (744,250
    )
    
    2,620,477
    
    
    94,598
    
    
    11,388,757
    
    
    -Net
      Income / (Loss)
    
    
    1,112,379
    
    $
    3,091,155
    
    $
    2,241,906
    
    $
    2,853,217
    
    $
    (25,667,616
    )Per
      Share amounts:Basic
      Net Income/(Loss)
    
    $
    0.13
    
    $
    0.36
    
    $
    0.26
    
    $
    0.33
    
    $
    (2.99
    )Diluted
      Net Income/(Loss)
    
    $
    0.13
    
    $
    0.35
    
    $
    0.25
    
    $
    0.33
    
    $
    (2.99
    )Cash
      DividendsDeclared
      and Paid
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -






**Consolidated
Balance Sheet Data** ****





**December
      31****2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000**Current
      Assets
    
    $
    14,095,193
    
    $
    19,727,175
    
    $
    18,787,275
    
    $
    18,122,265
    
    $
    21,918,730Current
      Liabilities
    
    $
    11,980,513
    
    $
    11,005,741
    
    $
    21,379,655
    
    $
    16,802,533
    
    $
    23,227,096Total
      Assets
    
    $
    80,317,068
    
    $
    87,316,016
    
    $
    112,629,237
    
    $
    104,828,997
    
    $
    148,695,530Long-term
      Debt
    
    $
    37,500,000
    
    $
    47,081,690
    
    $
    65,461,243
    
    $
    64,209,859
    
    $
    104,350,975Shareholders'
      Equity
    
    $
    30,836,555
    
    $
    29,228,585
    
    $
    25,788,339
    
    $
    23,816,605
    
    $
    21,117,459





_________________________________________________




9




**ITEM
      7:**
    **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





The
following discussion and analysis should be read in conjunction with the
selected consolidated financial data set forth above and the Consolidated
Financial Statements included elsewhere in this Report.





**OVERVIEW**





***Revenues
and Expenses***





Since its
founding, the Company has been engaged in the business of investing in, owning
and operating second-hand vessels. As of December 31, 2004, the Company's fleet
included seven liquefied petroleum gas ("LPG") carriers, four containerships and
two multipurpose seariver vessels. Each of
the Company's vessels is owned by a separate wholly owned subsidiary of the
Company.





The
Company generally employs its vessels on time charter, bareboat charter or spot
charter. With time charters, the Company receives a fixed charterhire per
on-hire day and is responsible for meeting all the operating expenses of the
vessels, such as crew costs, voyage expenses, insurance, repairs and
maintenance. In the case of bareboat charters, the Company receives a fixed
charterhire per day for the vessel and the charterer is responsible for all the
costs associated with the vessel's operation during the bareboat charter period.
In the case of voyage charters, the vessel is contracted only for a voyage
between two ports: the Company is paid for the cargo transported and pays all
voyage costs.





In all
chartering arrangements, both shipowner and charterer will generally employ the
services of one or more brokers, who are paid a commission on the total value of
the daily charterhire or a lump sum payable under the charter party or
contract.





The level
of the Company's revenues and expenses will vary from year to year depending on,
inter alia, the number of vessels controlled by the Company during each year and
the charter rates of those vessels.





***Shipping
markets***





In 2004,
the market recovery accelerated in the small pressurised LPG sector. Charter
rates have increased substantially since December 31, 2003 and the Company is
slowly able to take advantage of such better rates as the existing charters come
for renewal. Management feels that market strength will remain strong for the
next twelve months. The Company owns six small fully pressurised LPG carriers.
The market for VLGC (very large gas carrier) was also quite strong in 2004;
however, the Company 's very
large LPG carrier is fixed on a long-term charter until September 2006. Vessel
values of the LPG ships have also increased substantially and are currently as a
whole in excess of book value. In January 2005, the Company received appraisals
for its gas fleet from leading independent shipbrokers, which estimated the
total gas fleet at approximately $60.7 million.





In 2004,
the market for containerships remained very strong. Market rates are
substantially in excess of the current charter rates of the Company's container
vessels. High freight rates and limited tonnage supply have also significantly
driven up the prices of the second-hand containerships. To take advantage of
this strong market, the container vessels were sold in January 2005 (see
Subsequent Events).





***Accumulated
Deficit.***





As of
December 31, 2004, the Company's accumulated deficit was $20,792,717. This
amount consisted of total accumulated losses (net of accumulated profits) of
$12,096,873 since the Company's inception and dividends declared of $8,695,844
over the same period. An additional $5,477,561 of dividends were paid and
accounted for as a reduction of paid-in capital over the same period. The
majority of such dividends were paid prior to 1994 when the Company was a
self-liquidating fund with a dividend policy based on cash flow generation. As a
result of the Company's accumulated deficit position, the stock dividend
declared and issued in 2004 was accounted for as a reduction in Additional
Paid-in Capital.


10


**RESULTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31,
2003**





***Significant
Events During 2004***





On May
13, 2004, the Vlasov Group sold all of its 4,168,000 shares of Common Stock of
MC Shipping (approximately 47.78%) to V. Investments and Navalmar. As of May 14,
2004, V. Investments Limited, V. Ships Group LTD., V Holdings Limited, Greysea
Limited, Close Securities Limited, Close Investment Partners Limited, Navalmar
(UK) Limited, Bogazzi Fimpar SpA, and Enrico Bogazzi filed a joint Form 13D to
report that they might be deemed to have shared beneficial ownership of
4,308,790 common shares, which represented approximately 49.39% of the common
stock outstanding. Following the purchase of additional shares in the open
market by Navalmar in the later part of 2004, V. Investments and Navalmar
control now over 50% of the outstanding stock of the Company. As a result of the
above, a number of changes took place in Management and the Board of Directors
of the Company (see Item 10 - Directors and Executive Officers of the
Registrant) and the Company incurred significant non-recurring General and
Administrative Expenses (see below: Costs and Expenses).





On
October 11, 2004, the Company entered into a
$45,000,000 long-term debt agreement with Fortis Bank in order to refinance all
of its outstanding debt including its 11.25% Senior Notes due 2008. Following
the prepayment of its debt, the Company recorded a net loss on extinguishment of
debt of $1,107,369 in the 4 th quarter
of 2004 (see Note 5. Long term Debt). The refinancing is expected to provide
substantial interest expenses savings in the next few years. In 2005, the
interest saving will be approximately $1,545,615.






***Revenue***





The
Company had gross revenue from charterhire and other sources of $31,895,393 for
the year ended December 31, 2004, a 10.9% decrease from gross revenue of
$35,797,522 in 2003. The revenue decrease resulted mainly from the sale of four
vessels in July 2003.





The
average rate per day on hire (computed as total revenues divided by total number
of days on -hire for
the vessels on time charter) was $7,313 in 2004 ($7,437 in 2003).  In 2004,
the Company's on-hire performance of the vessels on time charter was 99.4% on a
potential 4,026 days (95.1% on a potential 4,015 days in 2003). The increase in
on-hire performance was mainly due to a reduction in the number of dry-docks in
2004: one vessel on time charter was dry-docked in 2004 against eight vessels in
2003.





In 2004,
the vessels on time charter experienced off-hire time for the following reasons:
(i) 0.3% of the total available days were lost due to technical reasons
("operating off-hire") and (ii) 0.3% of the total available days were lost due
to dry-docking and planned repair time.






***Costs
and Expenses***





Commission
on charterhire was $759,673 in 2004, a 15.1% decrease from the $895,394 incurred
during 2003. This decrease is a direct result of decreased
revenues.





Vessel
operating expenses plus amortisation of dry-docking costs totalled $18,254,712
for the year ended December 31, 2004, representing a decrease of 4.4% from 2003
vessel operating expenses plus amortisation of dry-docking which amounted to
$19,052,643. Vessel operating expenses comprise vessel running costs, direct
costs (such as fuel costs, port charges and canal dues incurred directly while
vessels are unemployed or are employed on voyage charters) and management fees.
As a percentage of revenue, vessel operating expenses plus amortisation of
dry-docking costs were equal to 57.2% in 2004 compared to 53.2% in 2003. The
increase in vessel operating expenses as a percentage of revenues in 2004 is due
to the sale of vessels operated on a bareboat basis which do not have any
operating expenses (see Item 7. Overview).


11


Depreciation
was $5,140,639 for the year ended December 31, 2004, compared to $8,295,583 in
2003. The reduction resulted from the sale of four vessels in July 2003. At the
beginning of 2004, in view of rising scrap prices in the last years, Management
decided to increase for accounting purposes the estimated residual values of its
container vessels. The net effect of this change of estimate was to reduce
depreciation and to increase net income by $327,997 in the first three quarters
of 2004. Subsequently, the Company reconsidered this change in accounting estimate and
reflected an additional depreciation charge of $327,997 in the first three
quarters of 2004. There
will be no effect on the 2005 operating results of the Company as the container
vessels were sold in January.





General
and administrative expenses were $2,577,213 for the year ended December 31,
2004, compared to $1,419,368 in 2003. This represented 8.1% of revenue in 2004
as compared to 4.0% of revenue in 2003. The 82% increase in general and
administrative expenses in 2004 is substantially due to the non-recurring legal
and advisory expenses incurred in relation with the change of ownership of the
Company, the offer for additional equity received by the Company and severance
payments. In addition, the appreciation of the euro had a negative impact on the
overhead expenses which were denominated in euros.






***Impairment
Loss***





As of
December 31, 2004, the Company evaluated the recoverability of its vessels in
accordance with FAS 144 and determined that no provision for impairment loss was
required. In 2003, the Company had recorded a provision for estimated impairment
loss of $2,693,650.





In
January 2005, the Company received appraisals for its gas fleet from leading
independent shipbrokers. The market value of the container vessels was assumed
to be equal to the sale price received in January 2005. On this basis, the
appraised value of the Company's entire fleet was approximately $91,850,000
compared to a book value of $57,051,369 on December 31, 2004.





If there
are indicators of impairment, evaluating
recoverability require Management to make estimates and assumptions regarding
future cash flows (see Critical Accounting Estimates). Actual results could
differ from those estimates, which could have a material effect on the
recoverability of vessels. Management
regularly obtains valuations of its vessels and will continue to monitor such
valuations in order to determine if any indicators of impairment in vessel
values occur.








***Other
Income and Expenses***





Interest
expense amounted to $3,463,491 for the year ended December 31, 2004 as compared
to $4,866,062 in 2003, and represented 10.8% of revenue as compared with 13.6%
in 2003. The decrease in interest expense resulted from a reduction in the
Company's debt.





Interest
income totalled $156,964 in 2004, a 42% increase from interest income of
$110,603 in 2003. The increase in interest earnings was due to the increased
cash balances and slightly higher interest rates.





In 2004,
the Company recorded a net loss on debt extinguishment of $744,250. This amount
consisted of: (1) a net gain of $363,119 recorded on repurchases in the open
market of Notes having a total face value $6,540,000 and (2) a net loss of
$1,107,369 recorded at the time of refinancing in the 4 th quarter
2004, corresponding the 3.75% call premium of the $21.1 million of Notes
($791,250), to the write off of the Notes unamortized issuance costs ($183,938)
and to the write off of the existing bank debt unamortized issuance costs
($132,181). (See Note 5 to the consolidated financial statements in Item
8).





12




In 2003,
the Company recorded a gain of $2,620,477 on the repurchase of Notes having a
total face value of $7,000,000 and a $1,785,253 gain on the sale of four
container vessels.


***Net
Income***





The net
income for the year ended December 31, 2004 was $1,112,379 as compared to a net
income of $3,091,155, for the year ended December 31, 2003.








***Impact
of Inflation***





Management
believes that inflation did not have a material impact upon the Company's
business during the year ended December 31, 2004.








***Subsequent
events***




On
January 20, 2005 the Company sold four container
vessels to Munia
Mobiliengesellschaft mbH & Co. KG ("Munia"), a special purpose German KG
company formed by the German finance house KGAL, a German
KG, for a total price of $30 million. **** As part
of the transaction, the Company will guarantee certain levels of operating
expenses and of employment for a fee. Concurrently, the Company invested $4
million in Munia for a 26.32% equity participation. The other stakeholders in
the vessels are expected to be German individual investors. The vessels will
continue on their charter to Maersk and will continue to be managed by V.
Ships.





At the
time of sale, the Company prepaid $15 million under the $45 million long term
debt agreement with Fortis Bank entered into in October 2004 to refinance the
Company's outstanding debt. The repayment schedule of the loan was reduced
proportionately. Concurrently with such prepayment, the $5 million cash
collateral held by Fortis Bank were released. The net proceeds of the
transaction, $11 million, are expected to be reinvested in new vessel
acquisitions. The transaction resulted in a net profit of approximately $17.8
million, which the Company will defer over the remaining economic life of the
vessels (approximately four years). ****





The
Company is in the process of acquiring two very large liquefied petroleum gas
carriers ("VLGCs") from the Bergesen Group of Norway. The vessels, M/v ‘Berge
Flanders' of 75,000 m 3 capacity
(built 1991) and M/v ‘Berge Kobe' of 77,000 m 3 capacity
(built 1987) will be acquired for considerations of $50,717,250 and $32,260,000,
respectively. The memoranda of agreements were signed on February 23, 2005 and
the 10% down payments were made on March 8, 2005. Delivery is expected to take
place in April 2005. Management intends to fund the acquisitions with a $68
million loan from Scotiabank Europe PLC and for the balance with internal cash
resources. The vessels will be time-chartered to the Bergesen Group for a
minimum period of five years.





The
Company is in the process of acquiring 50% of another VLGC in a 50/50 joint
venture with Petredec, a leading LPG trading and shipowning Company. The vessel
M/v Isomeria of 59,725 m 3 capacity,
which was built in 1983, will be acquired by the joint venture for a total
consideration of $16 million. The memorandum of agreement was signed on February
28, 2005 and the 10% down payment was made on March 16, 2005. The acquisition is
expected to be funded with a combined $5 million equity contribution from MC
Shipping and Petredec and a $11.5 million bank loan. The vessel will be
time-chartered to Petredec for a period of four years.


13


**RESULTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31,
2002**








***Significant
Events During 2003***





In
February 2003, the Company repurchased Notes having a total face value of
$7,000,000 and recorded a gain of $2,620,477 on the transaction.





