**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, 2006**
            **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 N°)


**_____________________________**


**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 if the Registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act



      yes  ý
      no


Indicate
      by check mark if the Registrant is not required to file reports pursuant to
      Section 13 or section 15(d) of the Act


  yes  ý
      no


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.


ý
      yes 
no


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.  ý





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


Large
      accelerated
      filer          Accelerated
      filer           Non-accelerated
      filer   ý


Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Act)



      yes  ý
      no


_______________________________


The
      aggregate market value of the voting and non voting common equity held by
      non-affiliates of the Registrant computed by reference to the closing American
      Stock Exchange price on June 30, 2006 was: $43,943,840. Excluded from this
      amount are the shares of Common Stock beneficially owned by Navalmar and
      Weco-Rederi and by each officer and director of the Registrant in that such
      companies and persons may be deemed to be affiliates of the Registrant. 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 15, 2007 was:


**Common
      Stock, $.01 par value: 9,510,017**


________________________







1


Table
      of contents








PagePART
                      IItem
                      1:
                  Business
                  3Item
                      1A:
                  Risk
                      factors
                  7Item
                      1B:
                  Unresolved
                      staff comments
                  10Item
                      2:
                  Properties
                  10Item
                      3:
                  Legal
                      proceedings
                  11Item
                      4:
                  Submission
                      of matters to a vote of security
                      holders
                  11PART
                      IIItem
                      5:
                  Market
                      for common equity and related stockholder
                      matters
                  11Item
                      6:
                  Selected
                      financial data
                  12Item
                      7:
                  Management’s
                      discussion and analysis of financial condition
                      and results of operations
                  14Item
                      7A:
                  Quantitative
                      and qualitative disclosures about market
                      risk
                  28Item
                      8:
                  Financial
                      statements and supplementary
                      data
                  30Item
                      9:
                  Changes
                      in and disagreements with accountants on
                      accounting and financial
                      disclosure
                  56Item
                      9A:
                  Controls
                      and procedures
                  56Item
                      9B:
                  Other
                      information
                  57PART
                      IIIItem
                      10:
                  Directors,
                      executive officers and corporate
                      governance
                  57Item
                      11:
                  Executive
                      compensation
                  59Item
                      12:
                  Security
                      ownership of certain beneficial holders and
                      management and related
                      shareholders matters
                  64Item
                      13:
                  Certain
                      relationships and related transactions and
                      director independence
                  65Item
                      14:
                  Principal
                      accounting fees and services
                  66PART
                      IVItem
                      15:
                  Exhibits,
                      financial statement schedules and reports on
                      Form 8-K
                  67EXHIBITSExhibit
                      21:List
                      of subsidiaries
                  69Exhibits
                      31 and 32:Certifications
                  70


2
 *Table
          of Contents*




Certain
      statements within this annual
      report on Form 10-K may constitute forward-looking statements within the meaning
      of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These
      statements are being made pursuant to the PLSRA, with the intention of obtaining
      the benefits of the “safe harbor” provisions of the PLSRA, and other than
      required by law, we assume no obligation to update or supplement such
      statements. Forward-looking statements are those that do not relate solely
      to
      historical fact. They include, but are not limited to, any statement that may
      predict, forecast, indicate or imply future results, performance, achievements
      or events. You can identify those statements by the use of words such as “may”,
“will”, “could”, “anticipate”, “believe”, “estimate”, “expect”, “intend”,
“predict”, or “project” and variations of these words or comparable words or
      phrases of similar meaning. These forward-looking statements reflect our current
      beliefs and expectations with respect to future events and are based on
      assumptions and are subject to risks and uncertainties and other factors outside
      our control that may cause results to differ materially from those projected
      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.








**PART
      I**





**ITEM
      1: BUSINESS - GENERAL**





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





Since
      its formation, the Company has
      been engaged in the business of investing in, owning and operating vessels.
      As
      of December 31, 2006, the Company's fleet consisted of nineteen ships. Fourteen
      of these vessels were wholly owned liquefied petroleum gas (“LPG”) carriers.
      Each of the Company’s wholly owned vessels is, in turn, owned by a separate
      wholly owned subsidiary of the Company. In addition, as of December 31, 2006,
      the Company had a 50% interest in one LPG carrier and a 25.8% percent interest
      in four containerships.





An
      LPG
      carrier is designed to carry petroleum gases used primarily as low pollution
      fuels and as feedstock in the petrochemical and fertilizer industries. A
      containership is a vessel designed exclusively to carry containers.





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 or several ports and the Company is paid for the tonnage transported
      and pays for all voyage costs.





The
      level
      of the Company's revenues and expenses will vary from year to year depending
      on,
      among other things, the number of vessels controlled by the Company during
      each
      year, the type of employment 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, and 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
      many factors, including 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.


3
 *Table
          of Contents*




**OPERATIONS**





Ship
      owning 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 and commercial management
      functions but may, on a case-by-case basis, engage the services of independent
      brokers in order to obtain employment for the Company’s vessels and to manage
      its relations with its charterers.





The
      technical management function is
      sub-contracted to unrelated ship managers. Anglo Eastern Ship Management Ltd
      (“Anglo Eastern”), Hanseatic Shipping Company Ltd (“Hanseatic”) and Wallem
      Shipmanagement Ltd (“Wallem”) currently manage the LPG vessels. V.Ships manages
      the 25.8% owned container carriers. Management may, in the future, use other
      ship managers if the price and service are more favorable. The technical
      management agreements are “cost-plus” contracts under which the Company
      reimburses all costs incurred by the technical managers for the operation of
      the
      Company's vessels and the technical managers are paid a fixed management fee.
      Management exercises regular controls over the technical managers to ensure
      that
      the vessels are properly maintained.





The
      Company had forty-two charters
      covering the year 2006, nine of which commenced prior to 2006 and three
      charterers provided revenues exceeding 10% of the Company’s total
      revenues





Although
      separate vessel financial
      information is available**,** 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. As a result, the Company has
      determined it operates as one reportable segment.





Non-U.S.
      operations accounted for 100% of the Company’s revenues and net income in 2006.
      Since the Company’s vessels regularly move between countries in international
      waters over hundreds of trade routes, it is impractical to assign revenues
      or
      earnings from the transportation of international LPG products by geographic
      area.





**COMPENSATION
      TO AFFILIATES**





From
      the Company’s inception through
      August 1, 2006, the ship management company V.Ships had been an affiliate of
      the
      Company until it sold its remaining interest in the Company to Weco-Rederi
      A/S
      (see Item 12 - Security ownership of certain beneficial owners and management
      and Item 13 - Certain relationships and related transactions and director
      independence). Therefore, any related company disclosure contained herein with
      respect to V.Ships relates only to the period from January 1 through August,
      1
      2006. Comparables for previous periods refer to the full year.


During
        the third quarter of 2006, the
        technical management of the vessels previously managed by V.Ships was
        transferred to non-related technical managers. The four container vessels
        owned
        by Munia Mobiliengesellschaft
        mbH & Co. KG (“MUNIA”), in which the Company owns a 25.8% interest, are
        still managed by V.Ships.


4
 *Table
          of Contents*





The
      Company, via its wholly owned
      subsidiaries, was party to management agreements with V.Ships for the technical
      operation of some of its vessels. The management agreements were “cost-plus”
contracts under which the Company reimbursed all costs incurred by V.Ships
      for
      the operation of the Company's vessels and V.Ships was paid a fixed management
      fee.In 2006, the
      management fees were fixed at the rate of $8,500 per vessel/per month. In 2005,
      the fees were $9,250 per vessel/per month for large LPG carriers and $9,167
      per
      vessel/per month for smaller LPG carriers compared to $8,855 and $8,753,
      respectively, in 2004. From January 1 to August 1, 2006, the Company paid
      management fees of $535,500 to V.Ships compared to $1,006,756 in 2005 and
      $1,150,926 in 2004.





Prior
      to August 1, 2006, from time to
      time, the Company employed the services of an affiliate of V.Ships for legal
      work related to the acquisition and disposal of vessels. Legal fees were
      determined in light of current industry practice. From January 1 to August
      1,
      2006, the Company paid legal fees of $37,598 to an affiliate of V.Ships compared
      to $37,876 in 2005 and $33,443 in 2004.





Prior
      to May 31, 2006, the Company
      leased office space from and reimbursed telecommunication expenses to various
      affiliates of V.Ships. From January 1 to August 1, 2006, the rental cost and
      telecommunication expenses paid to affiliates of V.Ships totaled approximately
      $49,663, compared to $104,455 in 2005 and $133,416 in 2004.





Prior
      to July 1, 2006, the Company
      outsourced certain bookkeeping functions to an affiliate of V.Ships. From
      January 1 to August 1, 2006, the Company paid approximately $21,250 for
      accounting services to an affiliate of V.Ships compared to $28,833 in 2005
      and
      $31,000 in 2004.





From
      August 2004 to October 31, 2005,
      the Company paid a fee of £10,000 per month to V.Investments in consideration of
      V.Ships permitting the Company’s Chief Executive Officer, then a full time
      employee of V.Ships, to provide his services to the Company on a part time
      basis. The Company also reimbursed V.Ships for all business expenses incurred
      by
      the CEO in the provision of his services. In 2005 and 2004, fees paid to
      V.Investments amounted to $181,958 and $95,379, respectively.





In
      addition, as technical manager of
      the Company’s fleet, until the third quarter of 2006, V.Ships occasionally
      utilized the services of its affiliates to arrange for crew and staff traveling,
      port agency services, manning, safety and training services, and miscellaneous
      other services as described below.





Prior
      to August 1, 2006, the Company
      used the services of a company affiliated with V.Ships for crew and staff
      travel. From January 1 to August 1, 2006, V.Ships did not disclose the amount
      of
      such travel expenses which were included in vessel operating or general and
      administrative expenses. In 2005, these expenses totaled $378,340 compared
      to
      $267,670 in 2004.





Prior
      to August 1, 2006, the Company
      occasionally used the port agency services of various companies affiliated
      with
      V.Ships. From January 1 to August 1, 2006, V.Ships did not disclose the amount
      paid to these companies for port and other costs, which were included in vessel
      operating expenses. In 2005, these costs totaled $278,719 compared to $313,754
      in 2004.





Prior
      to August 1, 2006, the Company
      used various companies affiliated with V.Ships for manning, safety and training.
      From January 1 to August 1, 2006, V.Ships did not disclose the amount of such
      expenses which were included in vessel operating expenses. In 2005, these costs
      totaled $ 253,375 compared to $346,129 in 2004.





At
      December 31, 2006, the Company had
      intercompany balances for trade accounts payable to affiliates of $369,423
      compared to $202,208 for receivable from affiliates at December 31, 2005. The
      balance at December 31, 2006 included $296,475 payable to MUNIA for amounts
      due
      under the guarantee agreement and for the dry-dock of a vessel. The balance
      at
      December 31, 2005 included a $180,789 receivable from MUNIA for the payment
      of
      lube oil remaining on board at the time of sale of the container
      vessels.


5
 *Table
          of Contents*




**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 labor 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 Defense
      Insurance and Loss of Earnings Insurance on its vessels consistent with industry
      practices. 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
      vessel 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.





The
      Company’s insurers require the Company’s vessels to 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 Organization 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 that 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 geographic areas where the Company
      anticipates having such work performed will be approximately $300,000 to
      $2,000,000 per vessel, depending upon the size and complexity of the vessel.
      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.


6
 *Table
          of Contents*




**COMPETITION**





Competition
      in the operation of 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 sector, 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 as well as the operator’s relationship with
      charterers.





Management
      believes that the most
      effective technique in dealing with competitive pressures is to maintain the
      Company’s 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.





**EMPLOYEES**





At
      the end of March 2007, the Company
      employed nine persons on a full-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 Philippines currently man the Company’s vessels with approximately three
      hundred and thirty seafarers currently serving on the Company’s vessels. The
      Company is continuing to strengthen its own identity with this vital part of
      its
      business and believes it has good relationships with those who serve on board
      its vessels, as demonstrated by the high proportion of people who remained
      with
      the Company during the change of technical management in 2006.





______________________________








**ITEM
      1A:     RISKFACTORS**





**RISK
      FACTORS RELATING TO OUR BUSINESS AND OPERATIONS**





*Our
      business is subject to the general volatility of the shipping
      market*.  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 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.





*Our
      business is subject to significant environmental and other regulations.* The
      operation of vessels is affected by extensive and changing environmental
      protection and other laws and regulations, compliance with which may entail
      significant expense, including expenses for ship modifications and changes
      in
      operating procedures. Such expense could have a material adverse effect on
      the
      Company at any time.





*Our
      business is subject to**government regulation which may increase our
      costs and potential liabilities, including for the failure to obtain required
      permits, licenses and certificates and the failure to keep up with hanging
      regulations*.  The shipping 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.


7
 *Table
          of Contents*




*Shipping
      is an inherently risky
      business and our insurance may not be adequate.*  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 labor
      strikes. In addition, the operation of any ocean-going vessel entails an
      inherent risk of catastrophic marine disaster. Any of these events may result
      in
      loss of revenues, increased costs and decreased cash flows. The Company
      maintains Insurance consistent with industry practice. Nonetheless, risks may
      arise against which we are not adequately insured.  For example, a
      catastrophic event could exceed our insurance coverage and have a material
      adverse effect on our financial condition. Although the Company has had no
      difficulty in obtaining such insurance for its vessels in the past, there can
      be
      no assurance that the Company will be able to continue to procure sufficient
      amounts of insurance at commercially reasonable rates in the future and we
      cannot guarantee that any particular claim will be paid.





*There
      may be risks associated with the purchase and operation of second hand vessels.*The economic useful lives of most liquefied gas carriers are generally
      estimated to be approximately 30 years, depending on market conditions, the
      type
      of cargo being carried and the level of maintenance. Although we inspect
      second-hand vessels prior to purchase, this does not normally provide us with
      the same knowledge about their condition that we would have had if such vessels
      had been built for and operated exclusively by us.  Second-hand vessels
      carry no warranties from sellers or manufacturers. In general, expenditures
      necessary to maintain a vessel in good operating condition increase with the
      age
      of the vessel. Second-hand vessels may develop unexpected mechanical and
      operational problems despite adherence to regular survey schedules and proper
      maintenance. Changes in governmental regulations and safety standards may
      require expenditures for alterations. The Company’s vessels range from 12 to 27
      years old. There can be no assurance that market conditions will justify the
      level of expenditures necessary to maintain such vessels, to comply with
      applicable regulations, to enable the Company to operate such vessels profitably
      during the remainder of such vessels’ useful lives or to sell such vessels at
      prices approaching or in excess of the book value. Therefore, our future
      operating results could be negatively affected if some of the vessels do not
      perform as we expect.





*We
      may face unexpected repair costs for our
      vessel**s.*****Repairs and maintenance costs are
      difficult to predict with certainty and may be substantial.  Many of these
      expenses are not covered by our insurance.  Large repair expenses could
      decrease our cash flow and profitability and reduce our
      liquidity.




*Our
      revenues may be adversely
      affected if we do not successfully employ our**vessel**s**.* The Company’s vessels are currently
      chartered for periods ranging from three to fifty one months.  Upon
      the termination of such charters, the Company may seek to sell one or more
      of
      its vessels, enter into medium- to long-term charters or trade such vessels
      in
      the spot market. If the Company decides to re-charter the vessels, there can
      be
      no assurance that it will be able to enter into charters for periods and at
      rates of hire that will be sufficient to enable the Company’s vessels to be
      operated profitably.





*We
      are dependant on a few charterers and i**f we lose any of our
      charterers**,**our revenues**could decrease and**our operating results could be materially
      adversely affected*. The
      Company has derived and is expected to continue to derive, a significant portion
      of its revenues from a limited number of charterers. If the Company loses a
      significant customer, or if a significant customer decreases the amount of
      business it transacts with us, our revenues, cash flows and profitability could
      be materially and adversely affected.





*We
      depend on our key personnel and may have difficulty attracting and retaining
      skilled employees.*  The loss of the services of any of our key
      personnel or our inability to successfully attract and retain qualified
      personnel, including ships’ officers, in the future could have a material
      adverse effect on our business, financial


condition
      and results of
      operations.





*The
      risks associated with**operations outside the United States could
      adversely impact our operating results*. The Company’s operations are
      conducted worldwide, and may be affected by changing economic, political and
      social conditions in the countries where the Company is engaged in business
      or
      where the Company’s vessels are registered or flagged. In particular, the
      Company’s operations may be affected by war, expropriation of vessels, the
      imposition of taxes, increased regulation or other circumstances, and as a
      consequence the Company may incur higher costs, its assets may be impaired
      or
      its operations may be curtailed.


8
 *Table
          of Contents*




*Our
      operating performance may be
      materially affected by competition*.  Competition in the operation
      of LPG carriers is intense. A few large and experienced operators, with greater
      financial resources than those of the Company, dominate the LPG sector,
      particularly in the larger ship segments, and there is no assurance that the
      Company will be able to compete successfully with other shipping
      firms.





*Related
      party transactions may
      materially affect our business*.  Certain of the directors of the
      Company are involved in outside business activities similar to those conducted
      by the Company.  As a result of such 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.





*We
      may incur unanticipated contingent liabilities as a result of the operating
      expense guarantee given to MUNIA and LTF.*See Notes 3 and 4 to the
      Consolidated Financial Statements in Item 8.  As part of the MUNIA
      transaction, the Company agreed to guarantee certain levels of operating
      expenses and employment for the vessels until February 1, 2008, September 1,
      2008, May 15, 2009 and February 1, 2009, for each vessel respectively (or
      earlier in case of sale or total loss of a vessel). As a result, the off hire
      and the excess or surplus of operating expenses, up to a certain extent, will
      be
      absorbed by the Company. We may incur unforeseen liabilities in connection
      with
      this guarantee and liabilities may materialize that could have a material
      adverse effect on our financial condition. As part of the LTF transaction,
      the
      Company has agreed to guarantee the difference between the full management
      budget and the actual ship operating expenses for an amount not to exceed $135
      per day per vessel for four years after the delivery of each of the six
      vessels.





*If
      we
      default under any of our loan agreements, we c**ould forfeit our rights
      in our vessel**s and their charters.***We have pledged
      substantially all of our vessels and related collateral as security to the
      lenders under our loan agreements.  Default under any of these loan
      agreements, if not waived or modified, would permit the lenders to foreclose
      on
      the mortgages over the vessels and the related collateral, and we could lose
      our
      rights in the vessels and their charters.





*Our
      business exposes us to unpredictable contingent
      liabilities*.  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
      claims or disputes with charterers, agents, insurance providers or suppliers
      relating to the operations of our vessels. Such losses, if not covered by
      insurance, could have a material adverse effect on our financial condition.
      In
      the normal course of business, the Company enters into contracts that contain
      a
      variety of indemnifications with its customers, suppliers and service
      providers.  Further, the Company indemnifies its Directors and officers who
      are, or were, serving at the Company’s request in such capacities.  The
      Company’s maximum exposure under these arrangements is unknown as of December
      31, 2006.  The Company does not anticipate incurring any significant costs
      relating to these arrangements.








**RISK
      FACTORS RELATED TO OUR COMMON STOCK**





*You
      may not be able to sell your common stock when you want to and, if you do,
      you
      may not be able to receive the price that you want*.  Although our
      common stock trades on the American Stock Exchange, we do not know if an active
      trading market for the common stock will continue or, if it does, at what prices
      the common stock may trade. During 2006, the reported closing prices for our
      common stock have ranged from a high of $15.70 to a low of $9.04. In addition,
      the stock markets in general, including the American Stock Exchange, have
      experienced extreme price and trading volume fluctuations. These fluctuations
      have resulted in volatility in the market prices of securities that has often
      been unrelated or disproportionate to changes in operating performance. These
      broad market fluctuations may adversely affect the market prices of our common
      stock. Further, possible additional issuances could significantly increase
      the
      number of shares of our common stock outstanding, and could result in a decline
      in the market price of our common stock. Therefore, you may not be able to
      sell
      our common stock when you want and, if you do, you may not receive the price
      you
      want.


9
 *Table
          of Contents*





*We
      cannot assure you that we will pay any dividends.***In March
      2005, our board of Directors initiated a cash dividend policy. The timing
      and amount of dividends, if any, could be affected by factors affecting cash
      flows, results of operations, required capital expenditures, or reserves. 
Maintaining the dividend policy will depend on our cash earnings, financial
      condition and cash requirements and could be affected by factors, including
      the
      loss of a vessel, required capital expenditures, reserves established by the
      Board of Directors, increased or unanticipated expenses, additional borrowings
      or future issuances of securities, which may be beyond our control.





______________________________





**ITEM
      1B:    UNRESOLVED STAFF
      COMMENTS**





We
      have no unresolved staff
      comments.





______________________________








**ITEM2:      
      PROPERTIES**





We
      lease two properties, both of which
      house offices used in the administration of our operations. One such property
      is
      approximately 1,233 square feet, is located in London and has a nine year lease.
      The other property is approximately 1,130 square feet, is located in Monaco
      and
      has a three year lease. We do not own or lease any other real
      properties.





At
      December 31, 2006, the Company’s
      fleet consisted of the following vessels:





**Name**
            
            **Type**
            
            **Year
                Built**
            
            **DWT**
            
            **CBM**
            
            **%
                ownership**Deauville
            
            LPG
                Carrier
            
            1995
            
            2,601
            
            3,516
            
            100.0%Auteuil
            
            LPG
                Carrier
            
            1995
            
            2,588
            
            3,516
            
            100.0%Malvern
            
            LPG
                Carrier
            
            1990
            
            4,148
            
            3,206
            
            100.0%Cheltenham
            
            LPG
                Carrier
            
            1990
            
            4,318
            
            3,208
            
            100.0%Longchamp
            
            LPG
                Carrier
            
            1990
            
            4,316
            
            3,207
            
            100.0%Blackfriars
                Bridge
            
            LPG
                Carrier
            
            1981
            
            4,400
            
            5,647
            
            100.0%London
                Bridge
            
            LPG
                Carrier
            
            1980
            
            4,400
            
            5,673
            
            100.0%Coniston
            
            LPG
                Carrier
            
            1991
            
            4,833
            
            4,015
            
            100.0%Barnes
                Bridge
            
            LPG
                Carrier
            
            1982
            
            16,225
            
            15,370
            
            100.0%Kew
                Bridge
            
            LPG
                Carrier
            
            1983
            
            16,228
            
            15,364
            
            100.0%Maersk
                Houston
            
            LPG
                Carrier
            
            1993
            
            23,270
            
            20,700
            
            100.0%La
                Forge
            
            LPG
                Carrier
            
            1981
            
            45,587
            
            70,793
            
            100.0%Chelsea
                Bridge
            
            LPG
                Carrier
            
            1987
            
            51,466
            
            77,749
            
            100.0%Tower
                Bridge
            
            LPG
                Carrier
            
            1991
            
            49,245
            
            75,353
            
            100.0%Galileo
            
            LPG
                Carrier
            
            1983
            
            47,593
            
            59,725
            
            50.0%Maersk
                Belawan
            
            Container
                Carrier
            
            1983
            
            37,212
            
            -
            
            25.8%Maersk
                Brisbane
            
            Container
                Carrier
            
            1976
            
            37,129
            
            -
            
            25.8%Maersk
                Barcelona
            
            Container
                Carrier
            
            1976
            
            37,115
            
            -
            
            25.8%Ankara
            
            Container
                Carrier
            
            1975
            
            37,116
            
            -
            
            25.8%


**______________________________**


10
 *Table
            of Contents*




**ITEM
      3:       LEGAL
      PROCEEDINGS**





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.




Following
      the extended dry-docking of La Forge in 2006, the charterers lodged a claim
      against the Company for damages arising out of the deprivation of use of the
      vessel and compensation was demanded for the additional cost of hiring
      replacement vessels. The Company intended to challenge this claim; however
      the
      charterers agreed to substantially reduce the quantum of their claim if a
      settlement could be reached out of court and the Company considered the
      settlement proposal worth accepting rather than incurring the costs of
      arbitration. The Company received a settlement proposal of $1,050,000 net of
      hire due to the Company from the same charterers and
      adjusted accruals to an equal amount. The Company will seek
      to recover the full amount lost from the technical managers who actually
      budgeted, planned and executed the dry dock.





______________________________








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





On
      June 27, 2006, at a duly constituted
      Annual Meeting of Shareholders, the holders of a majority of the outstanding
      shares of the Company’s common stock approved the deletion of Article SEVEN,
      Restrictions upon Indebtedness of the Corporation, from the Company’s Articles
      of Incorporation.  The Company’s Articles of Amendment amending the
      Articles of Incorporation to reflect such deletion became effective on August
      7,
      2006 upon their filing with the Liberian International Ship and Corporate
      Registry.





_________________________








**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 15, 2007, there were 54
      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**
                  
                  **2006**
                  
                  
                  **2005****High**
                  
                  
                  **Low**
                  
                  
                  **High**
                  
                  
                  **Low**March
                      31
                  
                  
                  15.70
                  
                  
                  
                  12.02
                  
                  
                  
                  8.93
                  
                  
                  
                  3.55June
                      30
                  
                  
                  13.88
                  
                  
                  
                  10.10
                  
                  
                  
                  10.11
                  
                  
                  
                  7.59September
                      30
                  
                  
                  11.93
                  
                  
                  
                  10.11
                  
                  
                  
                  10.35
                  
                  
                  
                  8.95December
                      31
                  
                  
                  10.50
                  
                  
                  
                  9.04
                  
                  
                  
                  15.82
                  
                  
                  
                  9.30




11
 *Table
          of Contents*




***DIVIDENDS***





In
      March 2007, the Company’s Board of
      Directors announced an expected dividend of $0.25 per share to be paid in four
      equal quarterly installments. The first quarterly installment was declared
      on
      March 21, 2007 and is payable on April 30, 2007. During 2006, the Company’s
      Board of Directors declared dividends of $0.25 per share as well as a common
      stock dividend of one share for every twenty shares owned, rounded up to the
      nearest multiple. During 2005, the Company’s Board of Directors declared
      dividends of $0.25 per share.





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
      AUTHORIZED UNDER EQUITY
      COMPENSATION PLAN***





On
      March
      24, 2006, the Company filed a registration statement on Form S-8 to register
      the
      re-offer and resale of up to 357,996 shares of common stock of the Company,
      which have been issued or will be issued under the Company Stock Option Plan
      to
      the Company’s employees.








As
                              of December 31, 2006Plan
                              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
                          
                          
                          47,000
                          
                          
                          $
                          9.228
                          
                          
                          
                          -Equity
                              compensation plans not approved by security holders
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Total
                          
                          
                          47,000
                          
                          
                          $
                          9.228
                          
                          
                          
                          -







**ITEM
      6:      SELECTED FINANCIAL
      DATA**





The
      following selected financial data
      for the years ended December 31, 2006, 2005, 2004, 2003 and 2002 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.





The
      Company is in the business of
      investing in, owning and operating vessels. As a result, the composition and
      size of the Company’s fleet may vary significantly year to year (see Note 3:
      Acquisitions and Sales of Vessels to the Consolidated Financial Statements
      in
      Item 8).


12
 *Table
          of Contents*


**Consolidated
      Statements of Operations Data**





**Years
                        ended December 31****2006**
                    
                    
                    **2005**
                    
                    
                    **2004**
                    
                    
                    **2003**
                    
                    
                    **2002**Charterhire
                        and Other  Income
                    
                    $
                    52,417,310
                    
                    
                    $
                    35,396,519
                    
                    
                    $
                    31,895,393
                    
                    
                    $
                    35,797,522
                    
                    
                    $
                    41,858,999Commission
                        on Charterhire
                    
                    
                    (541,978
                    )
                    
                    
                    (532,281
                    )
                    
                    
                    (759,673
                    )
                    
                    
                    (895,394
                    )
                    
                    
                    (1,100,422
                    )Vessel
                        Operating Expenses
                    
                    
                    (23,186,469
                    )
                    
                    
                    (13,983,069
                    )
                    
                    
                    (16,821,562
                    )
                    
                    
                    (17,875,984
                    )
                    
                    
                    (19,547,436
                    )Amortization
                        of Dry- docking Costs
                    
                    
                    (1,790,657
                    )
                    
                    
                    (808,129
                    )
                    
                    
                    (1,433,150
                    )
                    
                    
                    (1,176,659
                    )
                    
                    
                    (575,185
                    )Depreciation
                    
                    
                    (13,247,717
                    )
                    
                    
                    (8,114,264
                    )
                    
                    
                    (5,140,639
                    )
                    
                    
                    (8,295,583
                    )
                    
                    
                    (9,127,713
                    )General
                        and  Administrative Expenses
                    
                    
                    (2,689,630
                    )
                    
                    
                    (2,254,864
                    )
                    
                    
                    (2,577,213
                    )
                    
                    
                    (1,419,368
                    )
                    
                    
                    (1,382,587
                    )Income
                        from vessel operations
                    
                    
                    10,960,859
                    
                    
                    
                    9,703,912
                    
                    
                    
                    5,163,156
                    
                    
                    
                    6,134,534
                    
                    
                    
                    10,125,656Impairment
                        Loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,693,650
                    )
                    
                    
                    (1,687,370
                    )Net
                        Gain on sale of vessels
                    
                    
                    1,035,642
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,785,253
                    
                    
                    
                    -Recognized
                        deferred gain  on sale of vessels
                    
                    
                    4,763,338
                    
                    
                    
                    4,515,383
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Equity
                        in (Loss)/Gain from Associated Companies
                    
                    
                    (288,627
                    )
                    
                    
                    113,983
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -OPERATING
                        INCOME
                    
                    
                    16,471,212
                    
                    
                    
                    14,333,278
                    
                    
                    
                    5,163,156
                    
                    
                    
                    5,226,137
                    
                    
                    
                    8,438,286Interest
                        Expense
                    
                    
                    (6,784,088
                    )
                    
                    
                    (4,018,670
                    )
                    
                    
                    (3,463,491
                    )
                    
                    
                    (4,866,062
                    )
                    
                    
                    (6,418,537
                    )Interest
                        Income
                    
                    
                    462,084
                    
                    
                    
                    454,037
                    
                    
                    
                    156,964
                    
                    
                    
                    110,603
                    
                    
                    
                    127,559(Loss)/Gains
                        on debt extinguishment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (744,250
                    )
                    
                    
                    2,620,477
                    
                    
                    
                    94,598NET
                        INCOME
                    
                    $
                    10,149,208
                    
                    
                    $
                    10,768,645
                    
                    
                    $
                    1,112,379
                    
                    
                    $
                    3,091,155
                    
                    
                    $
                    2,241,906Per
                        Share amounts (1):Basic
                        Net Income
                    
                    $
                    1.07
                    
                    
                    $
                    1.16
                    
                    
                    $
                    0.12
                    
                    
                    $
                    0.34
                    
                    
                    $
                    0.25Diluted
                        Net Income
                    
                    $
                    1.06
                    
                    
                    $
                    1.14
                    
                    
                    $
                    0.12
                    
                    
                    $
                    0.33
                    
                    
                    $
                    0.24





(1)
      All
      prior period basic and diluted earnings per share calculations presented have
      been restated to reflect the impact of the stock dividends declared in March
      2004 and April 2006.








**Consolidated
      Balance Sheet Data**





**December
                      31****2006**
                  
                  
                  **2005**
                  
                  
                  **2004**
                  
                  
                  **2003**
                  
                  
                  **2002**Current
                      Assets
                  
                  $
                  12,033,564
                  
                  
                  $
                  15,733,128
                  
                  
                  $
                  13,885,893
                  
                  
                  $
                  19,727,175
                  
                  
                  $
                  18,787,275Current
                      Liabilities
                  
                  $
                  39,242,508
                  
                  
                  $
                  17,749,812
                  
                  
                  $
                  11,980,513
                  
                  
                  $
                  10,718,847
                  
                  
                  $
                  20,869,488Total
                      Assets
                  
                  $
                  221,329,389
                  
                  
                  $
                  148,742,523
                  
                  
                  $
                  80,317,068
                  
                  
                  $
                  87,316,016
                  
                  
                  $
                  112,629,237Long-term
                      Debt
                  
                  $
                  124,269,936
                  
                  
                  $
                  77,326,000
                  
                  
                  $
                  37,500,000
                  
                  
                  $
                  47,081,690
                  
                  
                  $
                  65,461,243Shareholders’
                      Equity
                  
                  $
                  48,247,207
                  
                  
                  $
                  40,466,810
                  
                  
                  $
                  30,836,555
                  
                  
                  $
                  29,228,585
                  
                  
                  $
                  25,788,339





_________________________________________________


13
 *Table
          of Contents*





**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
      formation, the Company has been engaged in the business of investing in, owning
      and operating commercial cargo vessels. As of December 31, 2006, the Company
      owned interests in nineteen vessels. Fourteen LPG carriers were wholly owned.
      Each of the Company’s wholly owned vessels is owned, in turn, by a separate
      wholly owned subsidiary of the Company. In addition, the Company had a 50%
      interest in one LPG carrier and a 25.8% percent interest in four
      containerships.





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 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 and the Company is paid for the cargo transported and pays
      for
      the voyage costs and operating costs.





In
      all
      chartering arrangements, both ship-owner 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,
      among other things, the number of vessels controlled by the Company during
      each
      year, the type of employment and the charter rates of the vessels.





***Shipping
      markets***





The
      Company’s primary focus is the carriage of Liquefied Petroleum Gas (LPG). LPG is
      a by-product of crude oil refining or natural gas production and it is
      considered a clean fuel relative to other fossil fuels.





The
      LPG
      trade is set to increase dramatically over the next five years as major
      Liquefied Natural Gas (“LNG”) terminals in Qatar, West Africa and other regions
      are completed. LPG production will represent between 5 and 10% of the off take
      of LNG, a significant increase over to-day’s capacity. These major projects will
      require additional ships as the production comes on line.





World
      seaborne trade of LPG stood at 76.4 million tons in 2005 and is forecasted
      to
      grow by over 30% to about 102 million tons by 2011 as pressure increases to
      reduce the production of green house gasses and to move towards cleaner forms
      of
      energy. LPG was commonly flared off in the production of crude oil, a practice
      which has now all but ceased.





The
      industry operates in three sectors. Very large gas carriers (“VLGC”) of circa
      70,000 cbm or above operate as mother ships, transporting product mainly from
      the Arabian Gulf to various destinations. The Company owns four ships which
      fall
      into this category. In 2006, the market reached the highest recorded freights
      ($65 per ton on the bench mark AG/Japan voyage) and some of the lowest ($19
      per
      ton).





14
 *Table
          of Contents*


As
      the
      Company was aware of the build-up of production caused by the commissioning
      of
      the new LNG plants, three of these four vessels were covered by pre-arranged
      time charters. The fourth vessel was on**time charter for much of
      the year, returning to the spot market in the third quarter. Further period
      employment is expected to be arranged for this vessel as production builds
      up.





During
      the year 2006, the Company entered the mid-sized market purchasing three new
      vessels, between 15,000CBM and 21,000CBM. The market for this size was quite
      competitive, with strong rates experienced during 2006. The Company’s ships were
      purchased with contracts for periods ranging from two to five years, so the
      Company had no exposure to the spot market in 2006.





The
      small
      sector (3,500 to 6,000 cbm) was robust in 2006 with rates remaining historically
      firm. The Company’s small ships were employed during the year with most of the
      oil majors or traders, where they enjoy a good reputation.





The
      Company’s traditional strength is in our customer base and the relationships we
      share with our customers. This area remains a key area of development. As we
      expand the range of ship sizes in which we operate, we seek to expand our
      relationships with our customers in these additional size brackets. Marketing
      is
      conducted from our head office in Monaco with assistance from our new London
      office.





The
      table
      below demonstrates the variation in freight rates on the Arabian Gulf/Japan
      route. The table also shows the evolution of 12-month time charter rates for
      vessels of sizes and types similar to the Company’s ships.





**LPG
                                  market**
                              
                              2004
                              
                              
                              2005
                              
                              
                              2006Voyage
                                  rates ($/mt) Arabian Gulf/Japan
                              
                              
                              36.15
                              
                              
                              
                              40.51
                              
                              
                              
                              46.7112-month
                                  time charter ($/day)78,000
                                  m3
                                  average daily charter rate
                              
                              
                              27,822
                              
                              
                              
                              33,538
                              
                              
                              
                              37,32715,000
                                  m3
                                  average daily charter rate
                              
                              
                              17,699
                              
                              
                              
                              22,353
                              
                              
                              
                              23,0143,500
                                  m3
                                  average daily charter rate
                              
                              
                              6,247
                              
                              
                              
                              7,566
                              
                              
                              
                              7,401


*Sources:*           *©
      Clarkson Research Services Limited; © Lorentzen & Stemoco;**© Barry
      Rogliano Salles;*


*©
Inge
      Steensland
      AS.*





The
      Company retained exposure to the Container market through its partial ownership
      of four 2500 TEU container ships. In 2006, the market for containerships was
      30-35% lower than the average 2005 rates. The four container vessels, which
      are
      25.8% owned by the Company are fixed on long term charters with
      A.P.Moller-Maersk until February 1, 2008, September 1, 2008, May 15, 2009 and
      February 1, 2009, respectively. The timing of the contracts has resulted in
      the
      vessels earning rates below current market levels.




***Market
      value of the fleet***





On
      the basis of appraisals received
      from two leading independent shipbrokers, the average appraised value of the
      Company’s fully owned fleet in January 2007 was approximately $240,875,000
      compared to a book value of $190,990,515 on December 31, 2006. The excess of
      appraised value over book value was approximately $49.9 million.





In
      January 2006, the appraised value of
      the Company’s fleet was approximately $174,675,000 compared to a book value of
      $121,991,571 at December 31, 2005. The excess of appraised value over book
      value
      was approximately $52.7 million.





***Retained
      earnings.***





As
      of
      December 31, 2006, the Company's retained earnings were
      nil.


15
 *Table
          of Contents*


**RESULTS
      OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER  31,
      2005**





***Significant
      events during 2006***





In
      2006, the Company took further steps
      to focus on the LPG sector. Between March and July 2006, the Company purchased
      five LPG vessels representing a total capacity of 62,754 cbm, thereby starting
      to build a presence in the mid size sector. In June, the Company sold its small
      coastal bulkers, which it considered to be non-core to its main business. In
      the
      later part of the year, the Company sold the six smaller LPG vessels
      representing a total capacity of 20,668 cbm, each with a four year charterback.
      A portion of the cash raised from this transaction is expected to be reinvested
      in  the LPG sector (see Note 3. Purchase and sale of vessels to the
      financial statements in Item 8).





In
      2006, for the first time since its
      formation, the Company changed technical managers on its fleet. The Company’s
      wholly owned vessels are now technically managed by Anglo Eastern, Hanseatic
      or
      Wallem. Management believes that moving to a competitive arms-length pool of
      service providers ensures best practice for the Company.****The
      change of technical manager resulted in a heavy concentration of non-recurring
      transition costs of approximately $687,530, including the payment of three
      months’ cancellation management fees due to the previous manager, crew
      repatriation expenses, new crew traveling on-board, hiring and training costs,
      superintendent fees to supervise the manager change and upgrading to new
      managers’ standards among other things. This resulted in the incurrence of extra
      costs and a concentration of costs in a short period of time. These costs,
      which
      are included in vessel operating expenses, can be estimated to be approximately
      $687,530.  The detail of these costs is given below:





Cancellation
                        fees
                    
                    $
                    229,500Manning
                        expenses
                    
                    
                    144,249Repairs
                        and maintenance
                    
                    
                    185,434Stores
                    
                    
                    93,747Spares
                    
                    
                    7,930Superintendent
                        fees
                    
                    
                    2,530Lub
                        oil
                    
                    
                    2,177Others
                    
                    
                    21,963Total
                    
                    $
                    687,530








In
      2006, the Company incurred a
      significant amount of off-hire time related for the most part to the dry-dock
      of
      the La Forge. The dry-dock lasted approximately 125 days whereas a special
      survey dry-dock for a vessel of comparable size and age usually lasts
      approximately four to five weeks. The excess off-hire time cost approximately
      $1,790,886 to the Company in lost revenues. The lost trading days directly
      and
      adversely impacted the Company’s charterhire revenue and net income as the
      Company does not include off-hire time incurred to perform the dry-dock in
      the
      cost of dry-dock. The cost of the dry-dock also exceeded the budgeted amounts.
      Dry-dock costs are deferred and amortized over five years to the next
      intermediate or special survey. The technical managers responsible have been
      changed and the vessel is now back in full operation. Following the extended
      dry-docking of the vessel, the charterers lodged a claim against the Company
      for
      damages arising out of the deprivation of use of the vessel and the Company
      has
      recorded a reserve of $1,050,000 in this regard which it will seek to recover
      from the technical manager.





Net
      income in 2006 was negatively impacted by other factors. The Company wrote
      off
      $220,210 of issuance costs of the loan granted by Scotiabank in July 2006 (see
      Note 6. Long term debt). The late delivery by the sellers of Tycho Brahe and
      Immanuel Kant on July 24, instead of July 1 as planned, resulted in the receipt
      of compensation of $613,455, which was recorded as a reduction in purchase
      price
      (see Note 3: Acquisitions and sale of vessels to the Consolidated Financial
      Statements in Item 8). If such delivery had occurred on time, net income would
      have been approximately $450,000 higher.


16
 *Table
          of Contents*


The
      following table illustrates the effects of the events discussed above on the
      Company’s earnings in 2006. The non-GAAP disclosure of earnings is not
      preferable to GAAP net earnings but is shown as a supplement to such disclosure
      for comparability to the prior years’ earnings.








2006
                                          
                                          
                                          2005
                                          
                                          
                                          2004Net
                                              income, before costs related to La
                                              Forge dry-dock, change of managers,
                                              loss on debt extinguishment and lost
                                              income related to late delivery of
                                              two vessels acquired in July
                                          
                                          $
                                          14,347,834
                                          
                                          
                                          $
                                          10,768,645
                                          
                                          
                                          
                                          1,856,629Per
                                              share
                                          
                                          $
                                          1.51
                                          
                                          
                                          $
                                          1.16
                                          
                                          
                                          $
                                          0.20La
                                              Forge excess dry-dock off-hire
                                          
                                          
                                          (1,790,886
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Provision
                                              for the La Forge settlement
                                          
                                          
                                          (1,050,000
                                          )Costs
                                              related to change of managers
                                          
                                          
                                          (687,530
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Loss
                                              on early debt extinguishment
                                          
                                          
                                          (220,210
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (744,250
                                          )Lost
                                              income related to late delivery of
                                              two vessels acquired in
                                              July
                                          
                                          
                                          (450,000
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Net
                                              income, as reported
                                          
                                          $
                                          10,149,208
                                          
                                          
                                          $
                                          10,768,645
                                          
                                          
                                          $
                                          1,112,379Per
                                              share
                                          
                                          $
                                          1.07
                                          
                                          
                                          $
                                          1.16
                                          
                                          
                                          $
                                          0.12





On
      December 18, 2006, the Company signed agreements to sell the LPG carriers
      Auteuil, Deauville, Cheltenham, Malvern, Coniston and Longchamp to
      Beteiligungsgesellschaft LPG Tankerflotte mbH & Co. KG (“LTF”), a special
      purpose German KG company formed by the German finance house MPC Munchmeyer
      Petersen AG (“MPC”) for a total price of $52 million and to charter back the
      vessels for four years. The actual delivery of the vessels is to take place
      in
      2007. As part of the transaction, the Company will take a stake of approximately
      25% of LTF, which will make it the largest shareholder in the buying company
      (see Note 3: Acquisitions and sale of vessels to the Consolidated Financial
      Statements in Item 8).





***Revenue***





The
      Company had gross revenue from
      charterhire and other sources of $52,417,310 for the year ended December 31,
      2006, a 48% increase from gross revenue of $35,396,519 in 2005. The revenue
      increase resulted principally from the acquisition of five vessels (see Note
      3:
      Acquisitions and sales of vessels to the Consolidated Financial Statements
      in
      Item 8) and from a general increase in the charter rates of LPG vessels. The
      increase was partially offset by the lost revenues related to the dry-docks,
      in
      particular the dry-dock of La Forge as discussed above. The incident of the
      Kew
      Bridge did not generate any off-hire in 2006, as the Company received the hire
      from insurance or from charterers, and therefore had no incidence on
      revenues.





The
      average revenue per day per vessel was $11,770 in 2006 compared to $10,066
      in
      2005. The increase was due to higher charter rates, the purchase of larger
      vessels and the fact that some vessels were employed on a voyage basis rather
      than on time charter. In 2006, the Company's on-hire performance of the vessels
      was 93.12% on a potential 4,329 days compared to 97.6% on a potential 3,021
      days
      in 2005. In 2006, the vessels experienced off-hire time for the following
      reasons: (i) 3.41% of the total available days were lost due to dry-docking
      and planned repair time, (ii) 2.18% of the total available days were lost
      due to technical reasons (“operating off-hire”) and (iii) 1.29% of the total
      available days were lost due to positioning or waiting for
      employment.





***Costs
      and Expenses***





Commissions
      on charterhire were $541,978 in 2006, a 1.8% increase from $532,281 incurred
      during 2005. Commissions decreased from 1.5% of revenues in 2005 to 1.0% in
      2006. This decrease was principally due to the lack of commissions on the
      charterhire of some vessels acquired.


17
 *Table
          of Contents*


Vessel
      operating expenses plus amortization of dry-docking costs totaled $24,977,126
      for the year ended December 31, 2006, representing an increase of 69% from
      2005
      in which vessel operating expenses plus amortization of dry-docking amounted
      to
      $14,791,198. 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 amortization of
      dry-docking costs were 47.6% in 2006 compared to 41.8% in 2005. The increase
      in
      operating expenses was due to several factors: the Company acquired five vessels
      in 2006, the Company recorded an accrual of $1,050,000 for the settlement of
      the
      La Forge dispute with the vessel charterers and, finally, several vessels were
      operated on voyage charters. For voyage charters, the vessel is contracted
      for a
      voyage between two ports: the Company is paid for the tonnage transported and
      pays for all voyage costs, including port expenses and bunker, in addition
      to
      the operating expenses of the vessels, such as crew costs, insurance, repairs
      and maintenance.





As
      a result of the change in technical
      managers in the third quarter of 2006, the Company incurred a heavy
      concentration of expenses and non-recurring expenses relating to extra crew
      travel, superintendent fees, training costs and three months of cancellation
      fees. These costs were approximately $687,530.





Depreciation
      was $13,247,717 for the
      year ended December 31, 2006, compared to $8,114,264 in 2005.  The
      increase in depreciation was principally due to the purchase of five LPG vessels
      in 2006.




General
        and administrative expenses were $2,689,630 for the year ended December 31,
        2006, compared to $2,254,864 in 2005. This represented 5.1% of revenue in
        2006
        compared to 6.4% of revenue in 2005. On January 4, 2006, the Company opened
        an
        office in London having annual rent equal to approximately $88,800. On June
        1,
        2006, the Monaco office was moved to new premises having annual rent equal
        to
        approximately $47,800. In 2006, the Company’s lease and rates expense amounted
        to $202,514 compared to $89,167 in 2005 and $87,206 in 2004. The London and
        Monaco offices employed four and five people, respectively, on a full time
        basis
        as of March 1, 2007.


***Impairment
      Loss***





As
      of December 31, 2006, the Company
      evaluated the recoverability of its vessels in accordance with FAS 144 and
      determined that no provision for impairment loss was required. As of December
      31, 2005, the Company similarly determined that no provision for impairment
      loss
      was required.





***Interest
      Income and Expense***





Interest
      expense was $6,784,088 for the year ended December 31, 2006 compared to
      $4,018,670 in 2005 and represented 12.9% of revenue compared with 11.3% in
      2005.
      The increase in interest expense resulted from the increase in the Company’s
      debt related to its acquisition of five vessels (see Note 6: Long Term Debt
      to
      the Consolidated Financial Statements in Item 8).