In July
2003, the Company sold four second-hand container vessels to a non-related third
party for a total sale price of $21,200,000 and recorded a gain of
$1,785,253.





***Revenue***





The
Company had gross revenue from charterhire and other sources of $35,797,522 for
the year ended December 31, 2003, a 14.5% decrease from gross revenue of
$41,858,999 in 2002. The revenue decrease resulted mainly from the sale of four
vessels in July and the fact that 145 days of hire were lost in 2003 as eight
vessels underwent dry-docking.





Vessels
on time charter





The
average rate per day on-hire (computed as total revenues divided by total number
of days on -hire for
the vessels on time charter) was $7,437 in 2003 ($7,633 in 2002). The reduction
is mainly due to the reduction in charterhire of the four remaining
containerships in October 2003.





In 2003,
the Company's on-hire performance of the vessels on time charter was 95.1% on a
potential 4,015 days (97.6% on a potential 4,517 days in 2002). The decrease in
on-hire performance was mainly due to the large number of dry-docks in
2003.





In 2003,
the vessels on time charter experienced off-hire time for the following reasons:
(i) 0.72% of the total available days were lost due to technical reasons
("operating off-hire"); (ii) 3.61% of the total available days were lost due to
dry-docking and planned repair time; and (iii) 0.54% of the total available days
represented time spent in positioning for subsequent employment.





Vessels
on bareboat charter





The
average rate per day on hire for the vessels on bareboat charter was $6,000 per
day in 2003 and 2002. Bareboat charter rates are generally lower than time
charter rates since the vessel operating expenses are paid by the charterer. The
on-hire performance was 100%. The vessels on bareboat charter were sold in July
2003.





***Costs
and Expenses***





Commission
on charterhire was $895,394 in 2003, an 18.6% decrease from the $1,100,422
incurred during 2002. This decrease is a direct result of decreased
revenues.





Vessel
operating expenses plus amortisation of dry-docking costs totalled $19,052,643
for the year ended December 31, 2003, representing a decrease of 5.3% from 2002
vessel operating expenses plus amortisation of dry-docking which amounted to
$20,122,621. Vessel operating expenses comprise vessel running costs, direct
costs (such as fuel costs, port charges and canal dues incurred directly while
vessels are unemployed or are employed on voyage charters) and management fees.
As a percentage of revenue, vessel operating expenses plus amortisation of
dry-docking costs were equal to 53.2% in 2003 compared to 48.1% in 2002. The
increase in vessel operating expenses as a percentage of revenues in 2003 is due
to the sale of vessels operated on a bareboat basis which do not have any
operating expenses.


14


Depreciation
was $8,295,583 for the year ended December 31, 2003, compared to $9,127,713 in
2002. The decrease resulted
from the reduced fleet size.





General
and administrative expenses were $1,419,368 for the year ended December 31,
2003, compared to $1,382,587 in 2002. This represented 4.0% of revenue in 2003
as compared to 3.3% of revenue in 2002. The increase in percentage is due to the
fact that these expenses are rather stable and revenues were down.





***Impairment
Loss***





In 2002,
a provision for estimated impairment loss of $1,687,370 was recorded as the
values of two vessels earmarked for sale in December 2001 were adjusted to
market value. These vessels were reclassified from "held for sale" to "held and
used" at the end of 2002. They were reinstated at the carrying amount, before
they were classified as held for sale, adjusted for any depreciation expense
that would have been recognised had the vessels been continuously classified as
held and used, which amount was lower than fair value at year end.





In March
2003, the Board approved the sale of two other vessels. The vessels were written
down to the lower of book value or fair market value less costs to sell. Since
these vessels could not be sold, they were reclassified from "held for sale" to
"held and used" at the end of 2003. The provision for estimated impairment loss
recorded in 2003 was $2,693,650. As of December 31, 2003, the Company had no
vessels earmarked for sale.





In
January 2004, the Company received appraisals for its fleet from leading
independent shipbrokers. The appraised value of the Company's fleet was
approximately $61.8 million. This indicated that the aggregate market value of
the vessels was approximately equal to the carrying values. The aggregate market
value of the container carriers were approximately $10.6 million above their
carrying values while the aggregate market value of the gas carriers were $11
million below their carrying values.





The
Company's estimates of undiscounted cash flows indicated at that time that such
carrying values were expected to be recovered. Evaluating
recoverability requires Management to make estimates and assumptions regarding
future cash flows (see Critical Accounting Estimates). Actual results could
differ from those estimates, which could have a material effect on the
recoverability of vessels. Management
regularly obtains valuations of its vessels and will continue to monitor such
valuations in order to determine if any permanent impairment in asset values
occurs, and whether any write-downs in asset values are necessary.








***Other
Income and Expenses***





Interest
expense amounted to $4,866,062 for the year ended December 31, 2003 as compared
to $6,418,537 in 2002, and represented 13.6% of revenue as compared with 15.3%
in 2002. The decrease in interest expense resulted from a reduction in interest
expense on the Notes due to the repurchases and to lower interest rates in 2003
on the Company's existing credit facility with Fortis Bank and Banque Nationale
de Paris "BNP".





Interest
income totalled $110,603 in 2003, a decrease from interest income of $127,559 in
2002. The decrease in interest earnings was due to the reduction in the general
level of interest rates and lower cash balances.





In 2003,
the Company repurchased Notes having a total face value of $7,000,000 and
recorded a gain of $2,620,477 on the transaction. In 2002, the Company
repurchased Notes having a total face value of $180,000 and recorded a gain of
$94,598 on the transactions. The repurchased Notes have been
retired.





The
Company recognised a $1,785,253 gain on the sale of four container vessels in
July 2003.


15


***Net
Income***





The net
income for the year ended December 31, 2003 was $3,091,155 as compared to a net
income of $2,241,906, for the year ended December 31, 2002.





***Impact
of Inflation***





Management
believes that inflation did not have a material impact upon the Company's
business during the year ended December 31, 2003.











**CRITICAL
ACCOUNTING POLICIES AND ESTIMATES**





The
preparation of the Company's financial statements in accordance with accounting
principles generally accepted in the United States requires that Management make
estimates and assumptions affecting the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The following is a discussion of the accounting
policies applied by the Company that are considered to involve a higher degree
of judgment in their application.





In
accordance with SFAS 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets", the Company's vessels are regularly reviewed for impairment.
The Company performs the impairment valuations at the individual vessel level
pursuant to paragraph 10 of SFAS 144.





To
consider whether there is an impairment indicator, the Company compares the book
value and the market value of each vessel at the end of each quarterly reporting
period. At year end, the market value used by the Company is equal to the
average of the appraisals provided by two leading independent shipbrokers.
Appraisals are based on the technical specifications of each vessel, but are not
based on a physical inspection of the vessel. At quarter end, the market values
are assessed by the President on the basis of market information, shipping
newsletters, sale of comparable vessels reported in the press, informal
discussions with shipbrokers or unsolicited proposals received from third
parties for the vessels.





Whenever
a vessel market value is above its book value, the Company considers there is no
indication of impairment. Whenever a vessel market value is below its book
value, the Company considers there is a potential impairment and performs a
recoverability test. The Company estimates the undiscounted future cash flows
attributable to the vessel in order to determine if the book value of such
vessel is recoverable.





The
assumptions used to determine whether the sum of undiscounted cash flows
expected to result from the use and eventual disposition of the vessel exceeds
the carrying value involve a considerable degree of judgment on the part of
Management. Actual results could differ from those estimates, which could have a
material effect on the recoverability of the vessels. The most significant
assumptions are:





-
    The
      time of final disposal corresponds to the estimated useful life of the
      vessel: 25 years for a container vessel or 30 years for a gas vessel.
      These assumptions are identical to the ones used for depreciation
      purposes.


-
    The
      estimated value at time of disposal is the estimated scrapping price,
      calculated as lightweight of the vessel in tons times a certain price per
      ton, conservatively estimated by Management relative to market price.


-
    The
      projected increase in costs and in revenues is equal to the current
      inflation rate.


-
    The
      charter rates used in such computations are estimated by the President on
      the basis of past historical rates and modulated by his assessment of
      current and expected future economic and industry trends. They are
      subjective as they correspond to the company's best estimate of an average
      long term rate.




16




-
    The
      maintenance of the vessel is estimated at one dry-dock every 2.5 years,
      alternating intermediate and special survey dry-docks,


-
    Days
      on hire are estimated at a level consistent with the Company's on-hire
      statistics (see - Revenues - Results of Operations - Management Discussion
      and Analysis Section).





If the
book value of the vessel exceeds the estimated undiscounted future cash flows
attributable to the vessel, the Company recognizes an impairment loss equal to
the excess of the book value over the market value as defined
above.











**LIQUIDITY
AND SOURCES OF CAPITAL**





***Liquidity***





The
Company had $11,629,896 in cash available on December 31, 2004 as compared to
$16,446,582 at December 31, 2003. In addition, on December 31, 2004, deposits
totalling $5,000,000 (December 31, 2003 - $615,455) were pledged to guarantee
the Company's performance under the Fortis loan agreement. This $5,000,000
deposit was released by the Bank on January 20, 2005 following the prepayment of
$15,000,000 under the Fortis loan (see Subsequent Events). It should be noted
that $1,255,280 were deposited in vessel operating accounts which are directly
operated by the vessel technical managers ($2,005,913 in 2003).





The ratio
of current assets to current liabilities decreased from 1.79 at December 31,
2003 to 1. 18 at
December 31, 2004. The decrease is due for the most part to increase in the
current portion of long-term debt, following the refinancing of the Company's
existing debt in October 2004 (See Note 5. Long Term Debt).





***Investing
activities***





The
Company did not sell or buy any vessels in 2004.





***Operating
activities***





The
Company generated cash flows from operations of $6,521,090 in 2004 compared to
$5,086,297 in 2003. In 2004, the Company dry-docked three vessels for a total
cost of $368,579. In 2003, the Company dry-docked 8 vessels for a total cost of
$4.8 million.





***Financing
activities***





The
Company's long term debt (including the current portion) decreased from
$51,261,243 as of December 31, 2003 to $45,000,000 as of December 31, 2004.





During
the first 9 months of 2004, the Company repaid net borrowings of $10,046,428.
These repayments consisted of: (i) $3,506,428 for normal scheduled repayments
and (ii) $6,107,900 for the retirement of $6,540,000 of Notes.





On
September 30, 2004 the Company called the $21,100,000 Senior Notes still
outstanding. The date fixed for redemption was November 1, 2004 and the
redemption price 103.75% in accordance with the terms of the Indenture.





On
October 11, 2004, the Company entered into a $45,000,000 long-term debt
agreement with Fortis Bank in order to refinance all of its outstanding bank
debt (Fortis Loan). The facility bears interest at LIBOR plus 1.25% and is
repayable over six years in equal quarterly instalments. The borrowers are the
existing vessel-owning subsidiaries (except for the sea river subsidiaries) and
have granted ship mortgages over their vessels as security. The Company has
issued a guarantee in relation to the facility.


17




The
Company used the proceeds of this facility as follows: $14,729,815 and
$5,385,000 to repay the amounts outstanding respectively under the Fortis/BNP
and Scotia loans, $21,891,250 to buy back the outstanding Notes at a premium of
103.75% and the balance for general corporate purposes. As a result of the
prepayment of its debt, the Company recorded a net loss on debt extinguishment
of $1,107,369 in the 4 th quarter
2004, corresponding to (i) the 3.75% call premium of the $21.1 million of Notes
for $791,250, (ii) the write off of the Senior Notes issuance costs for $183,938
and (iii) the write off of the existing bank debt issuance costs for $132,181.





As of
December 31, 2004, the Company's contractual obligations were as
follows:





***Payments
due by period***


Total
    Less
      than 1 year
    1-3
      years
    3-5
      years
    More
      than 5 yearsFortis
      loan due 2010
    $ 
      45,000,000
    $ 
      7,500,000
    $ 
      15,000,000
    $ 
      15,000,000
    $ 
       7,500,000Total
    $ 
      45,000,000
    $ 
      7,500,000
    $ 
      15,000,000
    $ 
      15,000,000
    $  
      7,500,000


Guarantees





The
Company has issued a guarantee in relation to the Fortis Loan (See Note 5 to the
consolidated financial statements in Item 8).








***Off-Balance
Sheet Financial Arrangements***





The
Company had no off-balance sheet financial arrangements as of December 31,
2004.








***Contingencies***





In June
2001, the Company sold the 1984-built container vessel Maersk Tampa to a
non-affiliated Company with the Maersk charter attached. The buyer had the
option to give the vessel back on charter to the Company in November 2004 for 12
months at a daily rate of $17,900, then a second option in November 2005 for a
period of 6 months at a daily rate of $17,500. The first option was not
exercised. The aggregate amount of the Company's commitment under the second
option is approximately $3,182,000 as follows:





2005
    $   
       542,0002006
    $ 
      2,640,000total
    $ 
      3,182,000





These
amounts do not take into consideration any revenues the Company would earn from
chartering out the vessel to another party. As of March 2005, the current
charter rate for twelve month time charter of a vessel similar to the Maersk
Tampa is well in excess of $17,500 and the expected revenues from the chartering
out of the vessel would cover the expected amount of the commitment. There is no
assurance today, however, as to where market rates will be in November
2005.


******


***Future
cash requirements***





In 2005,
the Company will have to dry-dock four vessels. Management believes that the net
cash provided by operating activities will provide sufficient funds to enable
the Company to meet its liquidity requirements throughout 2005.




Following
the sale of four vessels on January 20, 2005 and the release by the bank of the
$5,000,000 cash collateral, Management believes that the Company has excess cash
to invest. The Company is in the process of acquiring two VLGCs from the
Bergesen Group of Norway for a total consideration of $83 million. The
acquisition will be partially funded with a $68 million loan from Scotiabank
Europe PLC. The Company is in the process of acquiring another VLGC in a 50/50
joint venture with Petredec, a leading LPG trading and shipowning Company for a
total consideration of $16 million. This acquisition will require a $2.5 million
equity contribution from MC Shipping. These vessels acquisitions are expected to
take place within the months of March and April 2005. (See Subsequent
Events).


18


**ITEM
7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK**





***Interest
Rate Swaps***





In 2004,
the Company entered into an interest rate swap agreement, which is used to hedge
the Company 's
interest rate exposure associated with a portion of the Fortis Loan (see Note 5
- Long-Term Debt). As of December 31, 2004, the swap agreement had a notional
amount of $30,000,000, a fair market value of $209,300 in favour of the Company
and an interest rate of 3.075%. It will expire in October 2007.





***Long
term Debt***





The
Company is subject to interest rate risk associated with certain variable rate
long-term debt as described in this section.





-
    As
      of December 31, 2004, $15 million out of the $45 million Fortis Loan were
      not hedged by interest rate swaps and subject to interest rate risk. The
      facility bears interest at LIBOR plus 1.25% and matures in October 2010.
      For every one-percent variation in interest rate, the interest expense
      would vary by $136,164. This $15 million debt was repaid in full on
      January 20, 2005 (see Subsequent Events - Note
12).





-
    Asof
      December 31, 2004, $30 million out of the $45 million Fortis Loan were
      hedged by an interest rate swap untilOctober 20, 2007. After such date and until its final maturity in October
      2010, the facility willbear
      interest at LIBOR plus 1.25%.








***Impact
of currency fluctuations***





The
Company's functional currency is the US dollar; however, a number of trade
transactions related to normal vessel operations are performed in other
currencies. Trade payables and accrued expenses as well as cash and trade
receivables in foreign currencies are converted at year end exchange rates and
therefore recorded at fair value. The Company does not hold any other assets or
liabilities denominated in foreign currencies.


_______________________________


19




**ITEM
8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**





**Page**Report
      of Independent Registered Public Accounting Firm
    21Financial
      Statements:Consolidated
      Balance Sheets at December 31, 2004and
      December 31, 2003
    22Consolidated
      Statements of Income for the Yearsended
      December 31, 2004, 2003 and 2002
    24Consolidated
      Statements of Cash Flows for the Yearsended
      December 31, 2004, 2003 and 2002
    25Consolidated
      Statements of Shareholders' Equity forthe
      Years ended December 31, 2004, 2003 and 2002
    26Notes
      to Consolidated Financial Statements
    27Financial
      Statements ScheduleSchedule
      II - Valuation and Qualifying Accounts
    41




All other
schedules for MC Shipping Inc. and subsidiaries have been omitted since the
required information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the respective financial statements or notes thereto.


______________________________


20




**REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**







To the
Shareholders and Board of Directors








MC
Shipping Inc. and subsidiaries








We have
audited the consolidated balance sheets of MC Shipping Inc. and subsidiaries as
of December 31, 2004 and 2003, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 2004. Our audits also included the financial statement
schedule listed in Item 15(a)(2). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of MC Shipping Inc. and
its subsidiaries at December 31, 2004 and 2003 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2004 in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.








ERNST
& YOUNG


Chartered
Accountants








Nicosia,
Cyprus


March 17,
2005




21


**MC
SHIPPING INC. AND SUBSIDIARIES**


**CONSOLIDATED
BALANCE SHEETS**





**ASSETS**


**DECEMBER
      31**
    
    **DECEMBER
      31****2004**
    
    **2003****CURRENT
      ASSETS**Cash
    
    $
    11,629,896
    
    $
    16,446,582Restricted
      cash
    
    
    -
    
    
    615,455Hire
      receivables
    
    
    4,835
    
    
    13,111Recoverable
      from insurers, net
    
    
    55,529
    
    
    807,530Inventories
    
    
    1,044,353
    
    
    582,388Receivables
      from affiliates
    
    
    80,492
    
    
    76,094Prepaid
      expenses and other current assets
    
    
    1,280,088
    
    
    1,186,015**TOTAL
      CURRENT ASSETS**
    
    
    14,095,193
    
    
    19,727,175**VESSELS,
      AT COST**
    
    
    109,303,246
    
    
    109,303,246****Less
      - Accumulated depreciation
    
    
    (52,251,877
    )
    
    (47,114,005
    )57,051,369
    
    
    62,189,241**FURNITURE
      & EQUIPMENT, AT COST**
    
    
    30,645
    
    
    24,304****Less
      - Accumulated depreciation
    
    
    (30,645
    )
    
    (21,737
    )-
    
    
    2,567**OTHER
      ASSETS**Dry-docking
      costs (net of accumulated amortisation of $3,439,685 in 2004 and
      $2,006,533 in 2003)
    
    
    3,829,590
    
    
    4,894,163Restricted
      cash
    
    
    5,000,000
    
    
    -Debt
      issuance cost (net of accumulated amortisation of $10,323 in 2004 and
      $1,472,654 in 2003)
    
    
    340,916
    
    
    502,870**TOTAL
      ASSETS**
    
    $
    80,317,068
    
    $
    87,316,016




22


**MC
SHIPPING INC. AND SUBSIDIARIES**


**CONSOLIDATED
BALANCE SHEETS**


**LIABILITIES
AND SHAREHOLDERS' EQUITY**





**DECEMBER
      31**
    
    **DECEMBER
      31****2004**
    
    **2003****CURRENT
      LIABILITIES**Accounts
      payable
    
    $
    529,960
    
    $
    612,759Hire
      received in advance
    
    
    584,843
    
    
    584,843Accrued
      expenses
    
    
    3,045,787
    
    
    4,435,166Accrued
      interest
    
    
    319,923
    
    
    1,193,420Current
      portion of long term debt
    
    
    7,500,000
    
    
    4,179,553**TOTAL
      CURRENT LIABILITIES**
    
    
    11,980,513
    
    
    11,005,741**LONG
      TERM DEBT**11.25%
      Senior Notes due 2008
    
    
    -
    
    
    27,640,000Secured
      loans
    
    
    37,500,000
    
    
    19,441,690**TOTAL
      LONG TERM DEBT**
    
    
    37,500,000
    
    
    47,081,690**TOTAL
      LIABILITIES**
    
    
    49,480,513
    
    
    58,087,431**SHAREHOLDERS'
      EQUITY**Common
      stock, $.01 par value 20,000,000 shares authorised in 2004 and 2003,
      8,765,974 shares issued and outstanding in 2004 (8,530,238 in
      2003)
    
    
    87,660
    
    
    85,302Additional
      paid-in capital
    
    
    51,280,010
    
    
    52,135,576Less:
      Treasury stock, at cost (none at December 31, 2004 and 221,730 at December
      31, 2003)
    
    
    -
    
    
    (891,806
    )Accumulated
      deficit
    
    
    (20,792,717
    )
    
    (21,905,096
    )Accumulated
      comprehensive income/(loss)
    
    
    261,602
    
    
    (195,391
    )**TOTAL
      SHAREHOLDERS' EQUITY**
    
    
    30,836,555
    
    
    29,228,585**TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY**
    
    $
    80,317,068
    
    $
    87,316,016




23


**MC
SHIPPING INC. AND SUBSIDIARIES**


**CONSOLIDATED
STATEMENTS OF INCOME**





**FOR
      THE YEARS ENDED DECEMBER 31****2004**
    
    **2003**
    
    **2002****CHARTERHIRE
      AND OTHER INCOME**
    
    $
    31,895,393
    
    $
    35,797,522
    
    $
    41,858,999**COSTS
      AND EXPENSES**Commission
      on charterhire
    
    
    (759,673
    )
    
    (895,394
    )
    
    (1,100,422
    )Vessel
      operating expenses
    
    
    (16,821,562
    )
    
    (17,875,984
    )
    
    (19,547,436
    )Amortisation
      of dry-docking costs
    
    
    (1,433,150
    )
    
    (1,176,659
    )
    
    (575,185
    )Depreciation
    
    
    (5,140,639
    )
    
    (8,295,583
    )
    
    (9,127,713
    )General
      and administrative expenses
    
    
    (2,577,213
    )
    
    (1,419,368
    )
    
    (1,382,587
    )Impairment
      losses on vessels
    
    
    -
    
    
    (2,693,650
    )
    
    (1,687,370
    )Gains
      on disposals of vessels
    
    
    -
    
    
    1,785,253
    
    
    -**OPERATING
      INCOME**
    
    
    5,163,156
    
    
    5,226,137
    
    
    8,438,286**OTHER
      INCOME/(EXPENSES)**Interest
      expense
    
    
    (3,463,491
    )
    
    (4,866,062
    )
    
    (6,418,537
    )Interest
      income
    
    
    156,964
    
    
    110,603
    
    
    127,559(Loss)/Gain
      on debt extinguishment
    
    
    (744,250
    )
    
    2,620,477
    
    
    94,598**NET
      INCOME**
    
    $
    1,112,379
    
    $
    3,091,155
    
    $
    2,241,906**EARNINGS
      PER SHARE:**Basic
      earnings per share
    
    $
    0.13
    
    $
    0.36
    
    $
    0.26Diluted
      earnings per share
    
    
    0.13
    
    
    0.35
    
    
    0.25Basic
      weighted average number of shares outstanding
    
    
    8,737,627
    
    
    8,669,287
    
    
    8,640,311Diluted
      weighted average number of shares outstanding
    
    
    8,843,004
    
    
    8,810,562
    
    
    8,803,459





THE
      ACCOMPANYING NOTES ARE AN INTEGRALPART
      OF THESE CONSOLIDATED FINANCIAL STATEMENTS.




24




**MC
SHIPPING INC. AND SUBSIDIARIES**


**CONSOLIDATED
STATEMENTS OF CASH FLOWS**





**FOR
      THE YEARS ENDED DECEMBER 31****2004**
    
    **2003**
    
    **2002****NET
      INCOME**
    
    $
    1,112,379
    
    $
    3,091,155
    
    $
    2,241,906Adjustments
      to reconcile Net Income to net cash provided from operating
      activities:Depreciation
    
    
    5,140,639
    
    
    8,295,583
    
    
    9,127,713Amortisation
      of dry-docking costs
    
    
    1,433,150
    
    
    1,176,659
    
    
    575,185Amortisation
      of issuance costs
    
    
    128,092
    
    
    233,660
    
    
    287,161Impairment
      loss on vessels
    
    
    -
    
    
    2,693,650
    
    
    1,687,370Dry-docking
      costs capitalised
    
    
    (368,579
    )
    
    (4,791,608
    )
    
    (162,778
    )Gains
      on disposals of vessels
    
    
    -
    
    
    (1,785,253
    )
    
    -Loss
      / (Gain) on debt extinguishment
    
    
    744,250
    
    
    (2,620,477
    )
    
    (94,598
    )Non
      cash compensation to Directors
    
    
    20,000
    
    
    20,000
    
    
    20,000Changes
      in Operating Assets and Liabilities:Hire
      receivables
    
    
    8,276
    
    
    (4,551
    )
    
    120,248Recoverable
      from insurers
    
    
    752,001
    
    
    138,917
    
    
    (284,281
    )Inventories
    
    
    (461,965
    )
    
    (75,987
    )
    
    270,929Receivables
      from affiliates
    
    
    (4,398
    )
    
    4,424
    
    
    78,768Prepaid
      expenses and other current assets
    
    
    (94,073
    )
    
    (3,876
    )
    
    191,393Accounts
      payable
    
    
    (82,799
    )
    
    (37,415
    )
    
    (26,335
    )Accrued
      expenses and hire received in advance
    
    
    (1,389,379
    )
    
    (1,065,543
    )
    
    (2,084,575
    )Accrued
      interest
    
    
    (416,504
    )
    
    (183,041
    )
    
    (272,453
    )**CASH
      PROVIDED FROM OPERATING ACTIVITIES**
    
    
    6,521,090
    
    
    5,086,297
    
    
    11,675,653**INVESTING
      ACTIVITIES**Purchases
      of vessels
    
    
    -
    
    
    -
    
    
    (25,000,000
    )Proceeds
      from disposals of vessels
    
    
    -
    
    
    20,335,693
    
    
    6,664,000Variation
      in office equipment
    
    
    (197
    )
    
    (1,737
    )
    
    (3,340
    )(Increase)/
      decrease in restricted cash
    
    
    (4,384,545
    )
    
    1,386,304
    
    
    (1,233,348
    )**NET
      CASH (USED BY) / PROVIDED FROM INVESTING
    ACTIVITIES**
    
    
    (4,384,742
    )
    
    21,720,260
    
    
    (19,572,688
    )**FINANCING
      ACTIVITIES**Repayments
      of long-term debt
    
    
    (23,621,243
    )
    
    (20,168,616
    )
    
    (9,898,303
    )Drawdown
      of term loans
    
    
    45,000,000
    
    
    -
    
    
    18,000,000Payment
      of debt issuance costs
    
    
    (351,239
    )
    
    -
    
    
    (313,143
    )Repurchases
      of Notes
    
    
    (27,999,150
    )
    
    (4,283,050
    )
    
    (82,800
    )Issuance
      of stock
    
    
    18,598
    
    
    30,240
    
    
    -**NET
      CASH (USED BY) / PROVIDED FROM FINANCING
    ACTIVITIES**
    
    
    (6,953,034
    )
    
    (24,421,426
    )
    
    7,705,754**NET
      (DECREASE) / INCREASE IN CASH**
    
    
    (4,816,686
    )
    
    2,385,131
    
    
    (191,281
    )**CASH
      AT BEGINNING OF YEAR**
    
    
    16,446,582
    
    
    14,061,451
    
    
    14,252,732**CASH
      AT END OF YEAR**
    
    $
    11,629,896
    
    $
    16,446,582
    
    $
    14,061,451





THE
      ACCOMPANYING NOTES ARE AN INTEGRALPART
      OF THESE CONSOLIDATED FINANCIAL STATEMENTS.