The
      Company had entered into an interest rate swap agreement as a result of which
      the variable rate of the loan granted by Fortis Bank in April 2005 (the “Fortis
      Loan”), exclusive of margin, had been fixed at 3.075 % until October 2007. Since
      this loan was to be prepaid in 2007 with the sale of the small LPG vessels,
      the
      swap agreement was terminated on December 21, 2006 and the Company received
      $386,800, the value of the swap on such date. This amount was recorded as a
      reduction of interest expense.





In
      addition, the Company recorded a
      loss on debt extinguishment of $220,210 representing the write off of the
      unamortized balance of the debt issuance costs incurred in 2005 in connection
      with the $68 million Scotia Loan.





Interest
      income was $462,084 in 2006 compared to $454,037 in 2005.


18
 *Table
          of Contents*




***Deferred
      gain on sale of vessels***





Recognized
      deferred gain was $4,763,338
      in 2006 compared to $4,515,383 in 2005. Recognized deferred gain represents
      the
      portion of deferred gain on the sale of assets recognized as income during
      the
      year. Unrecognized deferred gain at December 31, 2006 was $8,436,563, which
      is
      expected to be recognized during 2007, 2008 and 2009.





***Gain
      on sale of vessels***





In
      June 2006, the Company sold two
      coastal bulk carriers to an unrelated third party for a net price of $1,229,495.
      The sale generated a net gain of $1,035,642.





***Equity
      in (Loss) / Income of associated companies***





Equity
      in net loss of associated
      companies was $288,627 for the year ended December 31, 2006 compared to equity
      in net income of associated companies $113,983 for the year ended December
      31,
      2005.





2006
                    
                    
                    2005MUNIA
                        share of net income
                    
                    $
                    582,895
                    
                    
                    $
                    389,764Waterloo
                        share of net loss
                    
                    $
                    (871,522
                    )
                    
                    $
                    (275,780
                    )Equity
                        in( losses) / income of associated companies
                    
                    $
                    (288,627
                    )
                    
                    $
                    113,983





In
      January 2005, the Company invested
      $4 million in MUNIA and MUNIA simultaneously purchased four container vessels
      from the Company (see Note 4: Investments in associated companies to the
      Consolidated Financial Statements in Item 8). The Company’s 25.8% share of
      MUNIA’s net income was $582,895 for the year ended December 31, 2006 compared to
      $389,764 for the year ended December 31, 2005. The Company received dividends
      of
      $360,000 in 2006 and $110,000 in 2005. The operating expenses of the vessels
      exceeded the guaranteed level in 2006 and $198,604 was paid to MUNIA under
      the
      guarantee. In 2005, $44,453 was paid to Munia under the guarantee in relation
      to
      the Maersk Barcelona incident (see Contingent liabilities). The on-hire
      performance of the container vessels was 98.33% on a potential 1,460 days in
      2006 and 99.9% on a potential 1,460 days in 2005. The off-hire was due to the
      dry-dock of one of the vessels in December 2006. Such dry-dock had not been
      anticipated at the time of the sale to MUNIA and in order to effectuate the
      dry-dock, MUNIA agreed to waive its rights under the operating guarantee and
      MUNIA and the Company agreed to share in the costs of the dry-dock. The
      Company’s share of the dry-dock approximately $1.1 million was recorded as an
      increase of its investment in MUNIA.





In
      April 2005, the Company invested in
      Waterloo Shipping Limited (“Waterloo”), a joint venture company set up on a
      50/50 basis by the Company and Petredec Limited to acquire the LPG carrier
      Galileo (see Note 4: Investments in associated companies to the Consolidated
      Financial Statements in Item 8). The Company’s 50% portion of Waterloo’s net
      loss was $871,522 for the year ended December 31, 2006 compared to $275,780
      for
      the year ended December 31, 2005. The Galileo was dry-docked in 2006 and
      extensive upgrading was performed to enable the vessel to trade for an
      additional five years. As a result, the on-hire performance of the Galileo
      was
      64.3% on a potential 365 days in 2006 compared to 86.7% on a potential 270
      days
      in 2005. The off hire associated with the time in dry-dock decreased Waterloo’s
      revenues and net income by approximately $2,050,212 in 2006. Reflecting the
      extensive upgrading performed, the total cost of the dry-dock was approximately
      $5.6 million.





As
      a result of the extended life of the
      ship, the charter with Petredec was extended by an additional year to April
      2010. In order to fund the cost of the dry-dock, the Company and Petredec each
      advanced an additional $1,850,000 to Waterloo in 2006 and expect to make further
      advances in 2007. The Company’s investment in Waterloo was $3,184,620 at
      December 31, 2006 compared to $2,206,143 at December 31, 2005. In addition,
      Waterloo borrowed an additional $2 million under the Danish Ship Finance loan.
      As of December 31, 2006, the amount outstanding under the loan was $9,539,064
      and repayable in 14 quarterly repayments of $735,156 (first twelve), $342,192
      (thirteenth) and $375,000 (fourteenth). The Galileo was valued in January 2007
      by two leading independent brokers at $22 million as against a book value of
      $17.6 million as of December 31, 2006.


19
 *Table
            of Contents*




***Net
      Income***





Net
      income for the year ended December 31, 2006 was $11,054,501 as compared to
      a net
      income of $10,768,645 for the year ended December 31, 2005.





***Impact
      of Inflation***





We
      do not consider inflation to be a
      significant risk to the cost of doing business in the foreseeable future.
      Inflation has a moderate impact on operating expenses, dry-docking expenses
      and
      corporate overhead.





***Subsequent
      events***





On
      February 2, 2007, the Company paid the fourth quarterly dividend installment
      of
      $594,259 ($0.0625 per share) which was declared in 2006.





As
      discussed in Note 3 to the consolidated financial statements in Item 8, the
      Company delivered five of six vessels to LTF in January 2007. Upon actual
      delivery of the vessels, the Company received $42 million, prepaid $17,973,435,
      the corresponding portion of the Fortis Loan and reinvested $4,361,539 in LTF
      for 25% of the equity. The net proceeds to the Company were approximately
      $19,665,026*.*The delivery of the remaining vessel is expected to take
      place mid 2007. The Company expects to reinvest the excess proceeds in other
      LPG
      vessels and is considering several potential acquisitions. However, the Company
      does not currently have any commitment for capital expenditures.





As
      of
      February 19, 2007, after nine and a half years with the Company, Ms. Sergent,
      the Company’s Chief Financial Officer accepted a position with another shipping
      company and will leave the Company on or about April 2, 2007. The Board of
      Directors offered Ms Sergent its thanks for her time and contributions to the
      Company especially during the last 2.5 years when the Company initiated its
      new
      business strategy and its fortunes improved. She will be replaced on an interim
      basis by Mr. Gorchakov, the Company’s Chief Investment Officer.





In
      February 2007, the Company made an
      additional advance of $500,000 to Waterloo to fund the cost of the dry-dock
      that
      took place in 2006.





In
      February 2007, the Company posted a
      $2.5 million bank guarantee in favor of the La Forge charterers. The bank’s
      guarantee is secured by a cash deposit of $2.5million. In March 2007, the
      charterers agreed to substantially reduce the quantum of their claim if a
      settlement could be reached out of court and the Company considered the
      settlement proposal worth accepting rather than incurring the costs of
      arbitration.  The Company received a settlement proposal of $1,050,000 net
      of hire due to the Company from the charterers.  The $2.5 million guarantee
      will be cancelled once a settlement is concluded with the La Forge
      charterers.




On
      March
      5, 2007, the Company prepaid $3,246,414, the portion of the Fortis Loan
      attributable to the London Bridge and Blackfriars Bridge. After this prepayment,
      the amount outstanding on the Fortis Loan as of March 15, 2007 was $4,186,818,
      corresponding to the attributable portion outstanding on the remaining vessel
      to
      be delivered to LTF in June 2007. This amount will be prepaid at the time of
      sale of the vessel.





On
      March
      21, 2007, the Board of Directors declared the dividend first quarterly
      installment of $0.0625 which is payable on April 30, 2007.




20
 *Table
            of Contents*




**RESULTS
      OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005 AND DECEMBER  31,
      2004**





***Significant
      events during 2005***





In
      2005, the Company had decided to
      focus its activities in the LPG sector. In January, the Company sold four
      container vessels, while retaining a 25.8% interest. In April, the Company
      bought two very large gas carriers from Bergesen and acquired a 50% interest
      in
      another one bought from Shell (see in Item 8 the consolidated financial
      statements Note 3: Sale and Purchase of vessels and Note 4: Investments in
      Associated Companies, included elsewhere in this document).





Following
      various share transactions that took place in 2005, by the end of 2005, Navalmar
      owned approximately 45.2% of the Company while V.Ships owned approximately
      3.2%
      of the Company.





***Revenue***





The
      Company had gross revenue from
      charterhire and other sources of $35,396,519 for the year ended December 31,
      2005, a 11% increase from gross revenue of $31,895,393 in 2004. The revenue
      increase resulted mainly from a change in the fleet composition (see Significant
      Events during 2005).





The
      average rate per day on hire was
      $10,066 in 2005 ($7,313 in 2004 for all vessels). In 2005, the Company's on-hire
      performance of the vessels on time charter excluding the vessels sold in January
      2005 was 97.6% on a potential 3,021 days, (99.4% on a potential 4,026 days
      in
      2004 for all vessels). The decrease in on-hire performance was mainly due to
      the
      fact that four vessels underwent dry-docking in 2005.





In
      2005,
      the vessels on time charter experienced off-hire time for the following reasons:
      (i) 1.99% of the total available days were lost due to dry-docking and
      planned repair time, (ii) 0.38% of the total available days were lost due
      to technical reasons (“operating off-hire”) and (iii) 0.08% % of the total
      available days were lost due to underperformance of the vessel.





***Costs
      and Expenses***





Commission
      on charterhire was $532,281 in 2005, a 29.9% decrease from the $759,673 incurred
      during 2004. This decrease results principally from the lack of commissions
      on
      the charterhire of the last two vessels acquired.





Vessel
      operating expenses plus amortization of dry-docking costs totaled $14,791,198
      for the year ended December 31, 2005, representing a decrease of 23% from 2004
      in which vessel operating expenses plus amortization of dry-docking amounted
      to
      $18,254,712. 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 amortization of
      dry-docking costs were equal to 41.8% in 2005 compared to 57.2% in 2004. The
      decrease in vessel operating expenses as a percentage of revenues in 2005 is
      due
      to the increase in charterhire. The decrease in operating expenses is due to
      the
      fact that the Company sold four vessels in January and purchased two in
      April.





Depreciation
      was $8,114,264 for the year ended December 31, 2005, compared to $5,140,639
      in
      2004.  The increase in depreciation is principally due to the purchase
      of two VLGC vessels in April 2005 which was partially offset by the reduction
      in
      depreciation due to the sale of four container vessels in January
      2005.





General
      and administrative expenses
      were $2,254,864 for the year ended December 31, 2005, compared to $2,577,213
      in
      2004. This represented 6.4% of revenue in 2005 as compared to 8.1% of revenue
      in
      2004. In the second half of 2004, the Company had incurred certain non-recurring
      expenses in relation with the change of ownership of the Company and the offer
      for additional equity received by the Company.


21
 *Table
            of Contents*




***Impairment
      Loss***





As
      of December 31, 2005, the Company
      evaluated the recoverability of its vessels in accordance with FAS 144 and
      determined that no provision for impairment loss was required. As of December
      31, 2004, the Company also had determined that no provision for impairment
      loss
      was required.





In
      February 2006, the Company received
      appraisals for its entire fleet from leading independent shipbrokers. On this
      basis, the appraised value of the Company’s fully owned fleet as of December 31,
      2005 was approximately $174,675,000 (compared to a book value of $121,991,571
      on
      December 31, 2005).





***Interest
      Income and Expense***





Interest
      expense amounted to $4,018,670 for the year ended December 31, 2005 as compared
      to $3,463,491 in 2004, and represented 11.3% of revenue as compared with 10.8%
      in 2004. The increase in interest expense resulted from the increase in the
      Company’s debt (see Note 6: Long Term Debt to the Consolidated Financial
      Statements in Item 8).





Interest
      income totaled $454,037 in 2005, a 189% increase from interest income of
      $156,964 in 2004. The increase in interest earnings was due to higher interest
      rates.





***Deferred
      gain on sale of vessels***





Recognized
      deferred gain totaled
      $4,515,383 in 2005 and represents the portion of Deferred Gain on sale of assets
      recognized as income during the year.





***Equity
      in Income / (Loss) of associated companies***





Equity
      in net income of associated
      companies totaled $113,983 for the year ended December 31, 2005 (see Note 4:
      Investment in associated Companies to the Consolidated Financial Statements
      in
      Item 8).





In
      January 2005, the Company invested
      $4 million in MUNIA (see Note 4: Investments in associated companies to the
      Consolidated Financial Statements in Item 8). The Company’s 25.8% share of
      MUNIA’s net income amounted to $389,764 for the year ended December 31, 2005.
      The on-hire performance of the container vessels was 99.9% on a potential 1,460
      days in 2005. The Company received dividends of $110,000 in July 2005 and
      $180,000 in January 2006. The operating expenses of the vessels were
      approximately at the guaranteed level in 2005 and no payment were made or
      received under the guarantee, except for the expenses accrued in relation to
      the
      Maersk Barcelona incident.




The
      LPG
      carrier Galileo, owned by Waterloo Shipping Limited (see below Liquidity and
      Sources of Capital - Investing activities) has incurred additional operating
      expenses to be brought to a standard the Company believes to be required for
      long term safe operation. In addition, the ship has suffered technical off-hire
      during the second and third quarters to allow this work to take place. The
      vessel suffered no off-hire in the fourth quarter of 2005. Management believes
      the Galileo will prove a positive investment going forward and valuations have
      shown a fair market value in excess of her current book value. In 2005, the
      on-hire performance of the Galileo was 86.7% on a potential 270 days. Because
      of
      the Galileo’s start up costs, the Company’s 50% portion of Waterloo’s net loss
      amounted to $275,780 for the year ended December 31, 2005.




***Net
      Income***





Net
      income for the year ended December 31, 2005 was $10,768,645 as compared to
      net
      income of $1,112,379 for the year ended December 31, 2004.


22
 *Table
            of Contents*




***Impact
      of Inflation***





We
      do not consider inflation to be a
      significant risk to the cost of doing business in the foreseeable future.
      Inflation has a moderate impact on operating expenses, dry-docking expenses
      and
      corporate overhead.








**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





The
      preparation of the Company's consolidated 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. Actual amounts could differ from those
      estimates. The critical accounting policies are those that are considered to
      involve a higher degree of judgment in their application.





***Revenue
      recognition***





The
      Company employs its vessels on time charter, bareboat charter or voyage charter.
      With time and bareboat charters, the Company receives a fixed charterhire per
      on-hire day. Time and bareboat charter revenue is recognized on an accrual
      basis
      and is recorded over the term of the charter as service is provided. In the
      case
      of voyage charters, the vessel is contracted for a voyage between two or several
      ports: the Company is paid for the cargo transported. Voyage charter revenue
      is
      recorded based on the percentage of service completed at the balance sheet
      date.
      A voyage is deemed to commence upon the completion of discharge of the vessel's
      previous cargo and is deemed to end upon the completion of discharge of the
      current cargo. 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 consists of demurrage, pooling of income or lump sum expenses
      and guarantee fees****and****is recognized
      as received, which approximates when it is earned.





***Depreciation
      and amortization***





We
      record
      the value of our vessels at their cost (which includes pre-operating costs
      directly attributable to the vessel) less accumulated depreciation. We
      depreciate our LPG vessels on a straight-line basis over their estimated useful
      lives, estimated to be 30 years from date of initial delivery from the shipyard.
      Depreciation is based on cost less the estimated residual scrap value. For
      the
      larger vessels, we estimate residual scrap value as the lightweight tonnage
      of
      each vessel multiplied by $175 scrap value per ton, which management estimates
      to approximate the historical average price of scrap steel. For the smaller
      vessels, Management’s estimates of the residual scrap value range from zero to
      $200,000. An increase in the useful life of a vessel would have the effect
      of
      decreasing the annual depreciation charge and extending it into later periods.
      An increase in the residual scrap value would decrease the amount of the annual
      depreciation charge. A decrease in the useful life of a vessel would have the
      effect of increasing the annual depreciation charge. A decrease in the residual
      scrap value would increase the amount of the annual depreciation
      charge.





***Deferred
      dry-dock cost***





Our
      vessels are dry-docked approximately every 30 to 60 months for major repairs
      and
      maintenance that cannot be performed while the vessels are operating. We
      capitalize the costs associated with the dry-docks as they occur and amortize
      these costs on a straight line basis over the period between dry-docks. Costs
      capitalized as part of the dry-dock include actual costs incurred at the
      dry-dock yard; cost of fuel consumed between the vessel’s last discharge port
      prior to the dry-dock and the time the vessel leaves the dry-dock yard; cost
      of
      hiring riding crews to effect repairs on a ship and parts used in making such
      repairs that are reasonably made in anticipation of reducing the duration or
      cost of the dry-dock; cost of travel, lodging and subsistence of our personnel
      sent to the dry-dock site to supervise; and the cost of hiring a third party
      to
      oversee a dry-dock. We believe that these criteria are consistent with GAAP
      guidelines and industry practice, and that our policy of capitalization reflects
      the economics and market values of the vessels.


23
 *Table
            of Contents*




***Impairment
      of long-lived assets***





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 Management 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 deemed to be 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.





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 estimation 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 used 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 an LPG vessel,
                or
                the end of the current charter if longer. 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, 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 Management
                on the
                basis of past historical rates and modulated by its 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.


-
            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 Management’s discussion and Analysis of Financial
                Condition and Results of Operations - Results of Operations –
                Revenue).





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.





The
      Company’s investment in MUNIA is also reviewed for impairment at year end and at
      each quarter end. To consider whether there is an indication of impairment,
      the
      Company compares the fair market value or estimated scrap value of each
      container vessel at the end of the reporting period with the amount which
      corresponds to a full recovery of the investment (see Note 4: Investment in
      Associated Companies to the consolidated financial statements in Item 8). The
      Company performs the impairment valuations at the individual vessel level
      pursuant to paragraph 10 of SFAS 144. Whenever the fair market value or the
      estimated scrap value of a vessel is below the amount necessary for the Company
      to recover its investment corresponding to such vessel, the Company considers
      there is a potential impairment and performs a recoverability test. To perform
      the recoverability test, the Company estimates the undiscounted future cash
      flows attributable to the investment in order to determine if the book value
      of
      such investment is recoverable. If the book value of the investment exceeds
      the
      estimated undiscounted future cash flows attributable to the investment, the
      Company recognizes an impairment loss equal to the excess of the book value
      over
      the scrap value.


24
 *Table
          of Contents*


The
      Company’s investment in Waterloo is also reviewed for impairment at year end and
      at each quarter end in accordance with the Company’s impairment review
      policies








**LIQUIDITY
      AND SOURCES OF CAPITAL**





***Cash
      and working capital***





The
      Company had $1,838,044 in available cash on December 31, 2006 compared to
      $12,292,015 at December 31, 2005. In addition, on December 31, 2006, deposits
      totaling $4,594,402 compared to $1,759,237 at December 31, 2005 were placed
      in a
      retention account pledged to guarantee the Company’s performance under the
      Scotia Loan agreement. The Company’s loan agreements contain debt covenants that
      require minimum liquid assets of $5,000,000 as defined in the loan
      agreements.





The
      ratio of current assets to current
      liabilities decreased from 0.89 at December 31, 2005 to 0.31 at December 31,
      2006. The decrease in liquidity was due to a combination of factors described
      below and was restored in January 2007, as expected, following the sale of
      the
      small LPG vessels.  The acquisition of five LPG carriers in 2006 for
      $82,221,718 was financed with approximately $8.2 million of Company’s cash and
      $74 million of additional long term debt. As a result of the acquisitions,
      the
      Company’s cash balances decreased by approximately $ 8.2 million and the current
      portion of long term debt increased by approximately $14 million. The three
      largest vessels were purchased with long term charters which are expected to
      provide cash flow sufficient to cover the interest and principal repayments.
      Another factor which contributed to the reduced liquidity was the dry-dock
      costs
      of $6,901,638 incurred in 2006, a portion of which resulted in a large increase
      in accounts payable and accruals at year end. Liquidity was restored in January
      2007 following the sale of five of the six small LPG carriers and the receipt
      of
      net proceeds of $19,665,026 (see Subsequent events).





Accounts
      payable increased from $747,692 at December 31, 2005 to $4,290,287 at December
      31, 2006. Accounts payable included approximately $2 million of expenses related
      to the dry-docking of vessels and accounts payable of the recently acquired
      vessels.





Accrued
      expenses increased from $2,466,845 at December 31, 2005 to $4,338,367 at
      December 31, 2006. The increase was due to dry-dock costs, for which the final
      invoice had not yet been received as of December 31, 2006, to accruals of the
      recently acquired vessels and to the $1,050,000 accrued for the La Forge
      settlement.





Inventories
      increased from $406,643 at December 31, 2005 to $1,592,890 at December 31,
      2006
      because of the inventories of the recently acquired vessels and the acquisition
      of the bunker of the three vessels trading on voyages at the end of December
      2006. For voyage charters, the vessel is contracted for a voyage between two
      ports. The Company is paid for the tonnage transported and pays for all voyage
      costs, including port expenses and bunker, in addition to the operating expenses
      of the vessels, such as crew costs, insurance, repairs and
      maintenance.





***Operating
      activities***





The
      Company generated cash flows from
      operations of $16,531,808 in 2006 compared to $14,437,039 in 2005. The increase
      was due to the purchase of five vessels in 2006 and to higher charter rates.
      However, the cash flow generated by operations was adversely impacted by the
      dry-dock of the La Forge and the change of technical managers.





During
      the second and third quarter of 2006, the Company incurred a significant amount
      of off-hire related for the most part to the dry-dock of the La Forge. The
      dry-dock lasted approximately 125 days whereas a special survey dry-dock for
      a
      vessel of comparable size and age usually lasts approximately 4 to 5 weeks.
      The
      excess off-hire was approximately $1,790,886. It directly and adversely impacted
      the Company’s net income as the Company does not include off-hire time incurred
      to perform the dry-dock in the cost of dry-dock. The cost of the dry-dock also
      exceeded the budgeted amounts. Dry-dock costs are deferred and amortized over
      five years to the next intermediate or special survey. The technical managers
      responsible have been changed and the vessel is now back in full
      operation.


25
 *Table
          of Contents*




For
      the
      first time in 18 years, the Company changed technical managers on its fleet.
      The
      vessels are now technically managed by Anglo Eastern, Hanseatic or Wallem.
      Management believes that moving to a competitive arms-length pool of service
      providers ensures best practice for the Company. The change of manager resulted
      in non-recurring costs of approximately $687,530 which were included in the
      operating expenses.





In
      2006,
      the Company dry-docked three vessels at a cost of $6,901,638. In 2005, the
      Company dry-docked four vessels at a cost of $1,920,922. The cost of a dry-dock
      depends on the size and age of the vessel. The dry-dock is an investment in
      the
      ship upgrading and life extension that is considered by management to be
      essential to strengthen the quality of operations the Company wishes to offer
      its customers.





***Investing
      activities***





In
      2006, the Company purchased five LPG
      carriers for a total cost of $82.2 million, including pre-operating and
      acquisition costs (see Note 3: Acquisitions and sales of vessels to the
      Consolidated Financial Statements in Item 8). The acquisitions were funded
      with
      the Company’s cash holdings and long term debt of $74 million (see Note 8: Long
      term debt to the Consolidated Financial Statements in Item 8).





In
      2006, the Company sold the two
      coastal bulk carriers for net proceeds of $1,229,495.





In
      2006, the Company made additional
      contributions of $1,850,000 to Waterloo to partially fund the dry-dock of
      Galileo. The Company also contributed $1,113,876 to MUNIA for the dry-dock
      of
      the Belawan and received $360,000 from MUNIA in dividends.





The
      level of restricted cash
      fluctuates as monthly transfers are made under the Scotia Loan agreement to
      retention accounts, which are applied in discharge of the next principal and
      interest payment due under the loan.