25


****


**MC
SHIPPING INC. AND SUBSIDIARIES**


**CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY**





**No.
      of**
      **Shares**
      **Issued**
    
    **Common**
      **Stock
      par**
      **Value**
    
    **Treasury**
      **Stock**
      **At
      cost**
    
    **Additional**
      **Paid-in**
      **Capital**
    
    **Accumulated**
      **Deficit**
    
    **Accumulated**
      **Other**
      **Comprehensive**
      **Income**
    
    **Shareholders'**
      **Equity****December
      31, 2001**
    
    
    8,481,624
    
    $
    84,816
    
    $
    (1,058,882
    )
    $
    52,232,899
    
    $
    (27,238,157
    )
    $
    (204,071
    )
    $
    23,816,605Net
      Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,241,906
    
    
    
    
    
    2,241,906Other
      comprehensive income:Foreign
      currency
      translation
      adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,222
    
    
    26,222Unrealised
      losses on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (316,394
    )
    
    (316,394
    )Total
      Comprehensive Income/loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
      2,241,906
    
    
    (
      (290,172
    )
    
    1,951,734Transfer
      of Treasury Stock to Directors as remuneration for past
      services
    
    
    
    
    
    
    
    
    87,697
    
    
    (67,697
    )
    
    
    
    
    
    
    
    20,000**December
      31, 2002**
    
    
    **8,481,624**
    
    **$**********
    ******84,816******
    
    **$**
    **(971,185**
    **)**
    **$**
    **52,165,202**
    
    ******$**
    ******(24,996,251**
    ******)**
    **$**
    **(494,243**
    **)**
    **$**
    **25,788,339**Net
      Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,091,155
    
    
    
    
    
    3,091,155Other
      comprehensive income:Foreign
      currency
      Translation
      adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,579
    
    
    75,579Unrealised
      gains on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    223,273
    
    
    223,273Total
      Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,091,155
    
    
    298,852
    
    
    3,390,007Transfer
      of Treasury Stock to Directors as remuneration for past
      services
    
    
    
    
    
    
    
    
    79,379
    
    
    (59,379
    )
    
    
    
    
    
    
    
    20,000Issuance
      of stock related to compensation plans
    
    
    48,614
    
    
    486
    
    
    
    
    
    29,753
    
    
    
    
    
    
    
    
    30,239**December
      31, 2003**
    
    
    **8,530,238**
    
    **$**
    **85,302**
    
    **$**
    **(891,806**
    **)**
    **$**
    **52,135,576**
    
    **$**
    **(21,905,096**
    **)**
    **$**
    **(195,391**
    **)**
    **$**
    **29,228,585**Net
      Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,112,379
    
    
    
    
    
    1,112,379Other
      comprehensive income:Foreign
      currency
      translation
      adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,231
    )
    
    (39,231
    )Unrealised
      gains on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    371,724
    
    
    371,724Realisation
      of accumulated unrealised losses on cancelled cash flow
    hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,500
    
    
    124,500Total
      Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,112,379
    
    
    456,993
    
    
    1,569,372Issuance
      of stock to Directors
    
    
    12,052
    
    
    121
    
    
    
    
    
    19,879
    
    
    
    
    
    
    
    
    20,000Issuance
      of stock related to compensation plans
    
    
    29,901
    
    
    299
    
    
    
    
    
    18,299
    
    
    
    
    
    
    
    
    18,598Issuance
      of stock dividend
    
    
    193,783
    
    
    1,938
    
    
    891,806
    
    
    (893,744
    )
    
    
    
    
    
    
    
    -**December
      31, 2004**
    
    
    **8,765,974**
    
    
    **87,660**
    
    
    **-**
    
    
    **51,280,010**
    
    
    **(20,792,717**
    **)**
    
    **261,602**
    
    
    **30,836,555**





THE
ACCOMPANYING NOTES ARE AN INTEGRAL PART


OF THESE
CONSOLIDATED FINANCIAL STATEMENTS


26


**MC
SHIPPING INC. AND SUBSIDIARIES**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
      1:**
    **ORGANIZATION
      AND SIGNIFICANT ACCOUNTING
POLICIES**





***BASIS
OF PRESENTATION*** **:** MC
Shipping Inc. is incorporated in the Republic of Liberia and, through its
subsidiaries, owns and operates second-hand vessels that as at December 31, 2004
formed a fleet of 13 vessels, comprising seven LPG carriers, four containerships
and two multipurpose seariver vessels. The four container ships were sold in
2005 (see Subsequent Events), reducing the fleet size to 9 vessels. The
accompanying consolidated financial statements include the accounts of MC
Shipping Inc. and its wholly owned subsidiaries (the "Company") and have been
prepared in conformity with U.S. generally accepted accounting principles ("US
GAAP"). The preparation of consolidated financial statements in conformity with
US GAAP requires Management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent assets
and liabilities, at the date of the consolidated financial statements, and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. Although the Company's fleet operates
under the Bahamas and the St. Vincent & the Grenadines flags, its books and
records are maintained in US Dollars, which is the Company's functional
currency.





***PRINCIPLES
OF CONSOLIDATION:*** The
consolidated financial statements include the accounts of MC Shipping Inc. and
its wholly owned subsidiaries. All inter-Company accounts and transactions have
been eliminated.





***FOREIGN
CURRENCY TRANSLATION:*** The
functional currency of the Company is the U.S. Dollar because the Company's
vessels operate in international shipping markets, which primarily transact
business in U.S. Dollars. The Company's accounting records are maintained in
U.S. Dollars. A number
of trade transactions related to normal vessel operations performed in other
currencies during
the year are converted into U.S. Dollars using the exchange rates in effect at
the time of the transactions. At the balance sheet dates, t rade
payables and accrued expenses as well as cash and trade receivables in foreign
currencies are converted at year end exchange rates. Resulting
gains or losses are recorded in vessel operating expenses. Losses amounted to
$93,746, $136,183, - $133,879 in 2004, 2003 and 2002, respectively.





***REVENUE
RECOGNITION*** **:** The
Company generally employs its vessels on time charter, bareboat charter or
voyage charter. With time charters, the Company receives a fixed charterhire per
on-hire day and is responsible for meeting all the operating expenses of the
vessels, such as crew costs, voyage expenses, insurance, repairs and
maintenance. In the case of bareboat charters, the Company receives a fixed
charterhire per day for the vessel and the charterer is responsible for all the
costs associated with the vessel's operation during the bareboat charter period.
In the case of voyage charters, the vessel is contracted only for a voyage
between two ports: the Company is paid for the cargo transported and pays all
voyage costs.





Time and
bareboat charter revenue is recognised on an accrual basis and is recorded over
the term of the charter as service is provided. Voyage charter revenue and
related expenses are recorded based on the percentage of service completed at
the balance sheet date, gross of voyage expenses. Hire received in advance
represents cash received prior to year-end related to revenue applicable to
periods after December 31 of each year. Other income represents approximately 1%
of total revenues and consists of demurrage, pooling of income or lumpsum
expenses **** and **** is
recognized as received.





***VESSEL
REPAIR AND OVERHAUL*** **:** Normal
vessel repair and maintenance costs are charged to expense when incurred. Costs
incurred during periodic inspections for regulatory and insurance purposes are
deferred and charged to income rateably over the period of five years to the
next intermediate or special survey dry-docking. For vessels that are earmarked
for sale, dry-docking expenses are charged to expense when incurred.





***VESSELS
AND DEPRECIATION*** **:** Vessels
are stated at cost, which includes contract price and other direct costs
relating to acquiring and placing the vessels in service. Depreciation is
calculated, based on cost, less estimated residual value, using the
straight-line method, over the remaining economic life of each vessel. The
economic life of LPG carriers is assumed to extend from the date of their
construction to the date of the final special survey which is closest to 30
years from the date of their construction. The economic life of other vessels is
assumed to extend from the date of their construction to the date of the fifth
special survey, which is closest to 25 years from the date of their
construction. If a ship is used beyond its fifth special survey, its economic
life is assumed to extend to the end of its current charter. D epreciation
is not recorded on vessels that are earmarked for sale as such vessels are
included in the financial statements at their market value, and such value is
reviewed at the end of each quarter (see Note 4).


27


***IMPAIRMENT
OF LONG-LIVED ASSETS*** *:* In
accordance with SFAS 144 "Accounting for the Impairment or Disposal of
Long-lived Assets", the Company's long lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. An impairment loss for an asset held for use
is recognized, when the estimate of undiscounted cash flows expected to be
generated by the use of the asset is less than its carrying amount (see Note
4).





***SEGMENT
REPORTING:*** *T* he
Company operates as a single segment, as Management internally evaluates the
performance of the enterprise as a whole and not on the basis of separate
business units or different types of charter.





***DEBT
ISSUANCE COSTS*** **:** Debt
issuance costs are being amortised, using the interest method, over the terms of
the long-term credit facilities. In 2002,
2003 and 2004, issuance costs of $5,925, $96,473 and $385,101 respectively were
written off as a result of the Company's repurchases of Notes and debt
refinancing. These
were recorded as a reduction of gains on debt extinguishment. An amount of
$156,952, representing the unamortized balance of the debt issuance costs
incurred in 2002 in connection with the Nedship loan, was written off in 2003,
following the sale of the vessels and recorded as a reduction of the gain on the
disposal. Amortisation
of debt issuance costs, included in Interest Expense, amounted to $128,092 in
2004, $233,660 in 2002 and $287,161 in 2002.





***INTEREST
RATE SWAPS:*** SFAS 133
"Accounting for Derivative Instruments and Hedging Activities" requires the
Company to recognise its derivative instruments as either assets or liabilities
in the statement of financial position at fair value. The accounting for changes
in the fair value of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and further, on the
type of hedging relationship. For those derivative instruments that are
designated and qualify as hedging instruments, the Company must designate the
hedging instrument, based upon the exposure being hedged, as a fair value hedge,
cash flow hedge or a hedge of a net investment in a foreign
operation.





The
Company enters from time to time into interest-rate swap agreements to modify
the interest characteristics of its outstanding debt (See Note 5). Each
interest-rate swap agreement is designated with all of the principal balance and
term of a specific debt obligation. These agreements involve the exchange of
amounts based on a fixed interest rate for amounts based on variable interest
rates over the life of the agreement.





These
interest-rate swaps are designated and qualify as cash flow hedges i.e. hedging
the exposure to variability in expected future cash flows that are attributable
to a particular risk. As a result, the effective portion of the gain or loss on
the derivative instrument is reported as an increase or decrease in Prepayments
and Other Assets and as a component of other comprehensive income. The gains or
losses on these instruments are reclassified into earnings in the same line item
associated with the forecasted transaction in the same period during which the
hedged transaction affects earnings.





***INVENTORIES*** **:** Inventories
primarily consists of lubricating oil and victualling and are stated at the
lower of cost or market, and are accounted for on a first-in, first-out
basis.





***STOCK-BASED
COMPENSATION:*** At
December 31, 2004, the Company has a stock-based employee compensation plan,
which is described more fully in Note 8. The Company accounts for this plan
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Options
granted under this plan are granted with an exercise price equal to the average
of the Company's stock price over the ten days prior to the grant date. No
stock-based employee compensation cost is reflected in operating results because
the intrinsic value of the options at the grant date, to be recognized as
compensation expense over the options' vesting period as discussed in Note 8 is
immaterial. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation.


28




******Year
      ended**
      December 31
      2004****
    
    ******Year
      ended**
      December 31
      2003****
    
    ******Year
      ended**
      December 31
      2002****Net
      income, as reported
    
    $
    1,112,379
    
    $
    3,091,155
    
    $
    2,241,906Add: 
      Stock-based employee compensation expense included in reported net
      income
    
    
    -
    
    
    -
    
    
    -Deduct: 
      total stock-based employee compensation expense determined under fair
      value based method for all awards
    
    
    (32,787
    )
    
    (10,157
    )
    
    (27,474
    )Proforma
      net income
    
    
    1,079,592
    
    
    3,080,998
    
    
    2,214,432Earnings
      per share:Basic
      - as reported
    
    $
    0.13
    
    $
    0.36
    
    $
    0.26Basic
      - pro forma
    
    
    0.12
    
    
    0.36
    
    
    0.26Diluted
      - as reported
    
    $
    0.13
    
    $
    0.35
    
    
    0.25Diluted
      - pro forma
    
    
    0.12
    
    
    0.35
    
    
    0.25




***RESTRICTED
CASH:*** Certain
cash balances are pledged to guarantee the Company's performance under the loan
agreements. As of December 31, 2004, a cash deposit of $5,000,000 is recorded as
Other Assets rather than Current Assets, because it is blocked until the sale of
certain vessels. As of December 31, 2003, the Company had retention accounts
totalling $615,455, which were dedicated to the repayment of current portion of
Long Term debt and were as such classified as Current Assets.





***EARNINGS
PER SHARE*** **:** Basic and
diluted earnings per share are calculated in accordance with FASB Statement No.
128, Earnings per Share. Basic earnings per share are computed by dividing net
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflect the
potential dilution that could occur if outstanding options were exercised or
converted into common stock. All prior period basic and diluted earnings per
share calculations presented have been restated to reflect the impact of the
stock dividend declared in April 2004.


29




**Earnings
      Per Share**
    
    **Year
      Ended**
      **December
      31, 2004**
    
    **Year
      Ended**
      **December
      31, 2003**
    
    **Year
      Ended**
      **December
      31, 2002**Numerator:Net
      income available to common stockholders
    
    $
    1,112,379
    
    $
    3,091,155
    
    $
    2,241,906Denominator:Weighted
      average number of common shares
    
    
    8,737,627
    
    
    8,669,287
    
    
    8,640,311Dilutive
      effect of employee stock options
    
    
    105,377
    
    
    141,275
    
    
    163,148Diluted
      average number of common shares
    
    
    8,843,004
    
    
    8,810,562
    
    
    8,803,459Earnings
      per common share:-
      Basic earnings per share
    
    
    0.13
    
    
    0.36
    
    
    0.26-
      Diluted earnings per share
    
    
    0.13
    
    
    0.35
    
    
    0.25





There
were no options that could potentially dilute basic EPS in the future that were
not included in the computation of diluted EPS for each period
presented.





***TAXATION*** **:** The
Company is not subject to corporate income taxes in Liberia because its income
is derived from non-Liberian sources. Additionally, the Company believes that it
is not subject to corporate income taxes in other jurisdictions, including the
United States.





***RECEIVABLE
FROM INSURANCE:*** Insurance
receivables correspond to amounts recoverable under either Hull & Machinery
insurance or Loss of Earnings insurance. Hull & Machinery insurance covers
repair costs beyond a certain deductible and Loss of Earnings insurance covers
the loss in revenues resulting from the immobilization of the vessel beyond a
certain number of days. The vessel values covered and the values of the
deductibles are negotiated every year with the insurance companies and the
premiums are fixed accordingly. The Company's insurance claims are handled by
the insurance experts of the technical managers' insurance department. The
technical managers' insurance department liaise on a regular basis with the
underwriters prior to and during the submission of a claim. The submission of an
insurance claim following the occurrence of an incident or accident is always
decided on a case by case basis by the Company's Management after discussion
with the technical managers insurance department and/or the Insurance Adjusters.
Upon submission of an insurance claim, the Company immediately records the loss
corresponding to the deductible in the operating expenses of the vessel. The
repair costs incurred by the Company or the insured hire are recorded as
receivable from insurers; such amounts are based on discussions between the
Company technical managers and the insurance underwriters which indicate that
the recovery is probable. Such amounts never include contingent gains as the
Insurers repay the costs incurred on the basis of invoices after deduction of a
deductible. The Receivable from Insurance are reviewed by Management and
Technical Managers insurance department and /or insurance adjusters at least on
a quarterly basis and adjusted if necessary.