Consistent
      with the establishment of
      new and modern offices, the Company purchased $242,283 worth of furniture and
      equipment in 2006, concurrent with the Company’s occupation of its new offices
      both in Monaco and London.





***Financing
      activities***





During
      2006, the Company repaid net borrowings of $73,888,888 and borrowed $134,884,000
      to partially finance the acquisition of five vessels. The Company’s long term
      debt, including the current portion, increased from $89,442,000 as of December
      31, 2005 to $150,437,112 as of December 31, 2006.





***Dividend
      and dividend Policy***





The
      Company paid a dividend of $0.25
      per share in 2006 in four equal quarterly installments for a total of
      $2,377,035. The last installment of $0.0625 per share, amounting to $594,259,
      was paid on February 2, 2007.





In
      March
      2005, the Company announced that the Board of Directors initiated a cash
      dividend policy. Under the policy, the Board plans to declare quarterly
      dividends to shareholders and make dividend payments in May, August,
      November and February of each year. Any dividends paid will be subject
      to the terms and conditions of the Company’s loan agreements.





***Contractual
      debt obligations***





The
      Company loan agreements contain
      financial covenants related to minimum liquidity reserves of $5,000,000, minimum
      value clauses for the vessels, minimum interest coverage of 2:1 and minimum
      tangible net worth, all as defined in the loan agreements. The Company has
      complied with all applicable debt covenants, or received the appropriate waivers
      from lenders, for all periods presented.


26
 *Table
            of Contents*




In
      January 2007, the Company prepaid $17,973,435, the portion of the Fortis Loan
      attributable to the five vessels sold to LTF. In March 2007, the Company prepaid
      $3,256,414, the portion of the Fortis Loan attributable to the Blackfriars
      Bridge and London Bridge. The amount outstanding on the Fortis Loan as of March
      15, 2007 was $4,186,818, corresponding to the attributable portion of the vessel
      to be delivered to LTF in June 2007. This amount will be prepaid at the time
      of
      sale of the vessel. As of March 15, 2007, after the prepayments and the
      capitalization of the lease obligations related to the five vessels sold, the
      Company's contractual obligations were as follows:





Payments
      due by period


Total
                                
                                
                                Less
                                    than 1 year
                                
                                
                                2-3
                                    years
                                
                                
                                4-5
                                    years
                                
                                
                                More
                                    than 5 yearsFortis
                                    Loan
                                
                                $
                                4,186,818
                                
                                
                                $
                                4,186,818
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Scotia
                                    Loan
                                
                                $
                                120,544,750
                                
                                
                                $
                                19,389,400
                                
                                
                                $
                                34,026,050
                                
                                
                                $
                                29,993,300
                                
                                
                                $
                                37,136,000Capitalized
                                    lease obligations
                                
                                $
                                42,000,000
                                
                                
                                $
                                8,859,301
                                
                                
                                $
                                20,579,654
                                
                                
                                $
                                12,561,045
                                
                                
                                
                                -Total
                                
                                $
                                166,731,568
                                
                                
                                $
                                32,435,519
                                
                                
                                $
                                54,605,704
                                
                                
                                $
                                42,554,345
                                
                                
                                $
                                37,136,000





***Future
      cash requirements***





In
      2007, the Company expects to
      dry-dock one vessel for an estimated total cost of approximately $1,800,000.
      In
      February 2007, the Company advanced $500,000 to Waterloo and expects to make
      additional contributions in 2007, not to exceed $500,000. These advances are
      necessary to pay for the dry-dock costs of the vessel that took place in
      2006.





Management
      believes that the Company with its current arrangements has sufficient funds
      to
      enable the Company to meet its liquidity requirements throughout 2007. In
      particular, the sale of the small LPG vessels to LTF will provide approximately
      $24.4 million of net proceeds to the Company in 2007. Out of this amount, $19.7
      million was received in January 2007. The balance will be received at the time
      of the sale of the last vessel in June 2007.





**Guarantees
      and Off-Balance Sheet Financial Arrangements**





The
      Company issued guarantees in
      relation to the Fortis and Scotia loans (see Note 8: Long term debt to the
      Consolidated Financial Statements in Item 8). In addition, the Company issued
      a
      guarantee of $850,000 in relation with the loan granted by Danish Ship Finance
      to Waterloo (see Note 4: Investment in Associated Companies to the Consolidated
      Financial Statements in Item 8).





In
      connection with the sale of the
      container vessels to MUNIA in January 2005, the Company agreed to guarantee
      certain levels of operating expenses and of employment for the vessels until
      February 1, 2008, September 1, 2008, May 15, 2009 and February 1, 2009, for
      each
      vessel, or earlier in case of sale or total loss of a vessel. As a result,
      the
      excess or surplus of operating expenses, up to a certain extent, will be
      absorbed by the Company. As compensation for issuing such guarantee, the Company
      receives a daily guarantee fee for each vessel, which is included in revenues.
      The Company cannot estimate the amount of any future payments required under
      the
      MUNIA guarantee at this time (see Note 4: Investment in Associated Companies
      to
      the Consolidated Financial Statements in Item 8).





In
      connection with the sale of the small LPG vessels in January 2007, the Company
      agreed to guarantee the difference between the full management budget and the
      actual ship operating expenses for an amount not to exceed $135 per day and
      per
      vessel for four years after the delivery of each vessel.





The
      Company had no other off-balance
      sheet financial arrangements as of December 31, 2006.


27
 *Table
            of Contents*




**Contingencies**





On
      September 20, 2005, the m/v ‘Maersk
      Barcelona’ owned by MUNIA suffered a malfunction of her oily water separator,
      which resulted in an accidental overboard discharge of oil-contaminated water
      off the coast of France. On March 22, 2006, the technical managers of the vessel
      were fined 720,000 euros ($949,464 equivalent at December 31, 2006 exchange
      rate) and the captain 80,000 euros ($105,496 equivalent at December 31, 2006
      exchange rate) by the French court, a judgment which they intend to appeal.
      All
      the expenses to be incurred by the Company under the MUNIA guarantee were
      accrued for in 2005 and the Company expects that costs beyond the deductible
      will be covered by insurance, as the discharge was unintentional.





In
      the
      third quarter of 2006, the Kew Bridge suffered a grounding incident in Ratnagiri
      off the West Coast of India and was re-floated with a combination of lightening
      cargo from the vessel into another ship and by pulling with tugs. In 2006,
      the
      incident did not materially impact the Company’s revenues as the off-hire was
      covered by insurance and charterers until January 14, 2007. The repairs on
      the
      vessel started in February 2007 and are currently expected to be finished in
      June 2007. The Company is currently engaged in discussions with the charterers
      with regard to compensating the Company for a portion of lost revenues in 2007.
      The Company has not been required to advance any material funds in connection
      with this incident and Management does not believe that the Company will incur
      significant costs related to the incident as repair costs are expected to be
      covered by insurance.




Following the extended dry-docking of La Forge in 2006, the charterers lodged
      a
      claim against the Company for damages arising out of the deprivation of use
      of
      the vessel and compensation was demanded for the additional cost of hiring
      replacement vessels. The Company intended to challenge this claim; however
      the
      charterers agreed to substantially reduce the quantum of their claim if a
      settlement could be reached out of court and the Company considered the
      settlement proposal worth accepting rather than incurring the costs of
      arbitration. The Company received a settlement proposal of $1,050,000 net of
      hire due to the Company from the same charterers and adjusted accruals to
      an equal amount. The Company will seek to recover the full amount lost from
      the
      technical managers who actually budgeted, planned and executed the dry
      dock.


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
      the
      normal course of business, the Company enters into contracts that contain a
      variety of indemnifications with its customers, suppliers and service
      providers.  Further, the Company indemnifies its Directors and officers who
      are, or were, serving at the Company’s request in such capacities.  The
      Company’s maximum exposure under these arrangements is unknown as of December
      31, 2006.  The Company does not anticipate incurring any significant costs
      relating to these arrangements.








**ITEM
      7A:    QUANTITATIVEAND QUALITATIVE DISCLOSURES
      ABOUT MARKET RISK**





The
      Company operates
      internationally and is exposed to certain market risks that, in the normal
      course of business, include fluctuations in interest rates and currency exchange
      rates. While the Company occasionally uses derivative financial instruments
      to
      reduce these risks, the Company does not enter into derivative financial
      instruments for trading or speculative purposes.





28
 *Table
          of Contents*


***Impact
      of Interest Rate fluctuations***





As
      of December 31, 2006, the Company
      had $123,326,000 of debt outstanding at variable rates, which have been fixed
      through the use of interest rate swap agreements as detailed below.





As
                                                      of September 30, 2006
                                                  
                                                  Notional
                                                      amount
                                                  
                                                  
                                                  Fair
                                                      value
                                                  
                                                  
                                                  Interest
                                                      rate
                                                  
                                                  ExpirationFirst
                                                      swap / Scotia Loan
                                                  
                                                  $
                                                  35,682,500
                                                  
                                                  
                                                  
                                                  289,830
                                                  
                                                  
                                                  
                                                  4.580
                                                  %
                                                  April
                                                      2010Second
                                                      swap / Scotia Loan
                                                  
                                                  $
                                                  21,643,500
                                                  
                                                  
                                                  
                                                  486,428
                                                  
                                                  
                                                  
                                                  4.545
                                                  %
                                                  April
                                                      2010Third
                                                      swap / Scotia Loan
                                                  
                                                  $
                                                  8,000,000
                                                  
                                                  
                                                  
                                                  (127,713
                                                  )
                                                  
                                                  
                                                  5.700
                                                  %
                                                  April
                                                      2010Fourth
                                                      swap / Scotia Loan
                                                  
                                                  $
                                                  58,000,000
                                                  
                                                  
                                                  
                                                  (1,005,462
                                                  )
                                                  
                                                  
                                                  5.690
                                                  %
                                                  April
                                                      2011Total
                                                  
                                                  $
                                                  123,326,000
                                                  
                                                  
                                                  
                                                  (356,917
                                                  )





As
      a result, as of December 31, 2006,
      the Company had $27,111,112 of variable interest debt whose interest rates
      have
      not been fixed. A one-percentage point variation in interest rate would increase
      or decrease the amount of annual interest paid by approximately $233,415.
      However, out of this amount $19,667,879 was repaid in January 2007 and
      $3,256,414 in March 2007 through prepayments and scheduled repayment, leaving
      only $4,186,818 of variable interest rate debt at the end of March
      2007.





***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. Increasing weakness of the
        United
        States dollar could have a negative impact on the Company’s overheads as
        approximately 61% of the general and administrative expenses are either in
        Euros
        or pounds sterling.




29
 *Table
          of Contents*


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




**Page**Report
                of Independent Registered Public Accounting Firm
            
            31Financial
                Statements:Consolidated
                Balance Sheets at December 31, 2006 and 2005
            
            32Consolidated
                Statements of Income for the Years ended December 31, 2006, 2005
                and
                2004
            
            34Consolidated
                Statements of Shareholders’ Equity for the Years ended December 31, 2006,
                2005 and 2004
            
            35Consolidated
                Statements of Cash Flows for the Years ended December 31, 2006, 2005
                and
                2004
            
            36Notes
                to Consolidated Financial Statements
            
            37Financial
                Statements Schedule:Schedule
                II – Valuation and Qualifying Accounts
            
            56







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 consolidated financial statements or notes
      thereto.


______________________________


30
 *Table
          of Contents*




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Shareholders and Board of Directors


MC
      Shipping Inc.








We
      have audited the accompanying
      consolidated balance sheets of MC Shipping Inc. and subsidiaries as of December
      31, 2006 and 2005, and the related consolidated statements of income,
      shareholders’ equity and cash flows for each of the three years in the period
      ended December 31, 2006. Our audits also included the financial statement
      schedule listed in the index at Item 15(a)(2) of Form 10-K. These consolidated
      financial statements and schedule are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these consolidated
      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. The Company is not required to have, nor were we engaged to
      perform, an audit of its internal control over financial reporting. Our audit
      included 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 includes examining, on a test basis, evidence supporting
      the amounts and disclosures in the financial statements. An audit also includes
      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.





As
      discussed in Notes 1 and 9 to the
      consolidated financial statements, in 2006, the Company adopted Statement of
      Financial accounting Standards no. 123(R), “Share Based Payment”, as revised,
      effective January 1, 2006.





In
      our opinion, the consolidated
      financial statements referred to above present fairly, in all material respects,
      the consolidated financial position of MC Shipping Inc. and subsidiaries as
      of
      December 31, 2006 and 2005 and the consolidated results of their operations
      and
      their cash flows for each of the three years in the period ended December 31,
      2006 in conformity with accounting principles generally accepted in the United
      States. Also, in our opinion, the related financial statement schedule, when
      considered in relation to the basic consolidated financial statements taken
      as a
      whole, presents fairly in all material respects the information set forth
      therein.








/s/
      Moore
      Stephens Hays LLP








New
      York,
      NY


March
      30,
      2007





31
 *Table
          of Contents*


**MC
      SHIPPING INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





**ASSETS**


**DECEMBER
                                        31**
                                    
                                    
                                    **DECEMBER
                                        31****2006**
                                    
                                    
                                    **2005**CURRENT
                                        ASSETSCash
                                    
                                    $
                                    1,838,044
                                    
                                    
                                    $
                                    12,292,015Restricted
                                        cash
                                    
                                    
                                    4,594,402
                                    
                                    
                                    
                                    1,759,237Charterhire
                                        receivables
                                    
                                    
                                    1,668,948
                                    
                                    
                                    
                                    13,583Recoverable
                                        from insurers, net
                                    
                                    
                                    1,037,523
                                    
                                    
                                    
                                    68,807Inventories
                                    
                                    
                                    1,592,890
                                    
                                    
                                    
                                    406,643Receivables
                                        from affiliates
                                    
                                    
                                    -
                                    
                                    
                                    
                                    202,208Prepaid
                                        expenses and other current assets
                                    
                                    
                                    1,301,757
                                    
                                    
                                    
                                    990,635TOTAL
                                        CURRENT ASSETS
                                    
                                    
                                    12,033,564
                                    
                                    
                                    
                                    15,733128VESSELS,
                                        AT COST
                                    
                                    
                                    236,127,238
                                    
                                    
                                    
                                    155,406,193****Less
                                        – Accumulated depreciation
                                    
                                    
                                    (45,136,723
                                    )
                                    
                                    
                                    (33,414,622
                                    )190,990,515
                                    
                                    
                                    
                                    121,991,571OTHER
                                        ASSETSInvestments
                                        in associated companies
                                    
                                    
                                    8,801,155
                                    
                                    
                                    
                                    6,485,906Furniture
                                        and equipment (net of accumulated depreciation
                                        of $26,638 at December
                                        31, 2006 and $13,596 at December 31, 2005)
                                    
                                    
                                    225,071
                                    
                                    
                                    
                                    3,139Dry-docking
                                        costs (net of accumulated amortization of  $3,457,217 in
                                        2006 and $1,772,673 in 2005)
                                    
                                    
                                    8,056,312
                                    
                                    
                                    
                                    3,139,184Debt
                                        issuance cost (net of accumulated amortization
                                        of $99,395 in 2006 and
                                        $68,511 in 2005)
                                    
                                    
                                    432,024
                                    
                                    
                                    
                                    429,290Other
                                        assets
                                    
                                    
                                    790,748
                                    
                                    
                                    
                                    960,305TOTAL
                                        ASSETS
                                    
                                    $
                                    221,329,389
                                    
                                    
                                    $
                                    148,742,523




THE
      ACCOMPANYING NOTES ARE AN INTEGRAL


PART
      OF
      THESE CONSOLIDATED FINANCIAL STATEMENTS.




32
 *Table
          of Contents*


**MC
      SHIPPING INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





**LIABILITIES
      AND SHAREHOLDERS’ EQUITY**





**DECEMBER
                                        31**
                                    ****
                                    ****
                                    **DECEMBER
                                        31**
                                    ********
                                    ****
                                    **2006**
                                    ****
                                    ****
                                    **2005**CURRENT
                                        LIABILITIESAccounts
                                        payable
                                    
                                    $
                                    4,290,287
                                    
                                    
                                    $
                                    747,692Charterhire
                                        received in advance
                                    
                                    
                                    1,518,088
                                    
                                    
                                    
                                    801,043Accrued
                                        expenses
                                    
                                    
                                    4,338,367
                                    
                                    
                                    
                                    2,466,845Payable
                                        to affiliates
                                    
                                    
                                    369,423
                                    
                                    
                                    
                                    -Accrued
                                        interest
                                    
                                    
                                    1,964,908
                                    
                                    
                                    
                                    1,061,128Dividend
                                        payable
                                    
                                    
                                    594,259
                                    
                                    
                                    
                                    557,104Current
                                        portion of long term debt
                                    
                                    
                                    26,167,176
                                    
                                    
                                    
                                    12,116,000TOTAL
                                        CURRENT LIABILITIES
                                    
                                    
                                    39,242,508
                                    
                                    
                                    
                                    17,749,812LONG
                                        TERM DEBTSecured
                                        loans, net of current portion
                                    
                                    
                                    124,269,936
                                    
                                    
                                    
                                    77,326,000OTHER
                                        LIABILITIES
                                    
                                    
                                    1,133,175
                                    
                                    
                                    
                                    -DEFERRED
                                        GAIN ON SALE OF VESSELS
                                    
                                    
                                    8,436,563
                                    
                                    
                                    
                                    13,199,901TOTAL
                                        LIABILITIES
                                    
                                    
                                    173,082,182
                                    
                                    
                                    
                                    108,275,713COMMITMENT
                                        AND CONTINGENCIESSHAREHOLDERS’
                                        EQUITYCommon
                                        stock, $.01 par value - 20,000,000 shares
                                        authorized 9,508,141 shares
                                        issued and outstanding at December 31, 2006 (8,913,658 at December
                                        31, 2005)
                                    
                                    
                                    95,081
                                    
                                    
                                    
                                    89,137Additional
                                        paid-in capital
                                    
                                    
                                    48,459,807
                                    
                                    
                                    
                                    49,411,285Retained
                                        earnings / (deficit)
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (10,024,072
                                    )Accumulated
                                        other comprehensive (loss) / income
                                    
                                    
                                    (307,681
                                    )
                                    
                                    
                                    990,460TOTAL
                                        SHAREHOLDERS’ EQUITY
                                    
                                    
                                    48,247,207
                                    
                                    
                                    
                                    40,466,810TOTAL
                                        LIABILITIES AND SHAREHOLDERS’ EQUITY
                                    
                                    $
                                    221,329,389
                                    
                                    
                                    $
                                    148,742,523





THE
      ACCOMPANYING NOTES ARE AN INTEGRAL


PART
      OF
      THESE CONSOLIDATED FINANCIAL STATEMENTS.




33
 *Table
          of Contents*


**MC
      SHIPPING INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF INCOME**





FOR
                                    THE YEARS ENDED DECEMBER 312006
                                
                                
                                2005
                                
                                
                                2004CHARTERHIRE
                                    AND OTHER INCOME
                                
                                $
                                52,417,310
                                
                                
                                $
                                35,396,519
                                
                                
                                $
                                31,895,393COSTS
                                    AND EXPENSESCommission
                                    on charterhire
                                
                                
                                (541,978
                                )
                                
                                
                                (532,281
                                )
                                
                                
                                (759,673
                                )Vessel
                                    operating expenses
                                
                                
                                (23,186,469
                                )
                                
                                
                                (13,983,069
                                )
                                
                                
                                (16,821,562
                                )Amortization
                                    of dry-docking costs
                                
                                
                                (1,790,657
                                )
                                
                                
                                (808,129
                                )
                                
                                
                                (1,433,150
                                )Depreciation
                                
                                
                                (13,247,717
                                )
                                
                                
                                (8,114,264
                                )
                                
                                
                                (5,140,639
                                )General
                                    and administrative expenses
                                
                                
                                (2,689,630
                                )
                                
                                
                                (2,254,864
                                )
                                
                                
                                (2,577,213
                                )INCOME
                                    FROM VESSEL OPERATIONS
                                
                                
                                10,960,859
                                
                                
                                
                                9,703,912
                                
                                
                                
                                5,163,156Net
                                    gain on sale of vessels
                                
                                
                                1,035,642
                                
                                
                                
                                -
                                
                                
                                
                                -Recognized
                                    deferred gain on sale of vessels
                                
                                
                                4,763,338
                                
                                
                                
                                4,515,383
                                
                                
                                
                                -Equity
                                    in (loss) / income of associated companies
                                
                                
                                (288,627
                                )
                                
                                
                                113,983
                                
                                
                                
                                -OPERATING
                                    INCOME
                                
                                
                                16,471,212
                                
                                
                                
                                14,333,278
                                
                                
                                
                                5,163,156OTHER
                                    INCOME/(EXPENSES)Interest
                                    expense
                                
                                
                                (6,784,088
                                )
                                
                                
                                (4,018,670
                                )
                                
                                
                                (3,463,491
                                )Interest
                                    income
                                
                                
                                462,084
                                
                                
                                
                                454,037
                                
                                
                                
                                156,964Loss
                                    on early debt extinguishment
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (744,250
                                )NET
                                    INCOME
                                
                                $
                                10,149,208
                                
                                
                                $
                                10,768,645
                                
                                
                                $
                                1,112,379EARNINGS
                                    PER SHARE:Basic
                                    earnings per share
                                
                                $
                                1.07
                                
                                
                                $
                                1.16
                                
                                
                                $
                                0.12Diluted
                                    earnings per share
                                
                                $
                                1.06
                                
                                
                                $
                                1.14
                                
                                
                                $
                                0.12Basic
                                    weighted average number of shares outstanding
                                
                                
                                9,472,458
                                
                                
                                
                                9,300,224
                                
                                
                                
                                9,190,656Diluted
                                    weighted average number of shares outstanding
                                
                                
                                9,554,995
                                
                                
                                
                                9,467,942
                                
                                
                                
                                9,296,033




THE
      ACCOMPANYING NOTES ARE AN INTEGRAL PART
        OF
        THESE CONSOLIDATED FINANCIAL STATEMENTS.




34
 *Table
          of Contents*




**MC
      SHIPPING INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY**





**Shares**
                                                  **Issued**
                                                
                                                
                                                **Common**
                                                  **Stock
                                                    at par**
                                                  **Value**
                                                
                                                
                                                **Treasury**
                                                  **Stock**
                                                  **At
                                                    cost**
                                                
                                                
                                                **Additional**
                                                  **Paid-in**
                                                  **Capital**
                                                
                                                
                                                **Retained**
                                                  **Earnings
                                                    /**
                                                  **(Deficit)**
                                                
                                                
                                                **Accumulated**
                                                  **Other**
                                                  **Comprehensive**
                                                  **(loss)
                                                    / income**
                                                
                                                
                                                **Total**
                                                  **Shareholders’**
                                                  **Equity**
                                                
                                                
                                                **Comprehensive**
                                                  **Income****December  31,
                                                    2003**
                                                
                                                ****
                                                **8,530,238**
                                                
                                                
                                                **$**
                                                **85,302**
                                                
                                                
                                                **$**
                                                **(891,806**
                                                **)**
                                                
                                                **$**
                                                **52,135,576**
                                                
                                                
                                                **$**
                                                **(21,905,096**
                                                **)**
                                                
                                                **$**
                                                **(195,391**
                                                **)**
                                                
                                                **$**
                                                **29,228,585**N     Net
                                                    Income
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,112,379
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,112,379
                                                
                                                
                                                $
                                                1,112,379Other
                                                    comprehensive income:Foreign
                                                    currencytranslation
                                                    adjustment
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (39,231
                                                )
                                                
                                                
                                                (39,231
                                                )
                                                
                                                
                                                (39,231
                                                )Unrealized
                                                    gains on cash flow hedges
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                371,724
                                                
                                                
                                                
                                                371,724
                                                
                                                
                                                
                                                371,724Realization of
                                                    accumulated unrealized losses on cancelled cash flow
                                                    hedges
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                124,500
                                                
                                                
                                                
                                                124,500
                                                
                                                
                                                
                                                124,500Total
                                                    Comprehensive  Income
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                1,569,372T      Issuance
                                                    of stock to Directors
                                                
                                                
                                                12,052
                                                
                                                
                                                
                                                121
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                19,879
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                20,000Exercise
                                                    of stock options
                                                
                                                
                                                29,901
                                                
                                                
                                                
                                                299
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                18,299
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                18,598Stock
                                                    dividend declared
                                                
                                                
                                                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**N     Net
                                                    Income
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                10,768,645
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                10,768,645
                                                
                                                
                                                $
                                                10,768,645Other
                                                    comprehensive income:Foreign
                                                    currencytranslation
                                                    adjustment
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (22,117
                                                )
                                                
                                                
                                                (22,117
                                                )
                                                
                                                
                                                (22,117
                                                )Unrealized
                                                    gains on cash flow hedges
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                750,975
                                                
                                                
                                                
                                                750,975
                                                
                                                
                                                
                                                750,975Total
                                                    Comprehensive  Income
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                11,497,503Issuance
                                                    of stock options related to compensation plans
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                74,932
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                74,932Issuance
                                                    of stock to Directors
                                                
                                                
                                                4,766
                                                
                                                
                                                
                                                48
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                14,952
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                15,
                                                    000Exercise
                                                    of stock options
                                                
                                                
                                                142,918
                                                
                                                
                                                
                                                1,429
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                261,266
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                262,695Cash
                                                    dividend declared
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (2,219,875
                                                )
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (2,219,875
                                                )**December
                                                    31, 2005**
                                                
                                                ****
                                                **8,913,658**
                                                
                                                
                                                ****
                                                **89,137**
                                                
                                                
                                                ****
                                                **-**
                                                
                                                
                                                ****
                                                **49,411,285**
                                                
                                                
                                                ****
                                                **(10,024,072**
                                                **)**
                                                
                                                ****
                                                **990,460**
                                                
                                                
                                                ****
                                                **40,466,810**Net
                                                    Income
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                10,149,208
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                10,149,208
                                                
                                                
                                                $
                                                10,149,208Other
                                                    comprehensive  incomeForeign
                                                    currencytranslation
                                                    adjustment
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                19,081
                                                
                                                
                                                
                                                19,081
                                                
                                                
                                                
                                                19,081Unrealized
                                                    loss on cash flow hedges
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (1,317,222
                                                )
                                                
                                                
                                                (1,317,222
                                                )
                                                
                                                
                                                (1,317,222
                                                )Total
                                                    Comprehensive  Income
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                8,851,067Issuance
                                                    of stock to Directors
                                                
                                                
                                                2,056
                                                
                                                
                                                
                                                20
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                19,980
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                20,000Stock
                                                    dividend declared
                                                
                                                
                                                453,029
                                                
                                                
                                                
                                                4,530
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (4,530
                                                )
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -Cash
                                                    dividend declared
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (2,251,899
                                                )
                                                
                                                
                                                (125,136
                                                )
                                                
                                                
                                                
                                                
                                                
                                                
                                                (2,377,035
                                                )Exercise
                                                    of stock options
                                                
                                                
                                                139,398
                                                
                                                
                                                
                                                1,394
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,284,971
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,286,365**December  31,
                                                    2006**
                                                
                                                ****
                                                **9,508,141**
                                                
                                                
                                                **$**
                                                **95,081**
                                                
                                                
                                                ****
                                                **-**
                                                
                                                
                                                **$**
                                                **48,459,807**
                                                
                                                
                                                **$**
                                                **-**
                                                
                                                
                                                **$**
                                                **(307,681**
                                                **)**
                                                
                                                **$**
                                                **48,247,207**




THE
      ACCOMPANYING NOTES ARE AN INTEGRAL


PART
      OF
      THESE CONSOLIDATED FINANCIAL STATEMENTS.


35
 *Table
          of Contents*




MC
      SHIPPING INC. AND
      SUBSIDIARIES


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




FOR
                                        THE YEARS ENDED DECEMBER 312006
                                    
                                    
                                    2005
                                    
                                    
                                    2004NET
                                        INCOME
                                    
                                    $
                                    10,149,208
                                    
                                    
                                    $
                                    10,768,645
                                    
                                    
                                    $
                                    1,112,379Adjustments
                                        to reconcile Net Incometo
                                        net cash provided by operating activities:Depreciation
                                    
                                    
                                    13,247,717
                                    
                                    
                                    
                                    8,114,264
                                    
                                    
                                    
                                    5,140,639Recognized
                                        deferred gain on sale of vessels
                                    
                                    
                                    (4,763,338
                                    )
                                    
                                    
                                    (4,515,383
                                    )
                                    
                                    
                                    -Amortization
                                        of dry-docking costs
                                    
                                    
                                    1,790,657
                                    
                                    
                                    
                                    808,129
                                    
                                    
                                    
                                    1,433,150Amortization
                                        of debt issuance costs
                                    
                                    
                                    30,884
                                    
                                    
                                    
                                    58,188
                                    
                                    
                                    
                                    128,092Net
                                        gain on sale of vessels
                                    
                                    
                                    (1,035,642
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Loss
                                        on debt extinguishment
                                    
                                    
                                    220,210
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    744,250Equity
                                        in (loss) / income of associated companies
                                    
                                    
                                    288,627
                                    
                                    
                                    
                                    (113,983
                                    )
                                    
                                    
                                    -Share-based
                                        compensation to Directors
                                    
                                    
                                    20,000
                                    
                                    
                                    
                                    15,000
                                    
                                    
                                    
                                    20,000Share-based
                                        employee compensation
                                    
                                    
                                    -
                                    
                                    
                                    
                                    74,932
                                    
                                    
                                    
                                    -Changes
                                        in Operating Assets and Liabilities:Charterhire
                                        receivables
                                    
                                    
                                    (1,655,365
                                    )
                                    
                                    
                                    (8,748
                                    )
                                    
                                    
                                    8,276Recoverable
                                        from insurers
                                    
                                    
                                    (968,716
                                    )
                                    
                                    
                                    (13,278
                                    )
                                    
                                    
                                    752,001Inventories
                                    
                                    
                                    (1,186,247
                                    )
                                    
                                    
                                    637,710
                                    
                                    
                                    
                                    (461,965
                                    )Receivables
                                        from / payable to affiliates
                                    
                                    
                                    571,631
                                    
                                    
                                    
                                    (121,716
                                    )
                                    
                                    
                                    (4,398
                                    )Prepaid
                                        expenses and other current assets
                                    
                                    
                                    (311,122
                                    )
                                    
                                    
                                    (670,852
                                    )
                                    
                                    
                                    (94,073
                                    )Dry-docking
                                        costs capitalized
                                    
                                    
                                    (6,901,638
                                    )
                                    
                                    
                                    (1,920,922
                                    )
                                    
                                    
                                    (368,579
                                    )Accounts
                                        payable
                                    
                                    
                                    3,542,595
                                    
                                    
                                    
                                    217,732
                                    
                                    
                                    
                                    (82,799
                                    )Accrued
                                        expenses and charterhire received in advance
                                    
                                    
                                    2,588,567
                                    
                                    
                                    
                                    (362,742
                                    )
                                    
                                    
                                    (1,389,379
                                    )Accrued
                                        interest
                                    
                                    
                                    903,780
                                    
                                    
                                    
                                    1,470,063
                                    
                                    
                                    
                                    (416,504
                                    )**NET
                                        CASH PROVIDED BY OPERATING ACTIVITIES**
                                    
                                    
                                    16,531,808
                                    
                                    
                                    
                                    14,437,039
                                    
                                    
                                    
                                    6,521,090**INVESTING
                                        ACTIVITIES**Purchases
                                        of vessels
                                    
                                    
                                    (82,221,718
                                    )
                                    
                                    
                                    (83,220,649
                                    )
                                    
                                    
                                    -Investments
                                        in associated companies
                                    
                                    
                                    (2,603,876
                                    )
                                    
                                    
                                    (6,371,924
                                    )
                                    
                                    
                                    -Proceeds
                                        from disposals of vessels
                                    
                                    
                                    1,229,495
                                    
                                    
                                    
                                    29,802,138
                                    
                                    
                                    
                                    -Purchase
                                        of furniture and equipment and other assets
                                    
                                    
                                    (242,283
                                    )
                                    
                                    
                                    (3,531
                                    )
                                    
                                    
                                    (197
                                    )(Increase)
                                        / decrease  in restricted cash
                                    
                                    
                                    (2,835,165
                                    )
                                    
                                    
                                    3,240,763
                                    
                                    
                                    
                                    (4,384,545
                                    )**NET
                                        CASH  USED IN INVESTING ACTIVITIES**
                                    
                                    
                                    (86,673,548
                                    )
                                    
                                    
                                    (56,553,203
                                    )
                                    
                                    
                                    (4,384,742
                                    )**FINANCING
                                        ACTIVITIES**Repayments
                                        of long-term debt
                                    
                                    
                                    (73,888,888
                                    )
                                    
                                    
                                    (23,558,000
                                    )
                                    
                                    
                                    (23,621,243
                                    )Drawdown
                                        of term loan
                                    
                                    
                                    134,884,000
                                    
                                    
                                    
                                    68,000,000
                                    
                                    
                                    
                                    45,000,000Payment
                                        of debt issuance costs
                                    
                                    
                                    (253,828
                                    )
                                    
                                    
                                    (263,641
                                    )
                                    
                                    
                                    (351,239
                                    )Payments
                                        for repurchases of Notes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (27,999,150
                                    )Proceeds
                                        from issuance of stock
                                    
                                    
                                    1,286,365
                                    
                                    
                                    
                                    262,695
                                    
                                    
                                    
                                    18,598Dividends
                                        paid
                                    
                                    
                                    (2,339,880
                                    )
                                    
                                    
                                    (1,662,771
                                    )
                                    
                                    
                                    -**NET
                                        CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES**
                                    
                                    
                                    59,687,769
                                    
                                    
                                    
                                    42,778,283
                                    
                                    
                                    
                                    (6,953,034
                                    )**NET
                                        (DECREASE) / INCREASE IN CASH**
                                    
                                    
                                    (10,453,971
                                    )
                                    
                                    
                                    662,119
                                    
                                    
                                    
                                    (4,816,686
                                    )**CASH
                                        AT BEGINNING OF YEAR**
                                    
                                    
                                    12,292,015
                                    
                                    
                                    
                                    11,629,896
                                    
                                    
                                    
                                    16,446,582**CASH
                                        AT END OF YEAR**
                                    
                                    $
                                    1,838,044
                                    
                                    
                                    $
                                    12,292,015
                                    
                                    
                                    $
                                    11,629,896




THE
        ACCOMPANYING NOTES ARE AN INTEGRAL
 PART
        OF
        THESE CONSOLIDATED FINANCIAL STATEMENTS.


36
 *Table
          of Contents*




**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 a
      fleet
      of fourteen wholly owned LPG vessels as of December 31, 2006. In addition,
      the
      Company has a 25.8% percent interest in an entity that owns and operates four
      containerships and a 50% interest in another entity that owns and operates
      one
      LPG carrier. 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 accounting principles generally
      accepted in the United States of America (“US GAAP”). 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.





***ACCOUNTING
      ESTIMATES:*******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 and assumptions.





***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 in consolidation.Investments of 20-50%
      ownership in associated companies, where the Company does not exercise control
      of the entity, are accounted for under the equity method.





***FOREIGN
      CURRENCY
      TRANSLATION:*** The Company’s books and records are maintained in
      U.S. Dollars. The functional currency of the Company is the U.S. Dollar since
      the Company’s vessels operate in international shipping markets, which primarily
      transact business 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. The resulting gains or losses from these transactions are
      recorded in vessel operating expenses. At the balance sheet dates, trade
      payables and accrued expenses as well as cash and trade receivables in foreign
      currencies are converted at year end exchange rates. The resulting gains or
      losses from this translation are recorded as other comprehensive income or
      loss.





***REVENUE
      RECOGNITION*****:**The Company employs its vessels on
      time charter, bareboat charter or voyage charter. With time and bareboat
      charters, the Company receives a fixed charterhire per on-hire day. Time and
      bareboat charter revenue is recognized on an accrual basis and is recorded
      over
      the term of the charter as service is provided. In the case of voyage charters,
      the vessel is contracted for a voyage between two or several ports: the Company
      is paid for the cargo transported. Voyage charter revenue is recorded based
      on
      the percentage of service completed at the balance sheet date. A voyage is
      deemed to commence upon the completion of discharge of the vessel's previous
      cargo and is deemed to end upon the completion of discharge of the current
      cargo. Charterhire received in advance represents cash received prior to
      year-end related to revenue applicable to periods after December 31 of each
      year. Other income consists of demurrage, pooling of income or lump sum expenses
      and guarantee fees****and****is recognized
      as received, which approximates when it is earned.





***OPERATING
      EXPENSES*****:**When the Company employs its vessels on
      time charter, it is responsible for all the operating expenses of the vessels,
      such as crew costs, voyage expenses, insurance, repairs and maintenance. These
      expenses are incurred by the technical managers of the vessels and reimbursed
      by
      the Company under the management agreements. When the Company employs its vessel
      on bareboat charters, the Company pays no operating expenses as 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 or several ports: the Company pays
      for
      all voyage costs in addition to the operating expenses, voyage costs consist
      mainly in port expenses and bunker consumption. Voyage expenses are recorded
      based on the percentage of service completed at the balance sheet date on the
      same basis as the related voyage revenue.


37
 *Table
          of Contents*





***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 ratably over the period of five years to the next intermediate or special
      survey dry-docking.





***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.





***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 regularly reviewed for impairment. The Company performs
      the impairment valuations at the individual vessel level pursuant to paragraph
      10 of SFAS 144.





To
      determine 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 Management 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 deemed to be its market value and no broker appraisals are
      made.





Whenever
      a vessel’s market value is above its book value, the Company considers there is
      no indication of impairment. Whenever a vessel’s 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 estimation 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 used 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 an LPG vessel,
                or
                the end of the current charter if longer. 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 Management on the basis of past historical
                rates and modulated by its 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,


38
 *Table
          of Contents*


-
            Days
                on hire are estimated at a level consistent with the Company’s on-hire
                statistics (see Management’s discussion and Analysis of Financial
                Condition and Results of Operations - Results of Operations –
                Revenue).





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.





The
      Company’s investment in MUNIA is
      also reviewed for impairment at year end and at each quarter end in accordance
      with the Company’s impairment review policies. To determine whether there is an
      indication of impairment, the Company compares the fair market value or the
      estimated scrap value of each container vessel at the end of the reporting
      period with the amount, which corresponds to a full recovery of the investment
      (see Note 4. Investment in Associated Companies). The Company performs the
      impairment valuations at the individual vessel level pursuant to paragraph
      10 of
      SFAS 144. Whenever the fair market value or the estimated scrap value of a
      vessel is below the amount necessary for the Company to recover its investment
      corresponding to such vessel, the Company considers there is a potential
      impairment and performs a recoverability test. To perform the recoverability
      test, the Company estimates the undiscounted future cash flows attributable
      to
      the investment in order to determine if the book value of such investment is
      recoverable. If the book value of the investment exceeds the estimated
      undiscounted future cash flows attributable to the investment, the Company
      recognizes an impairment loss equal to the excess of the book value over the
      scrap value.





The
      Company’s investment in Waterloo is
      also reviewed for impairment at year end and at each quarter end in accordance
      with the Company’s impairment review policies





***SEGMENT
      REPORTING:***Although separate vessel financial information is
      available to Management**,** Management internally evaluates the
      performance of the enterprise as a whole and not on the basis of separate
      business units, different types of charter or size or category of vessel. As
      a
      result, the Company has determined it operates as one reportable segment. Since
      the Company’s vessels regularly move between countries in international waters
      over hundreds of trade routes, it is impractical to assign revenues or earnings
      from the transportation of international LPG products by geographic
      area.





***DEBT
      ISSUANCE
      COSTS*****:**Debt issuance costs are amortized, using
      the interest method, over the terms of the related credit facilities.
      Amortization of debt issuance costs, included in interest expense, amounted
      to
      $52,483 in 2006, $58,188 in 2005 and $128,092 in 2004. In 2006, an amount of
      $220,210 representing the unamortized balance of the debt issuance costs
      incurred in 2005 in connection with the loan granted by Scotiabank in 2005
      was
      written off and recorded as interest expense. In 2005, an amount of $116,194
      representing the unamortized balance of the debt issuance costs incurred in
      2004
      in connection with the $15 million prepaid under the Fortis Loan was written
      off
      and recorded as a reduction of the Deferred Gain on sale of vessels. In 2004,
      debt issuance costs of $385,101 were written off as a result of the Company’s
      debt refinancing and recorded as a loss on debt extinguishment.





***INTEREST
      RATE
      SWAPS:*** SFAS 133 “Accounting for Derivative Instruments and Hedging
      Activities” requires the Company to recognize its derivative instruments as
      either assets or liabilities in the balance sheet 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 6. Long-term Debt). 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.


39
 *Table
          of Contents*


The
      Company’s interest-rate swaps are
      designated and qualify as cash flow hedges. As a result, the fair value of
      the
      interest rate swaps is included in the accompanying balance sheets in other
      assets or other liabilities. The effective portion of the gain or loss on the
      interest rate swaps is reported as an increase or decrease in 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, victualling and
      in
      some cases bunker (only if the vessel is operated on voyage charter). They
      are
      stated at the lower of cost or market, and are accounted for on a first-in,
      first-out basis.





***STOCK-BASED
      COMPENSATION:*** The Company has a stock-based employee compensation
      plan, which is described more fully in Note 9. On January 1, 2006, the Company
      adopted FASB Statement No. 123 (R) and uses the “modified prospective” method,
      which requires all share-based payments to employees, including grants of
      employee stock options, to be recognized as compensation expense in the
      statement of income based on estimated fair value at issue date. The adoption
      of
      this Statement did not have a material impact on the Company’s consolidated
      financial position or results of operations. In prior years, the Company
      accounted for the plan under the recognition and measurement principles of
      APB
      Opinion No. 25, Accounting for Stock Issued to Employees, and related
      interpretations.





***RESTRICTED
      CASH:***Certain cash balances are pledged to guarantee the Company’s
      performance under the loan agreements. They are classified as Current assets
      or
      Other Assets depending on the expected length of time of the
      restriction.





*******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
      2006.





Earnings
                      Per Share
                  
                  Year
                      Ended
                    December
                      31, 2006
                  
                  
                  Year
                      Ended
                    December
                      31, 2005
                  
                  
                  Year
                      Ended December 31, 2004Numerator:Net
                      income available to common stockholders
                  
                  $
                  10,149,208
                  
                  
                  $
                  10,768,645
                  
                  
                  $
                  1,112,379Denominator:Weighted
                      average number of common shares
                  
                  
                  9,472,458
                  
                  
                  
                  9,300,224
                  
                  
                  
                  9,190,656Dilutive
                      effect of employee stock options
                  
                  
                  82,537
                  
                  
                  
                  167,718
                  
                  
                  
                  105,377Diluted
                      average number of common shares
                  
                  
                  9,554,995
                  
                  
                  
                  9,467,942
                  
                  
                  
                  9,296,033Earnings
                      per common share:-
                      Basic earnings per share
                  
                  $
                  1.07
                  
                  
                  $
                  1.16
                  
                  
                  $
                  0.12-
                      Diluted earnings per share
                  
                  $
                  1.06
                  
                  
                  $
                  1.14
                  
                  
                  $
                  0.12





There
      were no stock options or common stock equivalent 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. The Monaco and London
      subsidiaries are subject to corporate income taxes in their respective
      countries, but the amounts are not deemed significant. The Company believes
      that
      it is not subject to corporate income taxes in other jurisdictions, including
      the United States.


40
 *Table
          of Contents*


***RECOVERABLE
      FROM INSURERS:***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 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. The Company’s insurance claims are handled by the
      Company’s staff. 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 recoverable from insurers; such amounts are based on discussions
      between the Company 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 amounts recoverable from Insurance are reviewed by Management
      on
      a quarterly basis and adjusted if necessary.





***LOSSES
      / GAINS ON EARLY
      DEBT EXTINGUISHMENT:*** Losses or Gains on early debt extinguishment
      may include write offs of debt issuance costs, gains/losses on cancelled swaps
      following a refinancing and gain/losses on repurchases of long term notes
      calculated as the difference between face value and purchase price together
      with
      brokerage commission of the Notes repurchased.





***DEFERRED
      GAIN ON SALE OF
      VESSELS*****:**The
      deferred gain on sale of vessels was calculated as the sale
      price less book value and unamortized dry-dock costs of the vessels at the
      time
      of sale to MUNIA (see Note 4), transaction costs and write off of the
      unamortized balance of the debt issuance costs incurred in 2004 in connection
      with the Fortis Loan corresponding to the $15 million prepayment. The deferred
      gain on sale of vessels to MUNIA originally amounted to $17,715,284 and is
      being
      recognized ratably as income by the Company until February 1, 2008, September
      1,
      2008, May 15, 2009 and February 1, 2009 for each of the respective
      vessels.





***RECENT
      ACCOUNTING
      PRONOUNCEMENTS:***




In
      September 2006, the Securities and Exchange Commission issued SAB 108, to
      address diversity in practice in quantifying financial statement misstatements.
      SAB 108 requires that the Company quantify misstatements based on their impact
      on each of its financial statements and related disclosures. SAB 108 became
      effective for fiscal years ending after November 15, 2006. The adoption of
      SAB 108 does not have a material impact on the consolidated financial statements
      of the Company.




In
      September 2006, the FASB issued SFAS No. 157 ("SFAS 157"). SFAS 157 enhances
      existing guidance for measuring assets and liabilities using fair value.
      Previously, guidance for applying fair value was incorporated in several
      accounting pronouncements. The new statement provides a single definition of
      fair value, together with a framework for measuring it, and requires additional
      disclosure about the use of fair value to measure assets and liabilities. While
      the statement does not add any new fair value measurements, it does change
      current practice. SFAS 157 is effective for financial statements issued for
      fiscal years beginning after November 15, 2007 and interim periods within those
      fiscal years. The adoption of SFAS 157 is not expected to have a material impact
      on the consolidated financial statements of the Company.





Management
      does not believe that any
      other recently issued, but not yet effective accounting pronouncements, if
      currently adopted, would have a material impact on the consolidated financial
      statements of the Company.





***RECLASSIFICATIONS:***
      Certain reclassifications have been made to the accompanying consolidated
      financial statements in prior years to conform to the current
      presentation.





41
 *Table
          of Contents*


**NOTE
      2:     RELATED COMPANY TRANSACTIONS**





The
      By-Laws of the Company provide that
      related transactions and transactions giving rise to potential conflicts of
      interest are subject to review by the Audit Committee of the
      Company.





***V.Ships***





As
      of May
      13, 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 purchased 4,168,000 common
      shares of the Company from the Vlasov Investment Corporation and 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. On October 5, 2005, Navalmar Transportes Maritimos LDA,
      a
      sister company to Navalmar (UK) Limited, purchased 1,780,000 common shares
      of
      the Company from V.Investments Limited. On November 30, 2005, Navalmar
      Transportes Maritimos LDA purchased 2,800,744 common shares of the Company
      from
      Navalmar (UK) Limited. On December, 15 2005, Navalmar Transportes Maritimos
      LDA
      sold 555,555 common shares of the Company to Weco-Rederi A/S, a non-affiliated
      third party. Following the transaction, Navalmar’s ownership in the Company was
      44.4%.





On
      August 1, 2006, V.Ships sold its
      remaining 2.8% interest in the Company for an aggregate price of $2,872,119
      ($10.80 per share) to Weco-Rederi and ceased to be an affiliate of MC Shipping.
      Following the transaction, Weco-Rederi’s ownership in the Company’s shares
      increased from 6.1% to 8.9%.





For
      18 years, the Company had employed
      the services of V.Ships as technical manager for its vessels and V.Ships was
      entitled to remuneration in line with current industry practice. During the third quarter
      of 2006, the
      technical management of the vesselsmanaged by V.Ships was
      transferred to
      three non-related technical managers on industry competitive terms. The four
      container vessels owned by MUNIA, in which the Company owns 25.8%, are still
      managed by V.Ships.