***LOSSES
/ GAINS ON DEBT EXTINGUISHMENT:*** Losses
or Gains on repurchases of Notes, if any, were calculated as the face value of
the Notes repurchased, minus amount paid for the Notes, minus brokerage
commission, if any, minus write off of the corresponding portion of issuance
costs.





***RECENT
STATEMENTS OF FINANCIAL ACCOUNTING STANDARD*** : On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of
FASB Statement No. 123, *Accounting
for Stock-Based Compensation* .
Statement 123(R) supersedes APB Opinion No. 25, *Accounting
for Stock Issued to Employees* ,
and amends FASB Statement No. 95, *Statement
of Cash Flows* .
Generally, the approach in Statement 123(R) is similar to the approach described
in Statement 123. However, Statement 123(R) *requires* all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.


30




Statement
123(R) must be adopted no later than July 1, 2005. Early adoption will be
permitted in periods in which financial statements have not yet been issued. The
Company expects to adopt Statement 123(R) on July 1, 2005.





The
Company plans to adopt Statement 123 using the modified-prospective method, in
which compensation cost is recognized beginning with the effective date (a)
based on the requirements of Statement 123(R) for all share-based payments
granted after the effective date and (b) based on the requirements of Statement
123 for all awards granted to employees prior to the effective date of Statement
123(R) that remain unvested on the effective date.





As
permitted by Statement 123, the Company currently accounts for share-based
payments to employees using Opinion 25's intrinsic value method and, as such,
generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of Statement 123(R)'s fair value method will have a
significant impact on our results of operations, although it will have no impact
on our overall financial position. The impact of adoption of Statement 123(R)
cannot be predicted at this time because it will depend on levels of share-based
payments granted in the future. However, had we adopted Statement 123(R) in
prior periods, the impact of that standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma net income and
earnings per share in Note 1 "Stock-Based Compensation" to our consolidated
financial statements. Statement 123(R) also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required under
current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after adoption. While the Company
cannot estimate what those amounts will be in the future (because they depend
on, among other things, when employees exercise stock options), the Company did
not recognize any amount of operating cash flows in prior periods for such
excess tax deductions.








**NOTE
      2:**
    **RELATED
      COMPANY TRANSACTIONS**





Until May
2003, the Vlasov Group was the main shareholder of the Company. On May 13, 2003,
Vlasov Investment Corporation sold all of the 4,168,000 shares of Common Stock
of MC Shipping that it owned (approximately 47.78%) to V. Investments and
Navalmar.





As of May
14, 2003, V. Investments Limited, V. Ships Group LTD., V Holdings Limited,
Greysea Limited, Close Securities Limited, Close Investment Partners Limited,
Navalmar (UK) Limited, Bogazzi Fimpar SpA, and Enrico Bogazzi filed a joint Form
13D to report that they might be deemed to have shared beneficial ownership of
4,308,790 common shares, which represented approximately 49.39% of the common
stock outstanding. Following the purchase of additional shares in the open
market by Navalmar in the later part of 2004, V. Investments and Navalmar
control now over 50% of the outstanding stock of the Company.





Prior to
March 28, 2003, V.Ships had been an affiliate of the Company, as it was 39%
owned by the Vlasov Group, the main shareholder of the Company at that time.
V.Ships was also owned 31% by Greysea Limited ("Greysea"), a Guernsey
corporation controlled by certain senior officers and former officers of
V.Ships, 19% by General Electric Capital Corporation and 11% by some officers of
V.Ships. Following a change in the shareholding structure of V.Ships, V.Ships is
now controlled 50% by Greysea and management and 50% by a third party
independent investor group (4% warrants are held by lending banks).





Certain
of the directors and executive officers of the Company are involved in outside
business activities similar to those conducted by the Company. Mr. Antony
Crawford (Chief Executive Officer, President and Director) is also the Chief
Executive Officer of V. Investments Limited, a subsidiary of V. Ships handling
the financial, commercial and investment activities of the group; he is a
Director and minority shareholder of V. Holdings Limited, the holding company of
the V Ships group; he is joint managing director of AL Ships, a marketing
company jointly owned by V Ships and KGAL and a director of Finship, a Rotterdam
based financial advisory company jointly owned by V Ships and ING Bank. Mr Biggi
is the President and Chief Executive Officer of V. Holdings Ltd and an executive
officer of its principal subsidiaries which provide management related services
to the Company. Mr Biggi is also President and Managing Director of V.Ships Inc.
and a shareholder of Greysea, which owns a participation in V.Ships. Mr Bogazzi
(Director) is involved in the business of purchasing, owning and selling cargo
vessels through the Bogazzi Group of shipping companies. As a result of these
affiliations, such persons may experience conflicts of interest in connection
with the selection, purchase, operation and sale of the Company's vessels and
those of other entities affiliated with such persons.


31




The
By-Laws of the Company provide that any of the transactions giving rise to
potential conflicts of interest are subject to review by the Audit Committee of
the Company's Board of Directors which is also charged with the responsibility
of monitoring and reviewing transactions to be entered into with affiliates.





The
Company, via its wholly owned subsidiaries, has entered into Management
Agreements (the "Agreements") with V.Ships for the technical operation of all
the Company's fleet, excluding the sea-river vessels which are managed by
another independent vessel manager because of the specialised nature of the
trade and excluding the vessels which are on bareboat charter which are managed
by the charterer.





The
Agreements are "cost-plus" contracts under which the Company reimburses all
costs incurred by V. Ships for the operation of the Company's vessels and
V.Ships is paid a fixed management fee. For 2004,
the management fees were fixed at the rate of $8,855 per vessel/per month for
the container ships and the La Forge and at the rate of $8,753 per vessel/per
month for the other LPG carriers managed by V.Ships (in 2003, $8,600 and $8,500
respectively).  In 2004,
$1,150,926 were paid by the Company to V.Ships for services provided to the
Company pursuant to the Agreements (2003 - $1,128,000; 2002 -
$1,233,510).





If the
Company deems it necessary to employ the services of V.Ships in the chartering
or commercial operation of any of the Company's vessels, V.Ships is entitled to
a commercial chartering commission determined in the light of current industry
practice. This commission can vary between 0.5% and 1.25% of such
vessels ' gross
charter revenue and demurrage. In 2004 no commercial chartering commissions were
paid by the Company to V.Ships (2003 - $4,500; 2002 - $81,714).





If the
Company deems it necessary to employ the services of V.Ships in the acquisition
or disposal of vessels, the Company will pay commissions and legal fees
determined in light of current industry practice. In 2004, legal fees and
expenses totalling $33,443 were paid by the Company to affiliates of V.Ships
(2003 - $9,220; 2002 - $35,493).





The
Company leases office space from and reimburses telecommunication expenses to
various affiliates of V.Ships. In 2004, the rental cost and telecommunications
expenses paid to affiliates of V. Ships were approximately $133,416 (2003 -
$101,218; 2002 - $88,365).





In August
2004, the Company entered into a service agreement with V. Investments Limited
whereby, the Company pays a fee of S£10,000 per month in consideration of V
Ships permitting the Chief Executive Officer to provide his services to the
Company. V Ships is also entitled to reimbursement of all business expenses
incurred by the CEO in the provision of his services.





The
Company outsources some bookkeeping functions to an affiliate of V.Ships. In
2004, the Company paid a total of approximately $31,000 for such accounting
services (2003 - $31,000; 2002 - $32,375). In 2003, $5,700 were paid to the
Vlasov Group for the outsourcing of some bookkeeping tasks.





In
addition, on a case by case basis, as technical manager of the Company's fleet,
V.Ships uses on behalf of the Company the services of other V.Ships affiliates
to arrange for insurance, crew and staff travelling, port agency services,
manning, safety and training services, and miscellaneous services described
below. The payments described below represent part fees and for the most part
payments to third parties.





Up to the
later part of 2004, t he
Company placed
part of its vessel hull and machinery insurance, increased value insurance and
war risk insurance through a captive insurance company, affiliated with V.
Ships. In 2004,  the
Company was charged with insurance premiums of approximately $706,946
which were included in vessel operating expenses (2003 -
$919,127; 2002 - $ 993,595 ).


32




The
Company uses, for crew and staff travelling, the services of a company
affiliated with V.Ships. In 2004, such travelling expenses amounted to
approximately $267,670 and were included in vessel operating expenses or in
general and administrative expenses (2003 - $278,831; 2002 -
$144,577).





The
Company uses from time to time the port agency services of various companies
affiliated with V.Ships. In 2004, the Company paid to these companies
approximately $313,754 for port and other costs, which were included in vessel
operating expenses (2003 - $480,660; 2002 - $344,018).





The
Company uses various companies affiliated with V.Ships for manning, safety and
training. . In 2004, such expenses amounted to approximately $346,129 and were
included in vessel operating expenses (2003 - $347,179; 2002 -
$563,954).





At
December 31, 2004, the Company had intercompany balances of trade accounts
receivables of $80,492 due from affiliates ($76,094 in 2003).








**NOTE
      3:**
    **ACQUISITIONS
      AND SALES OF VESSELS**





There was
no acquisition or sale of vessels in 2004. In July 2003, the Company sold four
second-hand container vessels to a non-affiliated party for $21,200,000 and
recorded a gain of $1,785,253.








**NOTE
      4:**
    **LOSS
      ON IMPAIRMENT OF VALUE OF ASSETS**





As of
December 31, 2004, the Company evaluated the recoverability of its vessels in
accordance with FAS 144 and determined that no provision for impairment loss was
required.  In
January 2005, the Company received appraisals for its gas fleet from leading
independent shipbrokers. The market value of the container vessels was assumed
to be equal to the sale price received in January 2005. On this basis, the
appraised value of the Company's entire fleet was approximately $91,850,000
compared to a book value of $57,051,369 on December 31, 2004.





In March
2003, the Board had approved the sale of two vessels. The vessels were written
down to the lower of book value or fair market value less costs to sell. Since
these vessels were not sold, they were reclassified from "held for sale" to
"held and used" at the end of 2003 and reinstated at the lower of (1) carrying
amount before it was classified as held for sale, adjusted for any depreciation
expense that would have been recognised had the vessels been continuously
classified as held and used or (2) fair value at year end. The provision for
estimated impairment loss recorded in 2003 was $2,693,650.





In
accordance with SFAS 144 "Accounting for the Impairment or Disposal of Long
Lived Assets", the Company's vessels are regularly reviewed for impairment. The
Company performs the impairment valuations at the individual vessel level
pursuant to paragraph 10 of SFAS 144.





To
consider whether there is an impairment indicator, the Company compares the book
value and the market value of each vessel at the end of each quarterly reporting
period. At year end, the market value used by the Company is equal to the
average of the appraisals provided by two leading independent shipbrokers.
Appraisals are based on the technical specifications of each vessel, but are not
based on a physical inspection of the vessel. At quarter end, the market values
are assessed by the President on the basis of market information, shipping
newsletters, sale of comparable vessels reported in the press, informal
discussions with shipbrokers or unsolicited proposals received from third
parties for the vessels. If a vessel is in the process of being sold, the sale
price is its market value and no broker appraisals are made.





Whenever
a vessel market value is above its book value, the Company considers there is no
indication of impairment. Whenever a vessel market value is below its book
value, the Company considers there is a potential impairment and performs a
recoverability test. The Company estimates the undiscounted future cash flows
attributable to the vessel in order to determine if the book value of such
vessel is recoverable.


33




The
assumptions used to determine whether the sum of undiscounted cash flows
expected to result from the use and eventual disposition of the vessel exceeds
the carrying value involve a considerable degree of judgment on the part of
management. Actual results could differ from those estimates, which could have a
material effect on the recoverability of the vessels.





The most
significant assumptions are:





-
    The
      time of final disposal corresponds to the estimated useful life of the
      vessel: 25 years for a container vessel or 30 years for a gas vessel.
      These assumptions are identical to the ones used for depreciation
      purposes.


-
    The
      estimated value at time of disposal is the estimated scrapping price,
      calculated as lightweight of the vessel in tons times a certain price per
      ton, conservatively estimated by Management relative to market price.


-
    The
      projected increase in costs and in revenues is equal to the current
      inflation rate.


-
    The
      charter rates are estimated by the President on the basis of past
      historical rates and modulated by his assessment of current economic and
      industry trends. They are subjective as they correspond to the company's
      best estimate of an average long term rate.


-
    The
      maintenance of the vessel is estimated at one dry-dock every 2.5 years,
      alternating intermediate and special survey dry-docks,


-
    Days
      on hire are estimated at a level consistent with the Company's on-hire
      statistics (see Revenue - Results of Operations - Management Discussion
      and Analysis Section).





If the
book value of the vessel exceeds the estimated undiscounted future cash flows
attributable to the vessel, the Company recognizes an impairment loss equal to
the excess of the book value over the market value.