Since
      V.Ships ceased to be an affiliate
      of the Company on August 1, 2006, the related company disclosure with respect
      to
      V.Ships, when available, only covers the period from January 1 through August
      1,
      2006. Comparables for the previous periods are stated for the full
      year.





The
      Company, via its wholly owned
      subsidiaries, was party to management agreements with V.Ships for the technical
      operation of some of its vessels. The management agreements were “cost-plus”
contracts under which the Company reimbursed all costs incurred by V.Ships
      for
      the operation of the Company's vessels and V.Ships was paid a fixed management
      fee.In 2006, the
      management fees were fixed at the rate of $8,500 per vessel/per month. In 2005,
      the fees were $9,250 per vessel/per month for large LPG carriers and $9,167
      per
      vessel/per month for smaller LPG carriers compared to $8,855 and $8,753,
      respectively, in 2004. From January 1 to August 1, 2006, the Company paid
      management fees of $535,500 to V.Ships compared to $1,006,756 in 2005 and
      $1,150,926 in 2004.





Prior
      to August 1, 2006, from time to
      time, the Company employed the services of an affiliate of V.Ships for legal
      work related to the acquisition and disposal of vessels. Legal fees were
      determined in light of current industry practice. From January 1 to August
      1,
      2006, the Company paid legal fees of $37,598 to an affiliate of V.Ships compared
      to $37,876 in 2005 and $33,443 in 2004.





Prior
      to May 31, 2006, the Company
      leased office space from and reimbursed telecommunication expenses to various
      affiliates of V.Ships. From January 1 to August 1, 2006, the rental cost and
      telecommunication expenses paid to affiliates of V.Ships totaled approximately
      $49,663, compared to $104,455 in 2005 and $133,416 in 2004.





Prior
      to July 1, 2006, the Company
      outsourced certain bookkeeping functions to an affiliate of V.Ships. From
      January 1 to August 1, 2006, the Company paid approximately $21,250 for
      accounting services to an affiliate of V.Ships compared to $28,833 in 2005
      and
      $31,000 in 2004.


42
 *Table
          of Contents*


From
      August 2004 to October 31, 2005,
      the Company paid a fee of £10,000 per month to V.Investments in consideration of
      V.Ships permitting the Company’s President and Chief Executive Officer (the
“CEO”), then a full time employee of V.Ships, to provide his services to the
      Company on a part time basis. The Company also reimbursed V.Ships for all
      business expenses incurred by the CEO in the provision of his services. In
      2005
      and 2004, fees paid to V.Investments amounted to $181,958 and $95,379,
      respectively.





In
      addition, as technical manager of
      the Company’s fleet, until the third quarter of 2006, V.Ships occasionally
      utilized the services of its affiliates to arrange for crew and staff traveling,
      port agency services, manning, safety and training services, and miscellaneous
      other services as described below.





Prior
      to August 1, 2006, the Company
      used the services of a company affiliated with V.Ships for crew and staff
      travel. From January 1 to August 1, 2006, V.Ships did not disclose the amount
      of
      such travel expenses which were included in vessel operating or general and
      administrative expenses. In 2005, these expenses totaled $378,340 compared
      to
      $267,670 in 2004.





Prior
      to August 1, 2006, the Company
      occasionally used the port agency services of various companies affiliated
      with
      V.Ships. From January 1 to August 1, 2006, V.Ships did not disclose the amount
      paid to these companies for port and other costs, which were included in vessel
      operating expenses. In 2005, these costs totaled $278,719 compared to $313,754
      in 2004.





Prior
      to August 1, 2006, the Company
      used various companies affiliated with V.Ships for manning, safety and training.
      From January 1 to August 1, 2006, V.Ships did not disclose the amount of such
      expenses which were included in vessel operating expenses. In 2005, these costs
      totaled $ 253,375 compared to $346,129 in 2004.





***MPC
      Steamship***





On
      December 18, 2006, the Company
      entered into agreements to sell the LPG carriers, Auteuil, Deauville,
      Cheltenham, Malvern, Coniston and Longchamp to Beteiligungsgesellschaft LPG
      Tankerflotte mbH & Co. KG (“LTF”), a special purpose German KG company
      formed by the German finance house MPC Munchmeyer Petersen AG (“MPC”)for
      a
      total sale price of $52 million. The Company will charter back the vessels
      for a
      period of four years and reinvest $5.75 million in the KG company for
      approximately 25% of the equity (see Note 3). Mr Schomburg (Director) is a
      member of the Supervisory Board of MPC Münchmeyer Petersen Steamship GmbH &
Co. KG. Mr Schomburg excused himself from discussions relating to this
      transaction.





***Other***





Certain
      of the directors of the Company
      are involved in outside business activities similar to those conducted by the
      Company.  Mr. Bogazzi and Mr Wedell-Wedellsborg (Directors) are
      involved in the business of purchasing, owning and selling cargo vessels through
      their 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.





At
      December 31, 2006, the Company had
      intercompany balances for trade accounts payable to affiliates of $369,423
      compared to $202,208 for receivable from affiliates at December 31, 2005. The
      balance at December 31, 2006 included $296,475 payable to MUNIA for amounts
      due
      under the guarantee agreement and for the dry-dock of a vessel. The balance
      at
      December 31, 2005 included a $180,789 receivable from MUNIA for the payment
      of
      lube oil remaining on board at the time of sale of the container
      vessels.





No
      officer was indebted to the Company
      at any time since the beginning of the fiscal year 2006.





43
 *Table
          of Contents*


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




On
      January 20, 2005, the Company sold four container vessels to MUNIA for
      $29,843,360**.**and reinvested $4 million in MUNIA for a 25.8%
      equity participation. The sale generated a net accounting gain of $17,715,284,
      which was recorded as a deferred gain on sale of vessels. As part of the
      transaction, the Company has agreed to guarantee certain levels of operating
      expenses and of employment for the vessels (see Note 4: Investment in Associated
      Companies).




In
      April 2005, the Company acquired two
      very large gas carriers from the Bergesen Group of Norway. The vessels, Tower
      Bridge (ex Berge Flanders) of 75,000 m3 capacity
      (built
      1991) and Chelsea Bridge (ex Berge Kobe) of 77,000 m3 capacity
      (built
      1987) were acquired for considerations of $50,717,250 and $32,260,000,
      respectively. The vessels are time-chartered to the Bergesen Group for a minimum
      period of five years.





On
      March 30 and 31, 2006, the Company
      purchased two LPG vessels from the Bernhard Schulte Group of Germany at a total
      cost of approximately $11 million. The vessels, Hermann Schulte renamed
      Blackfriars Bridge (built 1980) and Dorothea Schulte renamed London Bridge
      (built 1981), are semi-refrigerated LPG carriers of 5,600 cbm capacity each.
      The
      vessels were time-chartered back to the Schulte Group for one year. The
      technical management of the vessels is contracted to Wallem, an unrelated
      technical manager.





In
      June
      2006, the Company sold two coastal bulk carriers to an unrelated third party.
      The sale generated net proceeds of $1,229,495 and a net gain of $1,035,642.
      A
      coastal bulk carrier (also known as a multipurpose seariver vessel) is a small
      vessel capable of carrying general cargo and/or bulk cargo both on rivers and
      at
      sea.





On
      July 13, 2006, the Company purchased
      the LPG vessel Hans Maersk, renamed Maersk Houston, from the A.P.Moller-Maersk
      Group for approximately $40 million. The vessel (built 1993) is a
      semi-refrigerated LPG carrier of 20,700 cbm capacity. The vessel was
      time-chartered back to the A.P.Moller-Maersk Group for five years. The technical
      management of the vessel is contracted to Wallem.





On
      July 24, 2006, the Company purchased
      two LPG vessels from the Bernhard Schulte Group of Germany at a net cost of
      approximately $31.1 million. As the vessels were contracted to be delivered
      on
      July 1st, the purchase price was reduced by $613,455 as compensation for the
      late delivery. This amount has been recorded as a reduction of the purchase
      price of the vessel. The vessels, Tycho Brahe renamed Barnes Bridge (built
      1982)
      and Immanuel Kant renamed Kew Bridge (built 1983), are semi-refrigerated LPG
      carriers of 15,360 cbm capacity each. The vessels were time-chartered back
      to
      the Schulte Group for two years. The technical management of the vessels is
      contracted to Hanseatic, an unrelated technical manager. Hanseatic is a company
      affiliated with the Schulte Group.





On
      December 18, 2006, the Company entered into agreements for the sale of the
      LPG
      carriers, Auteuil, Deauville, Cheltenham, Malvern, Coniston and Longchamp to
      LTF, a special purpose German KG company formed by the German finance house
      MPC
      for a total price of $52 million. Simultaneously, the Company agreed to charter
      back the vessels at $225,000 per month for a period of four years and reinvest
      $5,400,000 in the KG company for approximately 25% of the equity, thereby
      remaining committed to the ships and its customers. As part of the transaction,
      the Company has agreed to guarantee the difference between the full management
      budget and the actual ship operating expenses for an amount not to exceed $135
      per day and per vessel for four years after the delivery of each vessel. Upon
      actual delivery of the vessels, the Company will prepay the attributable portion
      of the Fortis Loan corresponding to the vessels sold, in the amount of
      $22,160,254.





LTF
      is a
      limited partnership with equity in the amount of approximately $21.7 million.
      The limited partners of LTF include MC Shipping (approximately 25%) and certain
      German individual investors (approximately 75%). The limited partners will
      participate in the profits and losses of the partnership in accordance with
      the
      ratio of their partnership interest. An Advisory Board will be elected by the
      limited partners and general partner at the first shareholder
      meeting.  LTF will borrow $33.8 million from Hypo Vereinsbank to
      finance the balance of the purchase price of the vessels and the working
      capital. The bank loan bears interest at 5.76% and is repayable in 32 equal
      quarterly installments beginning six months after delivery of the respective
      vessel. The loan is secured by mortgages on the vessels and is non-recourse
      to
      the partners of LTF.


44
 *Table
          of Contents*





The
      total
      book value of the vessels to be sold was $32.3 million as of December 31,
      2006.  A summary of the Company’s vessels is as follows:





Vessels,
                            at cost
                        
                        
                        Accumulated
                            depreciation
                        
                        
                        Net
                            book valueVessels
                            to be sold
                        
                        $
                        52,519,871
                        
                        
                        $
                        20,188,756
                        
                        
                        $
                        32,331,115Other
                            vessels
                        
                        
                        183,607,367
                        
                        
                        
                        24,947,967
                        
                        
                        
                        158,659,400Total
                            vessels
                        
                        $
                        236,127,238
                        
                        
                        $
                        45,136,723
                        
                        
                        $
                        190,990,515




The
      transaction is a sale and leaseback with continuing involvement that does not
      qualify for sale-leaseback accounting under US GAAP and will be accounted for
      as
      a financing under US GAAP. As a result:





-
            The
                vessels will remain on the balance sheet of the Company and will
                be
                depreciated to zero over the four year charter
                period.


-
            The
                revenues from chartering out the vessels by the Company will be recorded
                as revenues, just as previously. The Company cannot estimate at this
                time
                the revenues it will derive from the employment of the vessels over
                the
                next four years, since the vessels are currently employed on voyages
                or
                time charters not exceeding one
                year.


-
            The
                Company will not pay for the vessels’ operating expenses since it is
                time-chartering the vessels from LTF, however it is guaranteeing
                up to
                $135 per day per vessel if the operating expenses exceed a pre-agreed
                budget.


-
            Upon
                receiving the sale proceeds, the Company will record a liability
                of $52
                million for the amount received. After the $22.2 million prepayment
                of the
                Fortis Loan, the debt of the Company will increase by a net amount
                of
                $29.8 million.


-
            Each
                charter payment paid to LTF will be recorded part as interest and
                part as
                principal. The breakdown between principal and interest will be calculated
                so that the $52 million liability is amortized over the four year
                charter
                period.


-
            The
                Company’s $5.4 million investment in the KG company will be recorded as an
                investment in associated companies.








**NOTE
      4:** **INVESTMENT
      IN ASSOCIATED COMPANIES**





MUNIA





In
      January 2005, the Company invested
      $4 million in MUNIA. Simultaneously, MUNIA purchased four container vessels
      from
      the Company for approximately $29.8 million and chartered them to AP Møller
      until February 1, 2008, September 1, 2008, May 15, 2009 and February 1, 2009,
      for each vessel respectively. MUNIA contracted the technical management of
      the
      vessels to V.Ships.





MUNIA
      is a limited partnership with
      equity in the amount of $15.5 million as of December 31, 2006. The limited
      partners of MUNIA include the Company with an equity contribution of $4 million
      (25.8%) and TERTIA Beteiligungstreuhand GmbH (“TERTIA”) with an equity
      contribution of $11,500,000 (74.2%). TERTIA is a fiduciary partner who holds
      in
      trust the limited partnership interests held by German individual investors
      (the
“Individual Investors”) and the participations of V.Ships (1%) and ALCAS GmbH, a
      subsidiary of KGAL (1%). The Company’s investment in MUNIA was $5,616,535 at
      December 31, 2006, which included the additional amounts invested in 2006 as
      discussed below, compared to $4,279,764 at December 31, 2005. The Company
      accounts for its investment in MUNIA using the equity method of
      accounting.


45
 *Table
          of Contents*


MUNIA
      borrowed $18 million from
      Danmarks Skibskreditfond to finance the balance of the purchase price of the
      vessels and the working capital. The bank loan bears interest at LIBOR plus
      1.05% and consists of four advances of $4.5 million each. Each advance is
      repayable in equal semi-annual installments of $450,000 plus a balloon payment
      due on February 1, 2008, September 1, 2008, May 15, 2009 and February 1, 2009,
      for each vessel respectively. The loan is secured by mortgages on the vessels
      and is non-recourse to the partners of MUNIA. Swap agreements were concurrently
      entered into, as a result of which the interest rate has been effectively fixed
      at rates ranging from 4.73 to 4.85% depending on the final maturity of each
      advance. MUNIA accounts for its interest rate swap agreements as fair value
      hedges.





The
      managing partner is MUNIA
      Mobilien-Verwaltungsgesellschaft mbH (the “Managing Partner”). The Managing
      Partner has sole power of representation toward third parties and manages the
      business affairs of MUNIA.  V.Ships received a fee of $230,000 from
      MUNIA as a broker fee on the acquisition of the vessels.





The
      Company participates for 25.8% in
      the profits and losses of MUNIA and will receive the following percentages
      of
      the net sale proceeds of each of the ships: 0% of the first $3.9 million, 100%
      of the next $1 million and 40% of any amount in excess of $4.9 million. The
      25.8% share of net income of MUNIA included in the Company's financial
      statements was $582,895 for the year ended December 31, 2006 and $389,764 for
      the year ended December 31, 2005. The Company received dividends from MUNIA
      of
      $360,000 in 2006 and $110,000 in 2005.





As
      part of the sale transaction, the
      Company agreed to guarantee certain levels of operating expenses and of
      employment for the vessels until February 1, 2008, September 1, 2008, May 15,
      2009 and February 1, 2009, for each vessel (or earlier in case of sale or total
      loss of a vessel) (“MUNIA guarantee”). As a result, the off hire and the excess
      or surplus of operating expenses, up to a certain extent, will be absorbed
      by
      the Company. As compensation for issuing such guarantee, the Company receives
      a
      daily guarantee fee for each vessel, which is included in Charterhire and Other
      Income. In 2006, the operating expenses of the vessels exceeded the guaranteed
      level and the Company paid $198,604 to MUNIA under the operating expense
      guarantee, compared to $44,453 in 2005 in relation to the Maersk Barcelona
      incident (see below). The Company cannot estimate the amount of any future
      payments required under this guarantee at this time.





In
      December 2006, one of the vessels
      owned by MUNIA was dry-docked. Such dry-dock had not been anticipated at the
      time of the sale to MUNIA and in order to effectuate the dry-dock, MUNIA agreed
      to waive its rights under the operating guarantee and MUNIA and the Company
      agreed to share in the costs of the dry-dock. The cost of the dry-dock amounted
      to approximately $1.4 million (including off-hire) and was split between MUNIA
      (approximately $300,000) and the Company (approximately $1.1 million). The
      Company’s share of the dry-dock was recorded as an additional investment in
      MUNIA and is anticipated to be recovered from the increased value of the vessel.
      The Company agreed to share in the dry-dock in order to protect its investment
      in the residual net sale proceeds of the vessel.





On
      September 20, 2005, the m/v ‘Maersk
      Barcelona’ owned by MUNIA suffered a malfunction of her oily water separator,
      which resulted in an accidental overboard discharge of oil-contaminated water
      off the coast of France. On March 22, 2006, the technical managers of the vessel
      were fined 720,000 euros ($949,464 equivalent at December 31, 2006 exchange
      rate) and the captain 80,000 euros ($105,496 equivalent at December 31, 2006
      exchange rate) by a French court, a judgment which they intend to appeal. All
      expenses to be incurred by the Company under the MUNIA guarantee were accrued
      for in 2005 and the Company expects that costs beyond the deductible will be
      covered by insurance, or by the responsible party.





WATERLOO





In
      April 2005, Waterloo Shipping
      Limited (“Waterloo”), a joint venture company owned on a 50/50 basis by the
      Company and Petredec Limited, a leading LPG trading and shipping company,
      acquired the 1983-built,59,725 cbm LPG carrier Galileo for $16 million and
      chartered the vessel to Petredec for a period of four years. The Company and
      Petredec each advanced an amount of $2,481,923 to Waterloo and Waterloo borrowed
      $11.2 million from Danish Ship Finance. The Danish Ship Finance loan bears
      interest at LIBOR plus 1.05% and was repayable in 16 equal quarterly
      installments of $610,156 plus a balloon payment of $1,437,504. The loan is
      non-recourse to the joint venture partners, except for a corporate guarantee
      limited to $850,000 for each joint venture partner. The Company accounts for
      its
      investment in Waterloo using the equity method of accounting.





46
 *Table
          of Contents*


The
      Galileo dry-docked in the second
      and third quarters of 2006 and extensive upgrading was performed to enable
      the
      vessel to operate for an additional five years. Reflecting the extended life
      of
      the ship, the charter with Petredec was extended by an additional year to April
      2010. In order to fund the cost of the dry-dock in 2006, the Company and
      Petredec each advanced to Waterloo an additional amount of $1,350,000 in 2006
      and $500,000 in February 2007. In September 2006, Waterloo borrowed an
      additional amount of $2 million under the Danish Ship Finance loan. As of
      December 31, 2006, the amount outstanding under the loan was $9,539,064
      repayable in 14 quarterly repayments of $735,156 (first twelve), $342,192
      (thirteenth) and $375,000 (fourteenth). The other terms of the loan remain
      unchanged.





The
      Company’s 50% share of the net loss
      of Waterloo was $871,522 for the year ended December 31, 2006 compared to
      $275,781 for the year ended December 31, 2005. The Company’s investment in
      Waterloo was $3,184,620 at December 31, 2006 compared to $2,206,143 at December
      31, 2005. The Galileo was valued in January 2007 by two leading independent
      brokers at $22 million as against Waterloo’s current book value of $17.6 million
      as of December 31, 2006.








**NOTE
      5:** **IMPAIRMENT
      OF LONG LIVED ASSETS**





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. As of December 31, 2006, the Company
      evaluated the recoverability of its vessels and its investments in accordance
      with FAS 144 and determined that no provision for impairment loss was required.
      As of December 31, 2005 and 2004, the Company evaluated the recoverability
      of
      its vessels and its investments in accordance with FAS 144 and determined that
      no provision for impairment loss was required.








**NOTE
      6:** **LONG-TERM
      DEBT**





Long-term
      debt consisted of the
      following at December 31, 2006 and 2005:





2006
                    
                    
                    2005($
                        in thousands)Scotia
                        Loan
                    
                    
                    123,326
                    
                    
                    
                    64,442Fortis
                        Loan
                    
                    
                    27,111
                    
                    
                    
                    25,000150,437
                    
                    
                    
                    89,442less
                        current portion
                    
                    
                    26,167
                    
                    
                    
                    12,116Long
                        term debt
                    
                    
                    124,270
                    
                    
                    
                    77,326








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 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 authorized Management to repurchase Notes in the open market
      at
      times, prices and volumes, which Management deemed appropriate. In 2004, the
      Company repurchased Notes having a total face value of $6,540,000 for a cash
      outlay of approximately $6,107,900 and recorded a net gain of $363,119 on the
      transactions. The repurchased Notes were retired. Debt issuance costs of
      $385,101 were written off as a result of this repurchase of Notes and recorded
      as a reduction of gains on debt extinguishment. 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.


47
 *Table
          of Contents*




In
      June 1998, the Company entered into
      a long-term debt agreement with Fortis Bank and Banque Nationale de Paris.
      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 of
      $14,729,815 was fully repaid on October 27, 2004 as part of the refinancing
      of
      the Company’s debt described below.





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 bore interest at LIBOR plus 1.25%
      and
      was repayable over six years in equal quarterly instalments. The borrowers
      were
      the then existing vessel-owning subsidiaries, except for the coastal bulker
      subsidiaries Concurrently, the Company entered into an interest rate swap
      agreement as a result of which the variable rate, exclusive of margin, was
      effectively fixed at 3.075 % until October 2007. On January 20, 2005, upon
      the
      sale of the container vessels to MUNIA, the Company repaid $15 million under
      this loan and the repayment schedule of the remaining loan was reduced
      proportionately. An amount of $116,194 representing the unamortized balance
      of
      the debt issuance costs incurred in 2004 in connection with the prepaid portion
      of the Fortis Loan was written off and recorded as a reduction of the Deferred
      Gain on sale of vessels. Concurrently with such prepayment, cash balances of
      $5
      million held as collateral by Fortis Bank were released. In April 2006, the
      Company refinanced the then outstanding balance of $23,750,000 as described
      below.





On
      April
      24, 2006, the Company entered into a $31,750,000 loan agreement with Fortis
      Bank
      (the “Fortis Loan”) in order to refinance the outstanding amount of the previous
      loan granted by Fortis of $23,750,000 and for the balance to partially refinance
      the acquisition of the Blackfriars Bridge and London Bridge (see Note 3:
      Acquisitions and Sales of Vessels). The borrowers are the vessel-owning
      subsidiaries of Auteuil, Deauville, Cheltenham, Malvern, Coniston, Longchamp,
      Blackfriars Bridge and London Bridge. The Fortis Loan bears interest at LIBOR
      plus 1.25% and is repayable in equal quarterly installments until October 2010.
      The existing interest rate swap agreement hedging the Fortis Loan remained
      in
      place until December 21, 2006. On such date, the Company terminated the interest
      rate swap agreement and received $386,800, which was recorded as a reduction
      of
      interest expense in 2006. As of December 31, 2006, the amount outstanding under
      the Fortis Loan was $27,111,112.





In
      September 2001, the Company had been
      granted a $17,700,000 credit facility by 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 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 advance $5,385,000 was fully repaid on October 27, 2004 as part of the
      refinancing of the Company’s debt described above. The second advance had been
      fully prepaid in 2003.





In
      April 2005, the Company entered into
      a $68,000,000 loan agreement with Scotiabank in order to partially fund the
      acquisition of two vessels, the Tower Bridge and Chelsea Bridge. The loan
      consisted of two advances and bore interest at LIBOR plus 0.85%. The first
      advance of $41 million was repayable over eleven years in twenty two equal
      semi-annual installments of $1,772,500 plus a balloon payment of $2,005,000
      in
      April 2016. The second advance of $27 million was repayable over seven years
      in
      fourteen equal semi-annual installments of $1,785,500 plus a balloon payment
      of
      $2,003,000 in April 2012. Swap agreements were concurrently entered into as
      a
      result of which the variable rates, exclusive of margin, have been effectively
      fixed until October 2010 at 4.58% and 4.545%, respectively for the first and
      second advance. In July 2006, the then outstanding balance under the loan
      granted by Scotiabank of $60,884,000 was refinanced as described
      below.


48
 *Table
          of Contents*





On
      July 10, 2006, the Company entered
      into a $126,884,000 loan agreement with Scotiabank in order to refinance the
      outstanding amount of the previous loan granted by Scotiabank of $60,884,000
      granted in April 2005 and for the balance to partially finance the acquisition
      of the Maersk Houston, Kew Bridge and Barnes Bridge. As of December 31, 2006,
      the amount outstanding under the Scotia Loan was $123,326,000. The loan is
      structured in five advances as follows:





1)
      Advance A in an amount of
      $27,429,000 was used to repay the outstanding amount of the loan granted in
      April 2005 by Scotiabank to partially fund the acquisition of the Chelsea Bridge
      ($23,429,000) and for working capital purposes. Advance A was drawn on July
      24,
      2006 and is repayable as follows: one semi-annual repayment of $1,785,500 on
      October 5, 2006, eleven semi-annual repayments of $2,149,100 plus a balloon
      of
      $2,003,400 on April 5, 2012. Advance A bears interest at LIBOR plus
      0.85%.





2)
      Advance B in an amount of
      $41,455,000 was used to repay the outstanding amount of the loan granted on
      April 5, 2005 by Scotiabank to partially fund the acquisition of the Tower
      Bridge ($37,455,000) and for working capital purposes. Advance B was drawn
      on
      July 24, 2006 and is repayable as follows: one semi-annual repayment of
      $1,772,500 in October 2006, nineteen semi-annual repayments of $1,983,100 plus
      a
      balloon of $2,003,600 on April 5, 2016. Advance B bears interest at LIBOR plus
      0.85%.





3)
      Advance C in an amount of
      $37,000,000 was used to partially fund the acquisition of the Maersk Houston.
      Advance C was drawn on July 13, 2006 and is repayable as follows: nineteen
      quarterly repayments of $1,080,000 starting on January 24, 2007, twenty
      quarterly repayments of $674,000 plus three balloon amounts of $1,000,000
      payable upon the occurrence of certain circumstances relating to the Chelsea
      Bridge, Tycho Brahe and Immanuel Kant. Advance C bears interest at LIBOR plus
      0.95%.





4)
      Advance D in an amount of
      $11,000,000 was used to partially fund the acquisition of the Kew Bridge.
      Advance D was drawn on July 24, 2006 and is repayable in seven quarterly
      repayments of $875,500 starting on January 24, 2007 and ten quarterly repayments
      of $487,150. Advance D bears interest at LIBOR plus 0.95%.





5)
      Advance E in an amount of
      $10,000,000 was used to partially fund the acquisition of the Barnes Bridge.
      Advance E was drawn on July 24, 2006 and is repayable in seven quarterly
      repayments of $825,750 starting on January 24, 2007 and ten quarterly repayments
      of $421,975. Advance E bears interest at LIBOR plus 0.95%.





The
      existing interest rate swap
      agreements hedging the previous loan granted by Scotiabank remained in place.
      In
      addition, an interest rate swap agreement was entered into with Scotiabank,
      as a
      result of which the variable rate on the additional amount of $8,000,000 granted
      under Advances A and B, has been effectively fixed at 5.70% (exclusive of
      margin) for 3.7 years. Another interest rate swap agreement was also entered
      into with Scotiabank, as a result of which the variable rate on the Advances
      C,
      D and E has been effectively fixed at 5.69% (exclusive of margin) for the first
      five years. Each of the interest rate swaps’ notional amounts and durations
      match the scheduled repayments of the corresponding advances.





The
      Company has issued guarantees in
      relation to the loans and the borrowers have granted ship mortgages over the
      vessels as security. The Blackfriars Bridge and London Bridge, following the
      March 2007 prepayment (see Subsequent events) and the La Forge are the Company’s
      only vessels not pledged as collateral under any debt agreement. The loan
      agreements contain financial covenants related to minimum liquidity reserves
      of
      $5,000,000, minimum value clauses for the vessels, minimum interest coverage
      of
      2:1 and minimum tangible net worth, all as defined in the loan agreements.
      Under
      the Scotiabank agreement, monthly transfers are made to retention accounts,
      which are applied in discharge of the next principal and interest payment due
      under the loan. The Company has complied with all applicable debt covenants,
      or
      received the appropriate waivers from lenders, for all periods
      presented.


49
 *Table
          of Contents*


As
      of December 31, 2006, the aggregate maturities of long-term debt in each of
      the
      subsequent five years ending December 31 were as follows:





2007
                      
                      $
                      26,167,1762008
                      
                      
                      25,375,0512009
                      
                      
                      22,998,6762010
                      
                      
                      22,998,6842011
                      
                      
                      15,087,525Thereafter
                      
                      
                      37,810,000Total
                      
                      $
                      150,437,112





The
      interest rates applicable to the
      Company's long-term debt as of December 31, 2006 ranged from 4.325% to 6.74%.
      During the year ended December 31, 2006, interest paid in relation to the
      long-term debt totaled $5,881,880 (2005 - $3,211,999; 2004 -
      $4,208,195).








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





At
      December 31, 2006 and 2005, the
      Company’s financial instruments had the following fair values:





2006
                
                
                2005Fair
                    Value
                
                
                Book
                    Value
                
                
                Fair
                    Value
                
                
                Book
                    ValueCash
                (a)
                
                
                1,838,044
                
                
                
                1,838,044
                
                
                
                12,292,015
                
                
                
                12,292,015Restricted
                    Cash
                (a)
                
                
                4,494,402
                
                
                
                4,494,402
                
                
                
                1,759,237
                
                
                
                1,759,237Long-term
                    debt:
                (b)Current
                    portion
                
                
                
                26,167,176
                
                
                
                26,167,176
                
                
                
                12,116,000
                
                
                
                12,116,000Non-current
                    portion:
                
                
                
                124,269,936
                
                
                
                124,269,936
                
                
                
                77,326,000
                
                
                
                77,326,000Interest
                    rate swaps
                (c)
                
                
                (356,917
                )
                
                
                (356,917
                )
                
                
                960,305
                
                
                
                960,305





a)
            Carrying
                value approximates fair value due to short term
                maturities.


b)
            Carrying
                value approximates fair value as variable interest rate approximates
                market rates.


c)
            The
                fair values of the interest rate swaps are based on independent
                valuations. They estimate the amount the Company would have received
                or
                paid, had the interest rate swaps been terminated on the balance
                sheet
                date.








**NOTE
      8:** **SHAREHOLDERS'
      EQUITY TRANSACTIONS**





In
      March 2007, the Company’s Board of
      Directors announced a dividend of $0.25 per share to be declared and paid in
      four equal quarterly installments commencing in April 2007. The first quarterly
      installment was declared on March 21, 2007 and is payable on April 30, 2007.
      The
      final 2006 dividend payment of $594,259, which was accrued at December 31,
      2006,
      was paid on February 2, 2007. In 2006, the Company declared dividends of $0.25
      per share and a common stock dividend of one share for every twenty shares
      owned, rounded up to the nearest multiple. 453,029 shares of common stock were
      distributed as stock dividend on April 28, 2006. In 2005, the Company declared
      dividends of $0.25 per share. Cash dividends were recorded as a reduction of
      Additional Paid-In Capital due to the Company’s accumulated deficit, with the
      exception of the dividend payment made on February 2, 2007, which was recorded
      partly as a reduction of retained earnings and partly as a reduction of
      Additional Paid-In Capital.





Directors,
      who are not officers of the
      Company or of an affiliated Company, each receive $5,000 of their total annual
      compensation by the allotment of shares of the Company’s common stock of
      equivalent value. Further shares will be similarly granted in future years.
      Pursuant to this arrangement, the following allotments have been
      made:


50
 *Table
          of Contents*








Total
                        number of shares allotted
                    Total
                        compensation in USD
                    Period
                    Ending4,766
                    $15,000
                    9
                        months
                    December
                        31, 20042,056
                    $20,000
                    12
                        months
                    December
                        31, 20051,876
                        (1)
                    $20,000
                    12
                        months
                    December
                        31, 2006


(1)
      The shares allotted for 2006 were issued in 2007.





In
      2005,
      142,918 shares of common stock were issued in connection with the exercise
      of
      stock options for total proceeds of $262,695 and 186,398 options granted under
      the stock option plan. In 2006, 139,398 stock options were exercised at a price
      of $9.228 representing proceeds of $1,286,365 for the Company (see Note 9:
      Stock
      Option Plan).****On
      March
      24, 2006, the Company filed a registration statement on Form S-8 to register
      the
      re-offer and resale of up to 357,996 shares of common stock of the Company,
      which have been issued or will be issued under the Company Stock Option Plan
      to
      the Company’s employees. In 2004, 29,901 shares were issued and 100,000 options
      granted under the stock option plan (see Note 9).





Accumulated
      other comprehensive income consists of currency translation adjustments and
      unrealized gains or losses on cash flow hedges as follows:





2006
                  
                  
                  2005
                  
                  
                  2004Currency
                      translation adjustments
                  
                  $
                  49,236
                  
                  
                  $
                  30,155
                  
                  
                  $
                  52,272Unrealized
                      (losses) / gains on cash flow hedges
                  
                  
                  (356,917
                  )
                  
                  
                  960,305
                  
                  
                  
                  209,330Accumulated
                      Comprehensive (loss) / Income
                  
                  $
                  (307,681
                  )
                  
                  $
                  990,460
                  
                  
                  $
                  261,602








**NOTE
      9:** **STOCK
      OPTION PLAN**





On
      June 20, 2001, the shareholders
      authorized 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
      authorized for issuance under this Stock Option Plan. Under the terms of the
      Stock Option Plan, the options give the holder the right to purchase one share
      per option; they 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. At the inception of the plan, the options
      vested 25% per annum, commencing one year after the grant date of the respective
      option. As of June 14, 2005, the Board modified the vesting conditions of the
      stock options under the terms of the plan in order to provide management with
      additional incentive. The options now vest 100% on the day following the grant
      date.





On
      June
      20, 2001, the Company’s Board of Directors approved the issuance of 163,148
      options 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 at an
      exercise price of $2.36 per share. The intrinsic value of these options on
      the
      grant date was $0.44 per share. On June 14, 2005, the Company’s Board of
      Directors approved the issuance of 186,398 options at an exercise price of
      $9.228 per share. The intrinsic value of these options on the grant date was
      $0.402 per share. As of December 31, 2007, there were no additional options
      to
      be granted under the plan.





In
      2006,
      139,398 stock options were exercised at a price of $9.228 representing proceeds
      of $1,286,365 for the Company. On March 24, 2006, the Company filed a
      registration statement on Form S-8 to register the re-offer and resale of up
      to
      357,996 shares of common stock of the Company, which have been issued or will
      be
      issued under the Company Stock Option Plan to the Company’s employees. As of
      December 31, 2006, the 47,000 options outstanding had an exercise price of
      $9.228 per share and a remaining contractual life of 4.47
      years.


51
 *Table
          of Contents*




The
      following table summarizes the activity under the stock plan in the last three
      years:





2006
                                    
                                    
                                    2006
                                    
                                    
                                    2005
                                    
                                    
                                    2005
                                    
                                    
                                    2004
                                    
                                    
                                    2004Number
                                        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
                                    
                                    
                                    186,398
                                    
                                    
                                    $
                                    9.228
                                    
                                    
                                    
                                    142,918
                                    
                                    
                                    $
                                    1.840
                                    
                                    
                                    
                                    101,499
                                    
                                    
                                    $
                                    0.622Options
                                        granted
                                    
                                    
                                    -
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    186,398
                                    
                                    
                                    $
                                    9.228
                                    
                                    
                                    
                                    100,000
                                    
                                    
                                    $
                                    2.360Options
                                        exercised
                                    
                                    
                                    139,398
                                    
                                    
                                    $
                                    9.228
                                    
                                    
                                    
                                    142,918
                                    
                                    
                                    $
                                    1.840
                                    
                                    
                                    
                                    29,901
                                    
                                    
                                    $
                                    0.622Options
                                        forfeited
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    28,680
                                    
                                    
                                    $
                                    0.622Options
                                        outstanding at the end of the year
                                    
                                    
                                    47,000
                                    
                                    
                                    $
                                    9.228
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    142,918
                                    
                                    
                                    $
                                    1.840Options
                                        exercisable at the  end of the year
                                    
                                    
                                    47,000
                                    
                                    
                                    $
                                    9.228
                                    
                                    
                                    
                                    186,398
                                    
                                    
                                    $
                                    9.228
                                    
                                    
                                    
                                    19,729
                                    
                                    
                                    $
                                    0.622




On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      (“SFAS”) No. 123(R) "Share Based Payments" using the "modified prospective"
      method. Under this method, awards that are granted, modified, or settled after
      January 1, 2006, are measured and accounted for at fair value in accordance
      with
      SFAS 123(R). The adoption of this Statement did not have a material impact
      on
      the Company's financial position or results of operations.





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 in 2004 and 2005.





**Year
                            ended**
                        
                        
                        **Year
                            ended****December
                            31**
                        
                        
                        **December
                            31****2005**
                        
                        
                        **2004**Net
                            income, as reported
                        
                        $
                        10,768,645
                        
                        
                        $
                        1,112,379Add:
                            Stock-based employee compensation expense included in
                            reported net
                            income
                        
                        
                        74,932
                        
                        
                        
                        -Deduct:
                            total stock-based employee compensation expense determined
                            under fair
                            value based method for all awards
                        
                        
                        (642,875
                        )
                        
                        
                        (32,787
                        )Proforma
                            net income
                        
                        $
                        10,200,702
                        
                        
                        $
                        1,079,592Earnings
                            per share:Basic
                            – as reported
                        
                        $
                        1.16
                        
                        
                        $
                        0.12Basic
                            – pro forma
                        
                        $
                        1.10
                        
                        
                        $
                        0.12Diluted
                            – as reported
                        
                        $
                        1.14
                        
                        
                        $
                        0.12Diluted
                            – pro forma
                        
                        $
                        1.08
                        
                        
                        $
                        0.12




The
      fair
      value for the options granted was estimated at the date of grant using the
      Black-Scholes option pricing model with the following assumptions. The fair
      value of the options granted during the years ended December 31, 2005 and 2004
      were $2.96 and $1.23 per share, respectively.




52
 *Table
          of Contents*






Options
                                    granted in year
                                
                                2005
                                
                                
                                2004Risk-free
                                    interest rate
                                
                                
                                3.70
                                %
                                
                                
                                3.6
                                %Volatility
                                
                                
                                54
                                %
                                
                                
                                58
                                %Expected
                                    option term (in years)
                                
                                
                                2
                                
                                
                                
                                4Dividend
                                    yield
                                
                                
                                2.50
                                %
                                
                                
                                3.50
                                %Fair
                                    value of options granted
                                
                                $
                                2.96
                                
                                
                                $
                                1.23





For
      purposes of pro forma disclosures, prior to June 14, 2005, the options vested
      on
      a pro-rata basis and the estimated fair value of the options was amortized
      to
      expense over the options’ vesting period in accordance with the accelerated
      expense attribution method under FASB Interpretation No. 28. The Company had
      not
      recognized compensation expense in connection with the issuance of the options,
      as the amounts of amortization of the intrinsic value of the options to be
      recorded as expense over the options’ vesting period was not
      significant.





After
      June 14, 2005, the options vested 100% on the day following the grant date
      and
      the estimated intrinsic value of the options was expensed in full on the day
      after the grant. In connection with the granting of the options in June 2005,
      the Company recognized non-cash compensation expense of $74,932 which was equal
      to the amount of the intrinsic value of the options, under FASB Interpretation
      No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock
      Option Award Plans”.





**NOTE
      10:** **CHARTERS**





Eleven
      of the Company's fourteen wholly-owned vessels are currently employed on time
      charter. Future minimum revenues from these non-cancelable charters are as
      follows for the years ending December 31:





2007
                      
                      $
                      46,404,3252008
                      
                      $
                      31,201,2002009
                      
                      $
                      24,721,2002010
                      
                      $
                      11,986,2002011
                      
                      $
                      3,870,600





In
      2006,
      the Company had three charterers from which revenues exceeded 10% of total
      revenues from charterhire. Revenues from these charterers amounted to
      $15,711,707, $11,270,281 and $9,774,787 respectively representing 30.0%, 21.5%
      and 18.6% of total revenues.





In
      2005, the Company had three charterers from which revenues exceeded 10% of
      total
      revenues from charter hires. Revenues from these charterers amounted to
      $12,481,360, $9,731,326 and $9,052,303 respectively representing 35.3%, 27.5%
      and 25.6% of total revenues.





In
      2004,
      the Company had three charterers from which revenues exceeded 10% of total
      revenues from charterhire. 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 charterhire.




53
 *Table
          of Contents*




**NOTE
      11:** **2006
      AND 2005 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)**





Results
      of operations for the quarterly
      periods ended in 2006 and 2005 are as follows:





2006
                  
                  March
                      31
                  
                  
                  June
                      30
                  
                  
                  September
                      30
                  
                  
                  December
                      31Charterhire
                      and Other   Revenue
                  
                  $
                  10,107,255
                  
                  
                  $
                  9,940,984
                  
                  
                  $
                  14,054,515
                  
                  
                  $
                  18,314,556Recognized
                      deferred gain on sale of vessels
                  
                  $
                  1,174,522
                  
                  
                  $
                  1,187,572
                  
                  
                  $
                  1,200,622
                  
                  
                  $
                  1,200,622Net
                      Income
                  
                  $
                  3,711,899
                  
                  
                  $
                  2,022,865
                  
                  
                  $
                  1,301,138
                  
                  
                  $
                  3,113,306Basic
                      earnings per  share amounts
                  
                  $
                  0.40
                  
                  
                  $
                  0.21
                  
                  
                  $
                  0.14
                  
                  
                  $
                  0.32








2005
                  
                  March
                      31
                  
                  
                  June
                      30
                  
                  
                  September
                      30
                  
                  
                  December
                      31Charterhire
                      and Other   Revenue
                  
                  $
                  6,238,486
                  
                  
                  $
                  9,628,735
                  
                  
                  $
                  9,796,898
                  
                  
                  $
                  9,732,400Recognized
                      deferred gain on sale of vessels
                  
                  $
                  926,567
                  
                  
                  $
                  1,187,572
                  
                  
                  $
                  1,189,597
                  
                  
                  $
                  1,211,647Net
                      Income
                  
                  $
                  2,046,755
                  
                  
                  $
                  2,861,999
                  
                  
                  $
                  2,921,619
                  
                  
                  $
                  2,938,272Basic
                      earnings per share amounts
                  
                  $
                  0.22
                  
                  
                  $
                  0.31
                  
                  
                  $
                  0.31
                  
                  
                  $
                  0.32








**NOTE
      12:** **CONTINGENCIES**





On
      September 20, 2005, the m/v ‘Maersk
      Barcelona’ owned by MUNIA suffered a malfunction of her oily water separator,
      which resulted in an accidental overboard discharge of oil-contaminated water
      off the coast of France. On March 22, 2006, the technical managers of the vessel
      were fined 720,000 euros ($949,464 equivalent at December 31, 2006 exchange
      rate) and the captain 80,000 euros ($105,496 equivalent at December 31, 2006
      exchange rate) by a French court, a judgment which they intend to appeal. All
      expenses to be incurred by the Company under the MUNIA guarantee are accrued
      for
      and the Company expects that costs beyond the deductible will be covered by
      insurance or by the responsible party.





Following
      the extended dry-docking of
      La Forge in 2006, the charterers lodged a claim against the Company for damages
      arising out of the deprivation of use of the vessel and compensation was
      demanded for the additional cost of hiring replacement vessels. The Company
      intended to challenge this claim; however the charterers agreed to substantially
      reduce the quantum of their claim if a settlement could be reached out of court
      and the Company considered the settlement proposal worth accepting rather than
      incurring the costs of arbitration. The Company received a settlement proposal
      of $1,050,000 net of hire due to the Company from the same charterers and
      adjusted accruals to an equal amount. The Company will seek to recover the
      full amount lost from the technical managers who actually budgeted, planned
      and
      executed the dry dock.




In
      the
      third quarter of 2006, the Kew Bridge suffered a grounding incident in Ratnagiri
      off the West Coast of India and was re-floated with a combination of lightening
      cargo from the vessel into another ship and by pulling with tugs. In 2006,
      the
      incident did not materially impact the Company’s revenues as the off-hire was
      covered by insurance and charterers until January 14, 2007. The repairs on
      the
      vessel started in February 2007 and are currently expected to be finished in
      June 2007. The Company is currently engaged in discussions with the charterers
      with regard to compensating the Company for a portion of lost revenues in 2007.
      The Company has not been required to advance any material funds in connection
      with this incident and Management does not believe that the Company will incur
      significant costs related to the incident as repair costs are expected to be
      covered by insurance.





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
      the
      normal course of business, the Company enters into contracts that contain a
      variety of indemnifications with its customers, suppliers and service
      providers.  Further, the Company indemnifies its


54
 *Table
          of Contents*


Directors
      and officers who are, or were, serving at the Company’s request in such
      capacities.  The Company’s maximum exposure under these arrangements is
      unknown as of December 31, 2006.  The Company does not anticipate incurring
      any significant costs relating to these arrangements.








**NOTE
      13:     CASH FLOW SUPPLEMENTARY
      INFORMATION**





As
      supplementary information to the
      consolidated statement of cash flows, the following payments were made in the
      last three years:




2006
                  
                  
                  2005
                  
                  
                  2004Interest
                      paid in relation to long term debt
                  
                  $
                  5,881,880
                  
                  
                  $
                  3,211,999
                  
                  
                  $
                  4,208,195Income
                      tax paid
                  
                  $
                  29,898
                  
                  
                  $
                  15,290
                  
                  
                  $
                  18,306






**NOTE
      14:     SUBSEQUENT EVENTS**





On
      February 2, 2007, the Company paid the fourth quarterly dividend installment
      of
      $594,259 ($0.0625 per share) which was declared in 2006.





As
      discussed in Note 3, in January 2007, the Company delivered five of six vessels
      to LTF. Upon actual delivery of the vessels, the Company received $42 million,
      prepaid $17,973,435, the corresponding portion of the Fortis Loan and reinvested
      $4,361,539 in LTF for an interest equal to approximately 25% of the equity.
      The
      net proceeds to the Company were approximately $19,665,026*.*The
      delivery of the remaining vessel is expected to take place mid 2007. The Company
      expects to reinvest the excess proceeds in other LPG vessels and is considering
      several potential acquisitions. However, the Company does not currently have
      any
      commitment for capital expenditures.





As
      of
      February 19, 2007, after nine and a half years with the Company, the Company’s
      Chief Financial Officer accepted a position with another shipping company and
      will leave the Company on or about April 2, 2007. The Chief Financial Officer
      will be replaced on an interim basis by Mr. Gorchakov, the Company’s Chief
      Investment Officer.





In
      February 2007, the Company made an
      additional advance of $500,000 to Waterloo to fund the cost of the dry-dock
      that
      took place in 2006.





In
      February 2007, the Company posted a
      $2.5 million bank guarantee in favor of the La Forge charterers. The Bank’s
      guarantee is secured by a cash deposit of $2.5million. In March 2007, the
      charterers agreed to substantially reduce the quantum of their claim if a
      settlement could be reached out of court and the Company considered the
      settlement proposal worth accepting rather than incurring the costs of
      arbitration.  The Company received a settlement proposal of $1,050,000 net
      of hire due to the Company from the charterers.  The $2.5 million guarantee
      will be cancelled once a settlement is concluded with the La Forge
      charterers.





On
      March
      5, 2007, the Company prepaid $3,246,414, the portion of the Fortis Loan
      attributable to the London Bridge and Blackfriars Bridge. After this prepayment,
      the amount outstanding on the Fortis Loan as of March 15, 2007 was $4,186,818,
      corresponding to the attributable portion outstanding on the remaining vessel
      to
      be delivered to LTF in June 2007. This amount will be prepaid at the time of
      sale of the vessel.





On
      March
      21, 2007, the Board of Directors declared the dividend first quarterly
      installment of $0.0625 which is payable on April 30, 2007.