**NOTE
      5****:**
    **LONG-TERM
      DEBT**





Long-term
debt consisted of the following at December 31, 2004 and 2003:





2004
    
    2003(in
      thousands $)11.25%
      Senior Notes due 2008
    
    
    -
    
    
    27,640Fortis/BNP
      amortising loan due 2006
    
    
    -
    
    
    16,217Scotiabank
      amortising loan due 2006
    
    
    -
    
    
    7,404Fortis
      amortizing loan due 2010
    
    
    45,000
    
    
    -45,000
    
    
    51,261less
      current portion
    
    
    7,500
    
    
    4,179Long
      term debt
    
    
    37,500
    
    
    47,082




In March
1998, the Company issued $100,000,000 of 10-year Senior Notes (the "Notes"). The
Notes were issued pursuant to an Indenture (the "Indenture") between the Company
and Bankers Trust Company as trustee. Interest on the Notes was payable
semi-annually in arrears on March 1 and September 1 at a rate of 11.25% per
annum. The Notes were senior unsecured obligations of the Company. The Company's
obligations under the Indenture were guaranteed on a senior unsecured basis by
substantially all of the Company's existing vessel-owning subsidiaries. The
Indenture contained various business and financial covenants. The Board of
Directors had authorised Management to repurchase Notes in the open market at
times, prices and volumes, which Management deemed appropriate. In the last
three years, the following repurchases have taken place in the open
market:


34




Year
    
    face
      amount
    
    net
      gain onrepurchases2002
    
    $
    180,000
    
    $
    94,5982003
    
    $
    7,000,000
    
    $
    2,620,4772004
    
    $
    6,540,000
    
    $
    363,119





On
September 30, 2004 the Company called the remaining $21.1 million of Notes
outstanding. The date fixed for redemption was November 1, 2004 and the
redemption price was 103.75% in accordance with the terms of the Indenture. The
Company recorded a net loss of $ 975,918,
corresponding to the call premium for $791,250 and the write off of the Notes
issuance costs for $183,938.





The
Company had a long-term debt agreement with Fortis Bank and Banque Nationale de
Paris ("BNP") obtained in June 1998. The facility bore interest at LIBOR plus
1.25% and the final repayment date was fixed at June 30, 2006. The vessel-owning
subsidiaries had granted ship mortgages over their vessels as security for the
advances and the Company had issued a guarantee in relation to the facility.
Repayment schedules (consisting of semi-annual instalments plus a balloon) were
determined in relation to each drawing at the time the advances are made by
reference to the ages and to the types of vessels acquired. The outstanding
amount of this facility $14,729,815 was fully repaid on October 27,
2004.





In
September 2001, the Company was granted a $17,700,000 credit facility by The
Bank of Nova Scotia ("Scotiabank"). The facility consisted of two advances, bore
interest at LIBOR plus 2% and was non-recourse to the Company:





- A first
advance of $13,462,500 was drawn by one of the Company 's wholly
owned subsidiaries in order to finance the acquisition of a second-hand LPG
vessel. This first advance was repayable over five years in equal quarterly
instalments. A swap agreement was concurrently entered into with Scotiabank, as
a result of which the variable rate on the loan, exclusive of margin, has been
effectively fixed at 4.595%. The swap's notional amount and duration followed
the scheduled repayments of the underlying loan. On September 30, 2004, the swap
was cancelled at a cost of $124,500 and the cancellation cost was recorded as
interest expense. The outstanding amount of this facility $5,385,000 was fully
repaid on October 27, 2004.





- A
second advance of $4,237,500 had been drawn by two of the Company 's wholly
owned subsidiaries, to refinance second-hand containerships acquired in 1998.
The outstanding amount of this second advance $1,059,375 was fully prepaid on
March 24, 2003 and the corresponding swap cancelled.





In April
2002, the Company was granted a $18,000,000 credit facility by Nedship Bank in
order to finance the acquisition of four second hand container vessels by four
of the Company's wholly owned subsidiaries. The facility was guaranteed by the
Company, bore interest at a fixed rate of 5.42% and was repayable in ten equal
quarterly repayments of $1,800,000. The loan was prepaid on July 15, 2003 at the
time of sale of the vessels.





On
October 11, 2004, the Company entered into a $45,000,000 loan agreement with
Fortis Bank in order to refinance all of its outstanding debt. The facility
bears interest at LIBOR plus 1.25% and is repayable over six years in equal
quarterly instalments. The borrowers are the existing vessel-owning subsidiaries
(except for the sea river subsidiaries) and have granted ship mortgages over
their vessels as security. The Company has issued a guarantee in relation to the
facility. The Company used the proceeds of this facility to repay all its
outstanding long term debt. The loan agreement contains debt covenants related
to minimum liquidity reserves of $5,000,000, minimum value clauses for the
vessels and minimum tangible net worth. At December 31, 2004, tangible net worth
exceeded the minimum requirement by $3,666,049. Concurrently, the Company
entered into an interest rate swap agreement to hedge the Company's interest
rate exposure associated with a portion of the Fortis Loan. As of December 31,
2004, the swap agreement had a notional amount of $30,000,000, a fair market
value of $209,330 in favour of the Company and an interest rate of 3.075%
(excluding the margin). It will expire in October 2007.


35




An amount
of $132,181, representing the unamortized balance of the issuance costs of the
bank debt was written off at the time of the refinancing.





The
Company has complied with all applicable debt covenants, or received the
appropriate waivers from lenders, for all periods presented.





Aggregate
maturities of long-term debt in each of the five years subsequent to December
31, 2004 are as follows:





2005
    
    $
    7,500,0002006
    
    $
    7,500,0002007
    
    $
    7,500,0002008
    
    $
    7,500,0002009
      and thereafter
    
    $
    15,000,000Total
    
    $
    45,000,000





The
interest rates applicable to the Company's long-term debt a s of
December 31, 2004 ranged from 3.36% to 4.325%. During the year ended December
31, 2004, interest paid in relation to the Notes and other long-term debt
totalled $4,208,195 (2003 - $5,114,613; 2002 - $6,113,656).








**NOTE
      6****:**
    **FAIR
      VALUE OF FINANCIAL INSTRUMENTS**





At
December 31, 2004 and 2003, financial instruments had the following
values:





2004
    
    2003Fair
      Value
    
    Book
      Value
    
    Fair
      Value
    
    Book
      ValueCash
      & Cash Equivalents
    
    
    (a)
    
    
    11,629,896
    
    
    11,629,896
    
    $
    16,446,582
    
    $
    16,446,582Restricted
      Cash
    
    
    (a)
    
    
    5,000,000
    
    
    5,000,000
    
    
    615,455
    
    
    615,455Long-term
      debt:Current
      portion
    
    
    (b)
    
    
    7,500,000
    
    
    7,500,000
    
    
    4,179,553
    
    
    4,179,553Non-current
      portion:-
      Variable rate
    
    
    (b)
    
    
    37,500,000
    
    
    37,500,000
    
    
    14,729,815
    
    
    14,729,815-
      Fixed rate
    
    
    (c)
    
    
    -
    
    
    -
    
    
    30,898,375
    
    
    35,044,375Interest
      rate swaps
    
    
    (d)
    
    
    209,330
    
    
    209,330
    
    
    (286,894
    )
    
    (286,894
    )


a)
    Carrying
      value approximates market value due to short-term
    maturities.


b)
    Carrying
      value approximates market value as variable interest rates approximate
      market rates.


c)
    Since
      there was no active market for the Notes, the market value of the Notes at
      December 31, 2003 was assumed to be equal to the price paid in early
      2004.


d)
    Fair
      value estimated as the amount the Company would have received or paid, had
      the interest rate swaps been terminated on the balance sheet
      date.








**NOTE
      7:**
    **CHANGES
      IN SHAREHOLDERS' EQUITY**





With
effect from April 1, 1998, directors who are not officers of the Company or of
an affiliated Company, each receive $5,000 out of their total annual
compensation by the allotment of shares of the Company's common stock of
equivalent value. Pursuant to this arrangement, 21,804, 19,736 and 12,052 shares
of Stock (representing $20,000 of compensation expense in each year) were issued
to the independent directors in respect of the twelve month periods ended March
31, 2002, 2003 and 2004, respectively. The total amount of compensation expense
recognized in connection with the issuance of shares to directors amounted to
$20,000 for each of the twelve month period ended March 31, 2002, 2003 and 2004.
Further shares will be similarly transferred in future years.


36




In March
2004, the Company's Board of Directors decided to distribute a stock dividend of
1 share for every 20 shares owned, rounded up to the nearest multiple of 20:
415,513 shares were issued to that effect, of which 221,730 shares were
distributed from treasury stock. As a result of the Company 's
accumulated deficit position, the stock dividend declared and issued in 2004 was
accounted for as a reduction in Additional Paid-in Capital.





In 2004,
29,901 shares were issued and 100,000 options granted under the stock option
plan (see


Note
8).





As of
December 31, 2004, accumulated comprehensive income was $261,602 and consisted
of foreign currency translation adjustment of $52,272 and unrealised gains on
cash flow hedges of $209,330. As of December 31, 2003, these amounts were
respectively $(195,391), $91,503 and $(286,894).








**NOTE
      8****:**
    **STOCK
      OPTION PLAN**





On June
20, 2001, the shareholders authorised the creation of a Stock Option Plan for
the Company's employees. A maximum of 407,871 shares or 5% of the Company's
outstanding shares were authorised for issuance under this stock option plan.
Under the terms of the plan, the options give the right to purchase one share
per option and vest 25% per annum, commencing one year after the grant date of
the respective option. All options granted under this plan expire ten years
after the creation of the plan, on June 20, 2011, regardless of the grant date.
Options granted under this plan are granted with an exercise price equal to the
average of the Company's stock price over the ten days prior to the grant date.





On June
20, 2001, the Company's Board of Directors approved the issuance of 163,148
options to employees at an exercise price of $0.622 per share. The intrinsic
value of these options on the grant date was $0.128 per share. On September 17,
2004, the Company's Board of Directors approved the issuance of 100,000 options
to the new CEO at an exercise price of $2.36 per share. The intrinsic value of
these options on the grant date was $0.44 per share.





In
connection with the issuance of these options, the Company has not recognized
compensation expense in the consolidated income statements as the amount of
amortization of the intrinsic value of the options to be recorded as expense
over the options' vesting period in accordance with the accelerated expense
attribution method under FASB Interpretation No. 28, "Accounting for Stock
Appreciation Rights and Other Variable Stock Option Award Plans" is
immaterial.





The
following table summarizes the activity under the stock plan:





2004
    2004
    2003
    2003
    2002
    2002Number
      of
      shares
    Weighted
      average
      exercise
      price
    Number
      of
      shares
    Weighted
      average
      exercise
      price
    Number
      of
      shares
    Weighted
      average
      exercise
      priceOptions
      outstanding at the beginning of the year
    100,992
    .622
    163,148
    .622
    163,148
    .622Options
      granted
    100,000
    2.36
    -
    -
    -
    -Options
      exercised
    29,901
    .622
    48,614
    .622
    -
    -Options
      forfeited
    28,680
    .622
    13,542
    .622
    -
    -Options
      outstanding at the end of the year
    142,411
    1.84
    100,992
    .622
    163,148
    .622Options
      exercisable at the end of the year
    19,350
    .622
    26,189
    .622
    40,787
    .622





Options
outstanding at December 31, 2004 had exercise prices of $0.622 per share or
$2.36 per share and, as of December 31, 2004, all options had remaining
contractual lives of 6.47 years.


37




FASB
Statement No. 123, Accounting for Stock Based Compensation (SFAS 123) requires
the disclosure of pro forma net income and earnings per share information
computed as if the Company had accounted for its employee stock options under
the fair value method set forth in SFAS 123. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following assumptions.





2004
    2003
    2002Risk-free
      interest rate
    3.6%
    -
    -Volatility
    58%
    -
    -Expected
      option term (in years)
    4
    -
    -Dividend
      yield
    3.5%
    -
    -





The
weighted average fair value of stock options granted during the year ended
December 31, 2004 was $ 1.23 per
share. For purposes of pro forma disclosures, because the options vest on a
pro-rata basis, the estimated fair value of the options is amortized to expense
over the options' vesting period in accordance with the accelerated expense
attribution method under FASB Interpretation No. 28, "Accounting for Stock
Appreciation Rights and Other Variable Stock Option Award Plans". Because
options vest over several years and additional grants are expected, the effects
of these hypothetical calculations are not likely to be representative of
similar future calculations.








**NOTE
      9****:**
    **CHARTERS**





Eleven
out of the Company's thirteen vessels are currently fixed on time charters.
Future minimum revenues from these non-cancellable charters (excluding the
revenues of the four vessels that were sold in January 2005 - see Subsequent
Events) are as follows:





2005
    $
      15,757,5002006
    $  
      7,960,0002007
    $ 
       2,170,625





The
Company performs ongoing evaluations of the credit risk of its
charterers.





In 2004,
the Company had three charterers from which revenues exceeded 10% of total
revenues from charterhires. Revenues from these charterers amounted to
$12,202,388, $8,817,095 and $8,281,170 respectively representing 38.3%, 27.6%
and 26.0% of total revenues from charterhires. In 2003, the Company had four
charterers from which revenues exceeded 10% of total revenues from charterhires.
Revenues from these charterers amounted to $12,811,153, $7,716,061, $7,605,471
and $4,692,500 respectively representing 35.8%, 21.6%, 21.2% and 13.1% of total
revenues. In 2002, the Company had four charterers from which revenues exceeded
10% of total revenues from charterhires. Revenues from these charterers amounted
to $14,445,621, $8,389,006, $7,290,522 and $6,245,554 respectively representing
34.5%, 20.0%, 17.4% and 14.9% of total revenues.




38


**NOTE
      10****:**
    **2004
      AND 2003 QUARTERLY RESULTS OF OPERATIONS
    (UNAUDITED)**





2004Quarter
      endedMarch
      31
    
    June
      30
    
    September
      30
    
    December
      31Charterhire
      and Other Revenue
    
    $
    7,895,776
    
    $
    7,881,660
    
    $
    8,127,173
    
    $
    7,990,784Gain/(loss)
      on debt extinguishment
    
    
    423,595
    
    
    (20,355
    )
    
    (40,121
    )
    
    (1,107,369
    )Net
      Income as previously reported
    
    
    859,684
    
    
    670,800
    
    
    493,837
    
    
    -Additional
      depreciation
    
    
    (59,286
    )
    
    (134,355
    )
    
    (134,355
    )
    
    -Net
      Income / (loss)
    
    
    800,398
    
    
    536,445
    
    
    359,482
    
    
    (583,946
    )Basic
      per share amountsNet
      Income as previously reported
    
    $
    0.10
    
    $
    0.08
    
    $
    0.06
    
    
    -Net
      Income
    
    $
    0.09
    
    $
    0.06
    
    $
    0.04
    
    $
    (0.07
    )





2003Quarter
      endedMarch
      31
    
    June
      30
    
    September
      30
    
    December
      31Charterhire
      and Other Revenue
    
    $
    10,315,937
    
    $
    9,882,431
    
    $
    7,911,048
    
    $
    7,688,106Impairment
      (loss)/gain
    
    
    (2,951,515
    )
    
    32,865
    
    
    -
    
    
    225,000Gain
      on sale of vessel
    
    
    -
    
    
    -
    
    
    1,785,253
    
    
    -Gain
      on debt extinguishment
    
    
    2,620,477
    
    
    -
    
    
    -
    
    
    -Net
      Income
    
    
    468,728
    
    
    515,231
    
    
    1,364,452
    
    
    742,744Basic
      per share amountsNet
      Income
    
    $
    0.05
    
    $
    0.06
    
    $
    0.16
    
    $
    0.09





At
the beginning of 2004, in view of rising scrap prices in the last years,
Management decided to increase for accounting purposes the estimated residual
values of its container vessels. The net effect of this change of estimate was
to reduce depreciation and to increase net income by $327,997 in the first three
quarters of 2004. Subsequently the Company reconsidered this change in
accounting estimate and consequently has reflected the aggregate depreciation
charge of $327,997 in the first three quarters of 2004.








**NOTE
      11:**
    **CONTINGENCIES**





Various
claims, suits, and complaints, including those involving government regulations
and product liability, arise in the ordinary course of the shipping business. In
addition, losses may arise from disputes with charterers, agents, insurance and
other claims with suppliers relating to the operations of the
Company 's
vessels. Management believes that all such matters are either adequately covered
by insurance or are not expected to have a material adverse effect on the
Company.





In June
2001, the Company sold the 1984-built container vessel Maersk Tampa to a
non-affiliated Company with the Maersk charter attached. The buyer had the
option to give the vessel back on charter to the Company in November 2004 for 12
months at a daily rate of $17,900, then a second option in November 2005 for a
period of 6 months at a daily rate of $17,500. The first option was not
exercised. The aggregate amount of the Company's commitment under the second
option is approximately $3,182,000 as follows:





2005
    $   
      542,0002006
    $
      2,640,000total
    $
      3,182,000





These
amounts do not take into consideration any revenues the Company will earn from
chartering out the vessel to another party. As of March 2005, the current market
rate for twelve month time charter of a vessel similar to the Maersk Tampa is
well in excess of $17,500. So, the expected revenues from the chartering out of
the vessel would cover the expected amount of the commitment. There is no
assurance today, however, as to where market rates will be in November
2005.


39




**NOTE
12** **:
SUBSEQUENT EVENTS**




On
January 20, 2005 the Company sold four container
vessels to Munia
Mobiliengesellschaft mbH & Co. KG ("Munia"), a special purpose German KG
company formed by the German finance house KGAL, a German
KG, for a total price of $30 million. **** As part
of the transaction, the Company will guarantee certain levels of operating
expenses and of employment for a fee. Concurrently, the Company invested $4
million in Munia for 26.32% equity participation. The other stakeholders in the
vessels are expected to be German individual investors. The vessels will
continue on their charter to Maersk and will continue to be managed by
V.Ships.





At the
time of sale, the Company prepaid $15 million under the $45 million long term
debt agreement with Fortis Bank entered into in October 2004 to refinance the
Company's outstanding debt. The repayment schedule of the loan was reduced
proportionately. Concurrently with such prepayment, the $5 million cash
collateral held by Fortis Bank were released. The net proceeds of the
transaction, $11 million, are expected to be reinvested in new vessel
acquisitions. The transaction resulted in a net profit of approximately $17.8
million, which the Company will defer over the remaining economic life of the
vessels (approximately four years).





The
Company is in the process of acquiring two very large liquefied petroleum gas
carriers ("VLGCs") from the Bergesen Group of Norway. The vessels, M/v ‘Berge
Flanders' of 75,000 m 3 capacity
(built 1991) and M/v ‘Berge Kobe' of 77,000 m 3 capacity
(built 1987) will be acquired for considerations of $50,717,250 and $32,260,000,
respectively. The memoranda of agreements were signed on February 23, 2005 and
the 10% down payments were made on March 8, 2005. Delivery is expected to take
place in April 2005. Management intends to fund the acquisitions with a $68
million loan from Scotiabank Europe PLC and for the balance with internal cash
resources. The vessels will be time-chartered to the Bergesen Group for a
minimum period of five years.





The
Company is in the process of acquiring 50% of another VLGC in a 50/50 joint
venture with Petredec, a leading LPG trading and shipowning Company. The vessel
M/v Isomeria of 59,725 m 3 capacity,
which was built in 1983, will be acquired by the joint venture for a total
consideration of $16 million. The memorandum of agreement was signed on February
28, 2005 and the 10% down payment was made on March 16, 2005. The acquisition is
expected to be funded with a combined $5 million equity contribution from MC
Shipping and Petredec and a $11.5 million bank loan. The vessel will be
time-chartered to Petredec for a period of four years.




**______________________________**




40




**SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS**





**Year
      ended**
    
    **Balance
      at**
      **Beginning**
      **Of
      Period**
    
    **Charged
      to Costs**
      **And
      Expenses**
    
    **Credited
      to**
      **Costs**
      **And
      Expenses**
    
    **Balance
      at**
      **End
      of**
      **Period****DECEMBER
      31, 2002**Reserves
      and allowances deducted from asset accounts:Allowance
      for insurance receivables
    
    $110,000
    
    
    
    
    
    $110,000**DECEMBER
      31, 2003**
    
    -
    
    
    
    
    
    -Allowance
      for insurance receivables
    
    $110,000
    
    
    
    
    
    $110,000**DECEMBER
      31, 2004**Allowance
      for insurance receivables
    
    $110,000
    
    
    
    
    
    $110,000








**______________________________**







**ITEM
      9:**
    **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





None


**______________________________**








**ITEM
      9A:**
    **CONTROLS
      AND PROCEDURES**





***Evaluation
of disclosure controls and procedures.***





The
Company 's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the Company's "disclosure controls and procedures" (as defined in the
Securities and Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of
December 31, 2004 (the "Evaluation Date"). These controls and procedures were
designed to ensure that material information relating to the Company and its
subsidiaries is communicated to the Chief Executive Officer and to the Chief
Financial Officer. Based on such review, they have concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures were effective
to ensure that material information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those
entities.





***Changes
in internal controls.***





There
were no significant changes in the Company 's
internal controls or, to the knowledge of the Company's Chief Executive Officer
and Chief Financial Officer, in other factors that could significantly affect
the Company's internal disclosure controls and procedures subsequent to the
Evaluation Date.




41




**PART
III**








**ITEM
10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**





The
directors and executive officers of the Company are as follows:





**Name**
    
    **Age**
    
    **Position**Charles
      B. Longbottom
    
    74
    
    Chairman
      of the Board of DirectorsAntony
      Crawford
    
    48
    
    Chief
      Executive Officer and PresidentDominique
      Sergent
    
    50
    
    Vice
      President, Chief Financial Officer and TreasurerGraham
      G. Pimblett
    
    50
    
    Vice
      President, Chief Operating OfficerEnrico
      Bogazzi
    
    64
    
    DirectorJohn
      H. Blankley
    
    57
    
    DirectorAnton
      Pardini
    
    41
    
    DirectorHorst
      Schomburg
    
    75
    
    DirectorTullio
      Biggi
    
    65
    
    Director





There are
no family relationships between any of the directors and executive
officers.





Mr.
Longbottom has been
a director of the Company since 1989 and was elected Chairman of the Board of
the Company in May 2004 . Messrs.
Blankley and Schomburg were originally elected as directors at the 1995 annual
meeting. Mr. Crawford and Bogazzi were elected as directors at the 2004 annual
meeting, following the resignations of Messrs. Terrevazzi and Bonaventura.
Messrs. Pardini and Biggi were appointed as directors in September and November
2004 to fill the vacancies caused by the departures of Messrs. Shaerf and
Morel.





Under the
Company's Articles of Incorporation, the Board of Directors is divided into two
classes of at least three persons, each of whom is elected for a two-year term.
Messrs. Longbottom, Pardini, Schomburg and Crawford are Class "A" directors and
Messrs. Biggi, Bogazzi and Blankley are Class "B" directors. The Class "A"
directors were re-elected at the 2004 Annual Meeting and serve until the 2006
Annual Meeting and the Class "B" directors were re-elected at the 2003 Annual
Meeting and serve until the 2005 Annual Meeting. Officers are appointed by the
Board of Directors and serve until their successors are appointed and qualified.
The Articles of Incorporation and By-laws of the Company provide that the
Company will, to the full extent authorized by the Business Corporation Act of
Liberia, indemnify each of its officers and directors against judgements, fines,
amounts paid in settlement, and expenses incurred in the defence of any action
commenced against any such officer or director by reason of the fact that he is
or was an officer or director of the Company.





Section
3.11 of the By-Laws of the Company provides that there shall be an Audit
Committee of the Board of Directors (the "Committee") consisting of three or
more directors, a majority of whom are not officers of the Company and are not
currently and have not previously been employees of the Company, Navalmar,
V.Ships or their respective affiliates. The Committee is currently comprised of
Messrs. Longbottom, Schomburg, Pardini and Blankley, all of whom are independent
directors. Section 3.11, which may not be amended or repealed except upon
approval of the holders of two-thirds of the outstanding shares of Common Stock,
provides that the Committee shall review the following matters and advise and
consult with the entire Board of Directors with respect thereto:





(i)
    the
      preparation of the Company's annual financial statements in collaboration
      with the Company's independent certified
accountants;


(ii)
    the
      sale or other disposition of the Company's
vessels;


(iii)
    the
      mortgaging of any of the Company's vessels as security for indebtedness of
      the Company or any of its subsidiaries;


(iv)
    the
      performance by V.Ships of its obligations under the management agreements;
      and


(v)
    all
      agreements between the Company and V.Ships, any officer of the Company, or
      affiliates of V.Ships or any such
officer.


42




The
Company's board of directors has determined that the Company has at least one
audit committee financial expert serving on its audit committee. The audit
committee financial expert is Mr Blankley. Mr Blankley is an independent
director and served as Chief Financial Officer of BP North America Inc.,
Stolt-Nielsen Inc., Harris Chemical Group Inc. and Hvide Marine Inc. between
1983 and 1999.





The
Company has adopted a Code of Ethics that applies to the Company's directors,
officers and employees. The Code of Ethics is displayed on the Company's
website: www.mcshipping.com.





In
2004, **** The
Company's Board of Directors decided to set up a Nominating and Corporate
Governance Committee consisting
of three or more Independent Directors. Its
members are currently the same as the Audit Committee. The
purpose of the Nominating and Corporate Governance Committee is to:





-
    Identify
      individuals qualified to become members of the Board of Directors of the
      Company and recommend to the Board nominees for election as Directors
      ;





-
    Maintain
      oversight of the operation and effectiveness of the Board and the
      corporate governance and Management of the Company
;





-
    Develop,
      update as necessary and recommend to the Board corporate governance
      principles and policies applicable to the Company, including the Company's
      Corporate Governance Guidelines ; and





-
    Monitor
      compliance with such corporate governance principles and
      policies.





**Antony
S. Crawford** was
appointed Chief Executive Officer, President, Chief Operating Officer and a
Director of the Company as of August 1, 2004. He is also a director and minority
shareholder of V.Holdings Limited and the Chief Executive Officer of V.
Investments Limited. He is a member of the Baltic Exchange. From 1983 to date,
Mr. Crawford held various positions with V.Ships PLC (formerly Silver Line Ltd),
which he had joined in 1983 as a ship-broker, when it was an affiliate of the
Vlasov Group. From 1978 to 1983, Mr. Crawford worked as chartering manager with
Euro Canadian Group, a con bulker operator, and from 1973 to 1978 as a
shipbroker with shipbrokers Lambert Brothers Limited.





**Dominique
Sergent** joined
the Company in 1997 as Treasurer. She was appointed Vice President and Chief
Financial Officer in January 2000. Her prior
career includes positions as Vice President in the Capital Markets Group of
Bankers Trust in New York, Vice President in the investment banking division of
E.F. Hutton and in the international department of Banque Worms. Ms. Sergent
holds an MBA degree from Harvard Business School.





**Graham
G. Pimblett** was
appointed Vice President, Operations of the Company in 1996 and Chief Operating
Officer in November 2004. Mr.
Pimblett has been with the Company from its foundation in 1989. Prior to that,
he has worked within the Vlasov Group since 1971 and has held various
operational positions during that period.





**Charles
B. Longbottom** is the former
Chairman of Seascope Shipping Limited and of Seascope Insurance Services
Limited. He is also the former Chairman of Austin & Pickersgill
Shipbuilders, A&P Appledore International, and of Illingworth Morris Pension
Trustees Limited. Mr. Longbottom was previously a non-executive director of
Newman Martin & Buchan Ltd. and a part-time member of the Board of British
Shipbuilders. Mr. Longbottom is a former Member of the British Parliament.





**Enrico
Bogazzi** is the Chief
Executive Officer of and a majority shareholder in Bogazzi Fimpar SpA, which in
turn is a controlling shareholder in Navalmar (UK) Limited, a major shareholder
in the Company. He has directorships in a number of private shipping and
shipping related companies in Europe. He holds a law degree from the University
of Pisa.


43




**John
H. Blankley** is the owner
of Seafirst Capital, an independent consulting and investing Company, which he
established in 1994. He is the former director and Chief Financial Officer of
Hvide Marine Inc. Mr. Blankley was Chief Financial Officer and a director of BP
North America Inc., he was also an Executive Vice President and Chief Financial
Officer of Stolt-Nielsen Inc., and director and Chief Financial Officer of
Harris Chemicals Group Inc .





**Horst
Schomburg** is the
Managing Director of MPC Steamship GmbH. He was previously the Chairman of the
Advisory Board of Hamburg Südamerikanische Dampfschiffahrts Gesellschaft Eggert
& Amsinck (Hamburg South American Shipping Company - "Hamburg-Süd"). Mr.
Schomburg is also the former President and Chief Executive Officer, and a member
of the Managing Board of Hamburg-Süd.





**Tullio
Biggi** is
President and Chief Executive Officer of V. Holdings Ltd and an executive
officer of its principal subsidiaries which provide management related services
to the Company. V. Holdings Ltd. is the parent company of V. Investments
Limited, a major shareholder in the Company. He is President and Managing
Director of V.Ships Inc. Mr. Biggi holds a Bachelor of Economics degree from the
University of Genoa.





**Anton
Pardini** is the
Chief Investment Officer of Schnitzer Investment Corp. He was previously
President and Chief Executive Officer of Lasco Shipping Co., and prior to that
General Counsel for the Schnitzer Group of Companies, which then included
Schnitzer Steel, Schnitzer Investment Corp., Lasco Shipping and several other
companies.





(See also
"ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".)








**ITEM
11: EXECUTIVE COMPENSATION**





The
aggregate cash compensation paid by the Company and its subsidiaries for
services to the Company and its subsidiaries in all capacities to all executive
officers of the Company (three individuals) in respect of the fiscal year ended
December 31, 2004 was $671,409. This amount includes the severance payments made
in 2004 and excludes the consideration paid to V. Investments Limited for the
services of the Chief Executive Officer (see Compensation to Affiliates) and the
bonus described below.





In 1997,
the Company established an incentive plan for the benefit of senior management,
under which participants may obtain cash bonuses subject to the Company meeting
certain performance criteria. For 2002, a bonus of $90,406 was earned and paid
in 2003. For 2003, a bonus of $210,000 was earned and paid in 2004. For 2004, a
bonus of $97,026 was earned and paid in 2004 at the time that
Vlasov sold its shares of the Company. The incentive plan was cancelled in
November 2004.





In 2001,
the Company initiated a Stock Option Plan for the benefit of its employees. On
June 20, 2001, 163,148 stock options were granted to employees under this plan
and 100,000 on September 17, 2004. (See Note 8. Stock Option Plan to the
consolidated financial statements).





Starting
October 1 st , 2004,
independent Directors' compensation was increased from $25,000 to $35,000 per
year, with the exception of Mr. Longbottom's compensation that was increased
from $25,000 to $45,000 per year as Chairman of the Board. The compensation is
payable in cash and as to $5,000 by the allotment of shares of the Company's
Common Stock of equivalent value. Each qualifying Director was allotted 5,451,
4,934 and 3,013 shares for the years ended March 31, 2002, 2003 and 2004,
respectively. The total amount of compensation expense recognized in connection
with the issuance of shares to directors amounted to $20,000 for each of the
twelve month periods ended March 31, 2002, 2003 and 2004 (see Note 7 to the
consolidated financial statements).





Certain
directors and executive officers of the Company may receive additional
compensation indirectly as a result of shareholdings in V.Ships. Mr. Antony
Crawford (Chief Executive Officer, President and Director) is the Chief
Executive Officer of V. Investments Limited; he is a Director and minority
shareholder of V Holdings Limited. Mr Biggi is the President and Chief executive
Officer of V. Holdings Ltd and an executive officer of its principal
subsidiaries which provide management related services to the Company. Mr Biggi
is also President and Managing Director of V.Ships Inc. and a shareholder of
Greysea, which owns a participation in V.Ships. See "ITEM 1: BUSINESS -
COMPENSATION TO AFFILIATES" and "ITEM 13: CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS".


44




In
accordance with section 3.12 of the Company's By-Laws, the board of directors
has designated from among its members a Compensation Committee, consisting of
the independent directors, which reviews all matters related to executive
compensation. The Committee is currently comprised of Messrs. Longbottom,
Blankley, Schomburg and Pardini.





The
Company has in force a policy of directors' and officers' liability insurance in
the amount of $7,500,000 for the benefit of the directors and officers of the
Company. The premium paid by the Company in respect of directors and officers as
a group for the policy year ending June 30, 2005 was $116,150.





No
officer was indebted to the Company at any time since the beginning of the
fiscal year 2004.








**ITEM
12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT**





The
following table sets forth the number of shares of Common Stock of the Company
beneficially owned as of February 10, 2005 **** by (i)
each beneficial owner of more than 5% of the outstanding shares of the Company's
Common Stock, (ii) each of the Company's directors, nominees for director and
executive officers and (iii) for all executive officers and directors of the
Company as a group. Except as otherwise indicated, each of the persons named
below has sole voting and investment power with respect to the shares of Common
Stock beneficially owned by them.




**Name**
      ****
    **Amount
      of**
      **Beneficial
      ownership**
    **Percent**
      ****V.
      Investments Limited, V Ships Group LTD.,V
      Holdings Limited, Greysea Limited, Close SecuritiesLimited,
      Close Investment Partners Limited (1)
    2,087,246
    23.81Navalmar
      (UK) Limited, Bogazzi Fimpar SpA,
      and
      Enrico Bogazzi(1)
    2,620,644
    29.90Charles
      B. Longbottom
    35,774
    *John
      H. Blankley
    35,573
    *Horst
      Schomburg
    31,573
    *Graham
      Pimblett
    29,901
    *Dominique
      Sergent
    23,237
    *Tullio
      Biggi
    2,100
    *Antony
      Crawford
    **-**
    *Anton
      Pardini
    **-**
    *Enrico
      Bogazzi
    **-**
    *All
      officers and directors as a Group (9 persons)
    158,158
    1.80


* Less
than 1%





(1) As of May
14, 2003, V. Investments Limited, V Ships Group LTD., V Holdings Limited,
Greysea Limited, Close Securities Limited, Close Investment Partners Limited,
Navalmar (UK) Limited, Bogazzi Fimpar SpA, and Enrico Bogazzi filed a joint Form
13D to report that they might be deemed to have shared beneficial ownership of
4,308,790 common shares, which represented approximately 49.39% of the common
stock outstanding.





Statements
contained in the above table and in the footnotes thereto as to securities
beneficially owned by directors, executive officers or shareholders or over
which they exercise control or direction are, in each instance, based upon
information obtained from such persons and/or, in the case of 5% shareholders,
from Schedule 13Ds, 13Gs or other beneficial ownership disclosure filed with
Securities and Exchange Commission by such shareholder. All executive officers
and directors of the Company may be deemed to be affiliates of the Company.


45




***SECURITIES
AUTHORISED UNDER EQUITY COMPENSATION PLAN***





As of
December 31, 2004





Plan
      category
    (a)
      Number of securities to be issued upon exercise of outstanding options
    (b)
      Weighted average exercise price of outstanding options
    (c)
      Number of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a)Equity
      compensation plans
      approved
      by security holders
    142,411
    $1.84
    186,945Equity
      compensation plans not
      approved
      by security holders
    -
    -
    -Total
    142,411
    $1.84
    186,945







**ITEM
13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





Until May
2003, the Vlasov Group was the main shareholder of the Company. On May 13, 2003,
Vlasov Investment Corporation sold all of the 4,168,000 shares of Common Stock
of MC Shipping that it owned (approximately 47.78%) to V. Investments and
Navalmar.





As of May
14, 2003, V. Investments Limited, V. Ships Group LTD., V Holdings Limited,
Greysea Limited, Close Securities Limited, Close Investment Partners Limited,
Navalmar (UK) Limited, Bogazzi Fimpar SpA, and Enrico Bogazzi filed a joint Form
13D to report that they might be deemed to have shared beneficial ownership of
4,308,790 common shares, which represented approximately 49.39% of the common
stock outstanding. Following the purchase of additional shares in the open
market by Navalmar in the later part of 2004, V. Investments and Navalmar
control now over 50% of the outstanding stock of the Company.





Prior to
March 28, 2003, V.Ships had been an affiliate of the Company, as it was 39%
owned by the Vlasov Group, the main shareholder of the Company at that time.
V.Ships was also owned 31% by Greysea Limited ( "Greysea"),
a Guernsey corporation controlled by certain senior officers and former officers
of V.Ships, 19% by General Electric Capital Corporation and 11% by some officers
of V.Ships. Following a change in the shareholding structure of V.Ships, V.Ships
is now controlled 50% by Greysea and management and 50% by a third party
independent investor group (4% warrants are held by lending banks).





Certain
of the directors and executive officers of the Company are involved in outside
business activities similar to those conducted by the Company. Mr. Antony
Crawford (Chief Executive Officer, President and Director) is also the Chief
Executive Officer of V. Investments Limited, a subsidiary of V Ships handling
the financial, commercial and investment activities of the group; he is a
Director and minority shareholder of V. Holdings Limited, the holding company of
the V Ships group; he is joint managing director of AL Ships, a marketing
company jointly owned by V Ships and KGAL and a director of Finship, a Rotterdam
based financial advisory company jointly owned by V Ships and ING Bank. Mr.
Biggi (Director) is a minority shareholder and director of Greysea, which owns a
participation in V Ships. Mr Bogazzi (Director) is involved in the business of
purchasing, owning and selling cargo vessels through the Bogazzi Group of
shipping companies. As a result of these affiliations, such persons may
experience conflicts of interest in connection with the selection, purchase,
operation and sale of the Company's vessels and those of other entities
affiliated with such persons.


46




The
By-Laws of the Company provide that many of the transactions giving rise to
potential conflicts of interest are subject to review by the Audit Committee of
the Company's Board of Directors which is also charged with the responsibility
of monitoring and reviewing transactions to be entered into with affiliates. The
Audit Committee believes that the terms of all the transactions described herein
with V.Ships were fair to the Company.





If the
Company deems it necessary to employ the services of V.Ships as technical
managers or in the chartering or commercial operation of any of the Company's
vessels, V.Ships is entitled to remuneration determined in the light of current
industry practice. For the rates of fees payable to V.Ships, see "COMPENSATION
TO AFFILIATES" and Note 2. "RELATED COMPANY TRANSACTIONS".








**ITEM
14: PRINCIPAL ACCOUNTING FEES AND SERVICES**





**Audit
fees**





Audit
fees amounted to C£ 30,500 plus expenses in 2004, the same as in 2003. Our
auditors do not provide non-audit services.





Year
      ended December 31
    2004
    2003Audit
      fees
    C£
      30,500
    C£
      30,500Audit
      related fees
    C£
      25,000
    -Tax
      fees
    -
    -All
      other fees
    -
    -Total
    C£
      55,500
    C£
      30,500








**Audit
Committee's Pre-approval Policies and Procedures**





Before
the Company or its subsidiaries engage an accountant to render services, the
engagement must be (i) approved by the Committee; or (ii) entered into pursuant
to pre-approval policies and procedures, detailed as to particular service,
established by the Committee. The Committee shall pre-approve all permissible
non-audit services and all audit, review or attest engagements on the part of
the Company's auditors, except pre-approval for (i) all such services which, in
the aggregate, do not constitute more than 5% of the total amount of revenues
paid by the audit client to its accountant in the fiscal year services are
provided; (ii) such services which were not recognized by the Company as
non-audit services at the time of the engagement; and (iii) such services which
are promptly brought to the attention of the audit committee and approved prior
to the completion of the audit by the audit committee or one or more designated
representatives.  The
Committee must be informed of each service and may not delegate its
responsibilities to the Company's Management.




47




**PART
IV**








**ITEM
      15:**
    **EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
    8-K**





**(a)(1)**
    **Financial
      Statements**The
      following consolidated statements of MC Shipping Inc. and subsidiaries are
      included in ITEM 8:(i)
    Report
      of Independent Registered Public Accounting Firm;(ii)
    Consolidated
      Balance Sheets at December 31, 2004 and 2003;(iii)
    Consolidated
      Statements of Income for the Years ended December 31, 2004, 2003 and
      2002;(iv)
    Consolidated
      Statements of Cash Flows for the Years ended December 31, 2004, 2003 and
      2002;(v)
    Consolidated
      Statements of Shareholders' Equity for the Years ended December 31, 2004,
      2003 and 2002; and(vi)
    Notes
      to Consolidated Financial Statements.**(a)(2)**
    **Financial
      Statement Schedule**(i)
    Schedule
      II - Valuation and Qualifying Accounts






**(a)(3)**
    **Exhibits**3.1
    -
    Articles
      of Incorporation, as amended, of the Company (incorporated by reference to
      the Company's Form 8-K filed on January 7, 2003).3.2
    -
    By-Laws
      of the Company (incorporated by reference to Exhibit 3.2 to Amendment No.1
      to the Company's Registration Statement on Form S-1
      (33-27847)).4.1
    -
    Specimen
      Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the
      Company's Registration Statement on Form S-1
  (33-27847)).10.1
    -
    Agreements
      dated June 17, 2003 for the sale of containerships Maersk Constantia, SV
      Sederberg, SV Heldenberg, SV Winterberg(incorporated
      by reference to Exhibits (a,b,c,d) to the Company's Form 10-Q for the
      quarter September 30, 2003).10.2
    -
    Loan
      Agreement with Fortis Bank and Guarantee Agreement dated October 11, 200421
    -
    List
      of Subsidiaries.31
    -
    Certifications
      provided by the Chief Executive Officer and the Chief Financial Officer of
      the Company pursuant to Section 302 of the Sarbanes-Oxley Act of
      2004.32
    -
    Certifications
      provided by the Chief Executive Officer and the Chief Financial Officer of
      the Company pursuant to Section 906 of the Sarbanes-Oxley Act of
      2004.




48




The
Company will furnish to its shareholders copies of any exhibits to this Form
10-K upon request to the Secretary of the Company for a fee limited to the
duplicating and postage costs associated with any such mailing.








**(b)**
    **Reports
      on Form 8-K filed after December 31,
2004:**





The
Company filed a report on form 8-K on January 26, 2005.




49




**SIGNATURES**





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorised.








MC SHIPPING INC.(Registrant)Date:
      March 18, 2005
    /S/
      ANTONY S CRAWFORDAntony.
      S. CrawfordChief
      Executive Officer and President







Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.








**Name**
    
    **Title**
    
    **Date**/S/
      DOMINIQUE SERGENT
    
    Vice
      President, Chief Financial
    
    March
      18, 2005Dominique
      Sergent
    
    Officer
      and Treasurer(Principal
      Accounting Officer)/S/
      CHARLES B. LONGBOTTOM
    
    Chairman
      of the Board
    
    March
      18, 2005Charles
      B. Longbottom/S/
      JOHN H. BLANKLEY
    
    Director
    
    March
      18, 2005John
      H. Blankley/S/
      ANTON PARDINI
    
    Director
    
    March
      18, 2005Anton
      Pardini/S/
      HORST SCHOMBURG
    
    Director
    
    March
      18, 2005Horst
      Schomburg/S/
      TULLIO BIGGI
    
    Director
    
    March
      18, 2005Tullio
      Biggi




50