**______________________________**




55
 *Table
          of Contents*




**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**Reserves
                    and allowances deducted from asset accounts:**DECEMBER
                    31, 2004**Allowance
                    for doubtful receivables
                
                $
                110,000
                
                
                
                
                
                
                $
                110,000**DECEMBER
                    31, 2005**Allowance
                    for doubtful receivables
                
                $
                110,000
                
                
                
                $
                (20,600
                )
                
                $
                89,400**DECEMBER
                    31, 2006**Allowance
                    for doubtful receivables
                
                $
                89,400
                
                
                
                $
                (33,463
                )
                
                $
                55,937








**____________________________**





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


None


**______________________________**








**ITEM
      9A:    CONTROLSAND
      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-14(c) and 15d-14(c)) as
      of
      December 31, 2006, (the “Evaluation Date”).  Based on such review,
      they have concluded that, as of the Evaluation Date, our disclosure controls
      and
      procedures were not entirely effective, because of the changes discussed
      below.





***Changes
      in internal controls.***





In
      the
      third quarter of 2006, the Company transferred the technical management of
      nine
      vessels to three different ship managers. Technical managers are responsible
      for
      the accounting of all of the operating expenses of the vessels, except for
      the
      voyage expenses. Control procedures had been in place with the prior technical
      manager for many years and while new control procedures have been established
      with the new technical managers, Management identified certain shortfalls in
      such controls and as a result, hired additional technical and accounting staff
      and reviewed procedures to address these issues. We intend to continue to
      monitor our internal controls, and if any weaknesses are identified, we will
      take steps to implement additional internal controls as necessary.





**______________________________**





**ITEM
      9B:      OTHER
      INFORMATION**





Not
      applicable


56
 *Table
          of Contents*


**______________________________**





**PART
      III**








**ITEM
      10: DIRECTORSAND EXECUTIVE OFFICERS OF THE
      COMPANY**





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





**Name**
                
                **Age**
                
                **Position**Charles
                    B. Longbottom
                
                76
                
                Chairman
                    of the Board of DirectorsAntony
                    Crawford
                
                50
                
                Chief
                    Executive Officer and PresidentDominique
                    Sergent *
                
                52
                
                Vice
                    President, Chief Financial Officer and TreasurerGraham
                    G. Pimblett
                
                52
                
                Vice
                    President, Chief Operating OfficerEnrico
                    Bogazzi
                
                66
                
                DirectorJohan
                    Wedell-Wedellsborg
                
                37
                
                DirectorJohn
                    H. Blankley
                
                59
                
                DirectorAnton
                    Pardini
                
                43
                
                DirectorHorst
                    Schomburg
                
                77
                
                Director





*
      Ms
      Sergent resigned as Vice President, Chief Financial officer and Treasurer on
      February 19, 2007, effective April 2, 2007. The biography of her interim
      successor, Alexander Gorchakov, appears below.





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. Messrs. Pardini and Wedell-Wedellsborg were appointed
      as directors in September 2004 and June 2006, respectively.





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. Bogazzi,
      Blankley and Wedell-Wedellsborg are Class “B” directors. The Class “A” directors
      were re-elected at the 2006 Annual Meeting and serve until the 2008 Annual
      Meeting. The Class “B” directors were re-elected at the 2005 Annual Meeting and
      serve until the 2007 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 judgments, fines, amounts
      paid in settlement, and expenses incurred in the defense 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;


57
 *Table
          of Contents*




(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,
                  as long as V.Ships was an affiliated company;
                  and
 (v)
              all
                  agreements between the Company and V.Ships, any officer of the
                  Company, or
                  affiliates of V.Ships or any such officer, as long as V.Ships was
                  an
                  affiliated company.


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.





The
      Nominating and Corporate Governance
      Committee consists 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:




(i)
              Identify
                  individuals qualified to become members of the Board of Directors
                  of the
                  Company and recommend to the Board nominees for election as Directors
                  ;
 (ii)
              Maintain
                  oversight of the operation and effectiveness of the Board and the
                  corporate governance and Management of the Company
                  ;
 (iii)
              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
 (iv)
              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 in August 2004. He became
          a full
          time Chief Executive Officer in November 2005. Mr. Crawford was until November
          2005 a director and minority shareholder of V.Holdings Limited and the
          Chief
          Executive Officer of V. Investments Limited. From 1983 to 2005, Mr. Crawford
          was
          a director and finally Chief Executive Officer of 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 container bulk operator,
          and from
          1973 to 1978 as a shipbroker with shipbrokers Lambert Brothers
          Limited.





**Dominique
      Sergent** was
      appointed Vice President and Chief Financial Officer in 2000 after joining
      the
      Company in 1997 as Treasurer. Her prior career includes positions as Vice
      President in the Capital Markets Group of Bankers Trust (now Deutsche Bank)
      in
      New York, Vice President in the investment banking division of E.F. Hutton
      (now
      Lehman Brothers) and in the international department of Banque Worms. Ms.
      Sergent holds an MBA degree from Harvard Business School. Ms. Sergent accepted
      a
      position with another company  and will leave the Company on or about
      April 2, 2007.





**Graham
      G. Pimblett** was appointed Vice President, Operations of the Company in
      1996 and Chief Operating Officer in 2006. Mr. Pimblett has been with the Company
      from its foundation in 1989. Prior to that, he had worked within the Vlasov
      Group since 1971 and held various operational positions during that
      period.




**Alexander
      Gorchakov** joined the Company in 2004 as Investment Analysis Officer and
      was appointed Corporate Secretary in November 2004. From 1995 to 2004, he worked
      within the V.Ships and Vlasov groups where he held various financial management
      and accounting positions. His prior career includes a range of managerial
      positions in the Black Sea Shipping Company. Mr. Gorchakov holds a
      Shipmanagement and Engineering diploma from Odessa State Maritime University
      of
      Ukraine and an MSc degree in Shipping, Trade




58
 *Table
            of Contents*





and
      Finance from Cass (former City University) Business School of London. Mr.
      Gorchakov will assume the role of Chief Financial Officer on an interim basis
      from April 2, 2007.




**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 CO.FI.PA Spa (formerly
      known as Bogazzi Fimpar Spa), which in turn is a controlling shareholder in
      Navalmar Transportes Maritimos LDA, 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.





**Johan
      Wedell-Wedellsborg** is the owner and Chief Executive Officer of
      Weco-Rederi Holding A/S (formerly known as Weco-Rederi A/S) and the Chief
      Executive Officer of Dannebrog Rederi, a chemical tanker shipowning and
      operating subsidiary of Weco-Rederi. Weco-Rederi is the parent company of
      Nordana Line, a multipurpose RoRo liner carrier and is also engaged in the
      real
      estate business. Mr. Wedell-Wedellsborg holds a BA degree in Shipping from
      the
      Shipping School of Hamburg.





**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
      member of the Supervisory Board of MPC Münchmeyer Petersen Steamship GmbH &
Co. KG. 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.





**Anton
      U. Pardini**retired****on December 31, 2006 from Schnitzer
      Investment Corp., where he was a Director and the company’s President and Chief
      Executive. 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. Mr Pardini began his career with
      Stoel Rives, a major U.S. law firm.





See
      also
      Item 13:  Certain relationships and related transactions)








**ITEM
      11: EXECUTIVECOMPENSATION**





***COMPENSATION
      DISCUSSION AND ANALYSIS***





This
      section addresses the role of the
      compensation committee, summarizes the Company’s compensation policy, describes
      the elements of our executive compensation and director compensation and
      describes the changes in compensation to be implemented in 2007.





***COMPENSATION
      COMMITTEE***





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 four independent directors, which
      reviews all matters related to executive compensation. The Committee is
      currently comprised of Messrs. Longbottom,


59
 *Table
          of Contents*


Blankley,
      Schomburg and Pardini. For biographies of the Compensation Committee’s members,
      please see Item 10). The Chairman of the Compensation Committee is elected
      by
      its members and is currently Mr. Longbottom.





The
      Compensation Committee meets three
      times a year, the agenda is prepared by the Chairman. The Chief Executive
      Officer attends Compensation Committee’s meetings, but is excluded there from
      when his compensation is an agenda item. Proposals to be discussed by the
      Committee are submitted by the Chief Executive Officer or any Committee
      member.





None
      of the Company’s executive
      officers serves as a member of the Board of Directors or compensation committee
      of any entity that has one or more of its executive officers serving as a member
      of our Board of Directors or Compensation Committee.





The
      Compensation Committee approves all
      compensation decisions relative to the executive officers and the directors.
      The
      Compensation Committee is responsible for setting a compensation policy aiming
      at attracting and retaining key people, executives and/or directors critical
      to
      our success. In setting this policy, the Compensation Committee recognizes
      the
      importance of simplicity, transparency and accountability.





***COMPENSATION
      POLICY***





Executives
      - The Company’s executive
      compensation policy is designed to reward service and performance, to provide
      an
      adequate balance between short and long term rewards and to align the interests
      of Management and shareholders. The Company compensates its executives using
      a
      combination of salary, bonus and option plans (see below). The last options
      available under the 2001 Stock Option Plan were distributed in 2005 and the
      Compensation Committee is currently analyzing various plan
      alternatives.





Directors
      - The Company’s director
      compensation policy is designed to attract and retain individuals who have
      a
      thorough knowledge of its industry. Independent directors receive an annual
      fee,
      paid partly in cash and partly in shares, in order to align their interests
      with
      shareholders. All independent directors receive equal compensation, however
      the
      chairman of the Board receives additional
      compensation.  Non-independent directors receive no compensation for
      serving on the Board. A comparison of the directors’ fees to other comparable
      companies was performed in 2006 by the Chairman of the Compensation Committee
      and the Chief Executive Officer. As result, the Board decided to increase the
      directors’ fees in 2007.








***EXECUTIVE
      COMPENSATION***





The
      table
      below summarizes the compensation of our principal executive officer, our
      principal financial officer and our chief operating officer for each of the
      last
      three years. We do not have any other named executive officers.




Name
                    and
                  Principal
                  Position
                Year
                Salary
                  ($)
                Bonus
                  ($)
                Stock
                  Awards
                    ($)
                Option
                  Awards
                  ($)
                Non-equity
                  Incentive
                  Plan
                    compen-
                  sation
                  ($)
                Change
                    inPension
                  Value
                    andNon-quali-fied
                    deferredCompensationEarnings
                  ($)
                All
                    other
                  compensation
                  ($)
                Total
                  ($)(a)
                (b)
                (c)
                (d)
                (e)
                (f)
                (g)
                (h)
                (i)
                (j)Antony
                  Crawford
                    *
                  CEO
                2006
                  2005
                  2004
                371,000
                  52,010
                  -
                -
                  100,000
                  -
                -
                  -
                  -
                -
                  168,720
                  123,000
                -
                  -
                  -
                -
                  -
                  -
                -
                  -
                  -
                371,000
                  320,730
                  123,000Dominique
                  Sergent
                  CFO
                2006
                  2005
                  2004
                153,252
                  143,864
                  123,465
                35,000
                  35,000
                  54,842
                -
                  -
                  -
                -
                  139,120
                  -
                -
                  -
                  -
                -
                  -
                  -
                -
                  -
                  -
                188,252
                  317,984
                  178,307Graham
                  Pimblett
                  COO
                2006
                  2005
                  2004
                153,252
                  122,042
                  103,781
                40,000
                  35,000
                  54,842
                -
                  -
                  -
                -
                  139,120
                  -
                -
                  -
                  -
                -
                  -
                  -
                -
                  -
                  -
                193,252
                  296,162
                  158,623





*
            Mr
                Crawford was paid by the Company starting November 7,
                2005.


Prior
      to
      such date, Mr Crawford was delegated by the V.Ships group to the Company. The
      amounts in the table do not include the consideration paid to V.Ships of
      $181,958 for the period from January 1st to October
      31,
      2005 and of $95,379 for the period from August 1st to December
      31,
      2004, for which Mr. Crawford did not receive any direct benefit (see Note 2:
      Related Company transactions to the Consolidated Financial Statements in Item
      8).




60
 *Table
          of Contents*






(c)
            Salaries
                are paid in total or in part in foreign currencies. Mr Crawford salary
                is
                paid in British Pounds (GBP). Ms Sergent and Mr Pimblett’s salaries are
                paid in euros (€). The amounts are converted in USD using the average
                monthly exchange rates.





Currency
                    SalaryExpressed
                        in
                      Local
                        currency
                    Exchange
                        rate used for conversion
                      USD
                        per GBP or €Antony
                        Crawford
                    2006
                      2005
                      2004
                    GBP
                      GBP
                      GBP
                    200,000
                      29,443
                      -
                    1.8550
                      1.7665
                      -Dominique
                        Sergent
                    2006
                      2005
                      2004
                    €
                      €
                      €
                    121,100
                      118,739
                      71,346
                    1.2655
                      1.2116
                      1.2452Graham
                        Pimblett
                    2006
                      2005
                      2004
                    €
                      €
                      €
                    121,100
                      100,728
                      67,383
                    1.2655
                      1.2116
                      1.2452


(f)
              Option
                  awards
 Option
          awards are valued at the grant date fair value determined in accordance
          with
          FASB N°123R.
 Options
            granted in 2004 - $1.23 per option. Options granted in 2005 - $2.96 per
            option
            (see Note 9 to the financial statements – Stock Options).
  The
            Company’s executives are compensated using a combination of salary, bonus and
            stock options.




**Base
      salary**





The
      Company rewards the level of
      responsibility undertaken by our executives through salary. The compensation
      is
      determined by market forces.





**Bonus**





The
      Company rewards short term performance through a bonus. Bonuses are
      discretionary and proposed by the CEO to the Compensation
      Committee.





**Plan
      based awards**





***Stock
      Option Plan***





The
      Company’s stock option plan was
      established in 2001 for all of the Company’s employees, in order to incentivize
      and reward employees in connection with the expansion of the Company. By
      allowing the options to vest over a period of four years, the plan aimed at
      rewarding long term performance and encouraging retention. The Compensation
      Committee modified the plan in 2004 to shorten the vesting horizon of the
      options. In March 2006, the Company filed a registration statement on Form
      S-8
      to register the re-offer and re-sale of the shares issued under the stock option
      plan in order to remove the trading restrictions on such stocks and facilitate
      their re-sale by employees. Option grants are decided in a discretionary manner.
      For details of the plan, see Note 9 – Stock Option Plan to the Consolidated
      Financial Statements in Item 8.





61
 *Table
          of Contents*




***Stock
      award plan***




The
      Company did not currently have a stock award plan for its executives in 2006.
      The Compensation Committee is evaluating plan alternatives.





***Grants
      of plan based awards***





No
      grants of awards were made during the year ended December 31, 2006.





***Outstanding
      equity awards at December 31, 2006***





The
      following table shows unexercised
      options, options that have not vested and equity incentive plan awards for
      each
      named executive outstanding as of December 31, 2006.





Option
                      awards
                  Stock
                      awardsName
                  Number
                      of
                    Securities
                    Underlying
                    Unexercised
                    Options
                    (#)
                    Exercisable
                  Number
                      of
                    Securities
                    Underlying
                    Unexercised
                    Options
                    (#)
                    Unexercisable
                  Equity
                    Incentive
                    Plan
                    Awards:
                    Number
                      of Securities
                    Underlying
                    Unexercised
                    Unearned
                      options
                    (#)
                  Option
                    Exercise
                    Price
                    ($)
                  Option
                    Expiration
                      Date
                  Number
                      of
                    Shares
                      or
                    Units
                      of
                    Stock
                      that
                    Have
                      not
                    Vested
                    (#)
                  Market
                      value of
                    shares
                      or
                    Units  of
                    Stock
                      that
                    Have
                      not
                    Vested
                    (#)
                  Equity
                    Incentive
                    Plan
                    Awards:
                    Number
                      of
                    Unearned
                    Shares,
                    Units
                      or
                    Other
                    Rights
                      that
                    Have
                      not
                    Vested
                    (#)
                  Equity
                    Incentive
                      Plan
                    Awards:
                    Marketr
                      or
                    Payout
                    Value
                      of
                    Unearned
                    Shares,
                    Units
                      or other
                    Rights
                      that
                    Have
                      not
                    Vested
                    ($)(a)
                  (b)
                  (c)
                  (d)
                  (e)
                  (f)
                  (g)
                  (h)
                  (i)
                  (j)Dominique
                    Sergent
                  47,000
                  -
                  -
                  9.228
                  June
                      2011
                  -
                  -
                  -
                  -








***Options
      exercised and stock vested***





The
      following table reports each
      exercise of stock options, SARs and similar instruments and each vesting of
      stock, including restricted stock, restricted stock units and similar
      instruments during the year ended December 31, 2006 for each of our named
      executive officer on a aggregate basis.





Name
                      Option
                          Awards
                      Stock
                          awardsNumber
                          of Shares
                        Acquired
                          on Exercise
                        (#)
                      Value
                          Realized on
                        Exercise
                        ($)
                      Number
                          of Shares
                        Acquired
                          on Vesting
                        (#)
                      Value
                          Realized on
                        Vesting
                        ($)(a)
                      (b)
                      (c)
                      (d)Antony
                          Crawford
                      57,000
                      232,104
                      -
                      -Dominique
                          Sergent
                      -
                      -
                      -
                      -Graham
                          Pimblett,
                      47,000
                      203,604
                      -
                      -






(b)
            Mr
                Crawford exercised 57,000 options at a price of $9.228 on March 24,
                2006
                when the price of the stock was $13.3. Mr Pimblett exercised 47,000
                options at a price of $9.228 on April 10, 2006 when the price of
                the stock
                was $13.56.








**Non
      equity incentive plan compensation**





The
      Company does not have a non equity incentive plan for its
      executives.





**Pension
      benefits**





The
      Company does not have a pension plan for its executives.


62
 *Table
          of Contents*


**Non
      qualified Deferred Compensation**





The
      Company does not have a non qualified deferred compensation plan for its
      executives.





**All
      other compensation**





Potential
      payments upon termination or change of control If an officer of the Company
      is dismissed, other than for cause, or made redundant, that officer will receive
      12 months salary at the last monthly  salary rate prior to the
      announced dismissal or redundancy. However, in the event of a sale by the
      current majority shareholders of their controlling stake whereby an officer
      was
      dismissed or made redundant, that officer will receive 18 months salary at
      the
      last monthly salary rate prior to the announced dismissal or
      redundancy.





The
      following table quantifies the estimated payments that would be made to the
      executive officers of the Company in the event of termination of employment
      related or not to a change of control in 2007 (based on December 31, 2006
      exchange rates).





Name
                          
                          No
                              change of control
                          
                          
                          Change
                              of controlAntony
                              Crawford
                            CEO,
                              President
                          
                          $
                          371,000
                          
                          
                          $
                          556,500Dominique
                              Sergent *
                            Chief
                              Financial officer
                          
                          $
                          164,837
                          
                          
                          $
                          247,256Graham
                              Pimblett
                            Chief
                              Operating Officer
                          
                          $
                          164,837
                          
                          
                          $
                          247,256


*
      Ms.
      Sergent resigned on February 19, 2007 and these commitments are now without
      object.





Other
      employees of the company have
      similar payments upon termination and / or change of control.





Directors
      and officers liability
      insurance The Company has in force a policy of directors and officers
      liability insurance in the amount of $10,000,000 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,
      2007 was $65,000.





**Change
      in executive compensation**





As
      of
      January 1, 2007, Ms. Sergent’s and Mr. Pimblett’s salaries increased by 3.2%
      from € 121,100 to €125,000. Mr Crawford’s salary remained
      unchanged.





***DIRECTOR
      COMPENSATION***





The
      following table summarizes the
      compensation of our Directors for the year ended December 31, 2006.





Name
                      Fees
                          Earned or
                        Paid
                          in Cash
                        ($)
                      Stock
                          Awards
                        ($)
                      Option
                          Awards
                        ($)
                      Non-equity
                        Incentive
                          Plan
                        Compensation
                        ($)
                      Change
                          in Pension
                        Value
                          and
                        Nonqualified
                        Deferred
                        Compensation
                        Earnings
                      All
                          other
                        Compensation
                        ($)
                      Total
                        ($)(a)
                      (b)
                      (c)
                      (d)
                      (e)
                      (f)
                      (g)
                      (h)C.
                          Longbottom
                      40,000
                      5,000
                      -
                      -
                      -
                      -
                      45,000J.
                          Blankley,
                        A.
                          Pardini, and
                        H.
                          Schomburg, each
                      30,000
                      5,000
                      -
                      -
                      -
                      -
                      35,000E.
                          Bogazzi, A. Crawford,
                        J.Wedell-Wedellsborg
                      -
                      -
                      -
                      -
                      -
                      -
                      -




63
 *Table
          of Contents*




A
      benchmarking of the director fees was performed in 2006 and as a result, as
      from
      January 1st,
      2007, director fees will be as follows: Mr Longbottom will receive $70,000
      of
      which $50,000 paid in cash and $20,000 paid in shares. Messrs Blankley, Pardini,
      Schomburg, Bogazzi and Wedell-Wedellsborg will receive each $50,000, of which
      $30,000 in cash and $20,000 in shares.








**ITEM
      12:      SECURITYOWNERSHIP 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 March
      1, 2007****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**Navalmar
                                                Transportes Maritimos LDA (1)
                                              Rua
                                                Dos Murcas 15   -   2nd
                                                Andar, Sala
                                                G
                                              9000058
                                                Funchal S1 – Madeira
                                            
                                            
                                            4,226,448
                                            
                                            
                                            
                                            44.4Weco-Rederi
                                                Holding A/S
                                              Rungsted
                                                Strandvej 113
                                              Rungsted
                                                Kyst – G7
                                              Denmark
                                                – 2960
                                            
                                            
                                            849,270
                                            
                                            
                                            
                                            8.9Charles
                                                B. Longbottom
                                            
                                            
                                            43,800
                                            
                                            
                                            
                                            *John
                                                H. Blankley
                                            
                                            
                                            29,286
                                            
                                            
                                            
                                            *Horst
                                                Schomburg
                                            
                                            
                                            32,367
                                            
                                            
                                            
                                            *Graham
                                                Pimblett
                                            
                                            
                                            20,200
                                            
                                            
                                            
                                            *Dominique
                                                Sergent
                                            
                                            
                                            60,392
                                            
                                            
                                            
                                            *Antony
                                                Crawford
                                            
                                            
                                            164,850
                                            
                                            
                                            
                                            1.7Anton
                                                Pardini
                                            
                                            
                                            1,320
                                            
                                            
                                            
                                            *All
                                                officers and directors as a Group
                                                (7 persons)
                                            
                                            ****
                                            **352,215**
                                            
                                            
                                            ****
                                            **3.7**


*
                              Less
                              than
                              1%





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. Amounts beneficially
      owned include any shares the person has the right to acquire within 60 days
      through the exercise of options, warrants or other convertible security. All
      executive officers and directors of the Company may be deemed to be affiliates
      of the Company.





64
 *Table
          of Contents*





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


The
      By-Laws of the Company provide that related transactions and transactions giving
      rise to potential conflicts of interest are subject to review by the Audit
      Committee of the Company.





***V.Ships***





Until
      August 1, 2006, the ship
      management company, V.Ships, owned 265,937 shares of MC Shipping or 2.8% of
      the
      shares outstanding and was deemed to share beneficial ownership of its shares
      with Navalmar (45.2%) . On August 1, V.Ships sold its interest in the Company
      for an aggregate price of $2,872,119 ($10.80 per share) to Weco-Rederi A/S,
      another shareholder of the Company, and ceased to be an affiliate of MC
      Shipping. Following the transaction, Weco-Rederi’s ownership in the Company’s
      shares increased from 6.1% to 8.9%.





For
      18 years, the Company employed the
      services of V.Ships as technical manager for its vessels and V.Ships was
      entitled to remuneration based on then current industry practice. For the rates
      of fees and other amounts that were paid to V.Ships, see Item 1: Business -
      Compensation to Affiliates and Note 2: Related Company Transactions of the
      Consolidated Financial Statements in Item 8. During the third quarter
      of 2006,
      technical management of the vessels managed by V.Ships was transferred to three
      non-related technical managers on favourable
      terms**.**





The
      Audit Committee reviews
      relationships with related parties on a regular basis and will take action
      if it
      believes that any costs are being charged unfairly to the Company





***MPC
      Steamship***





On
      November 6, 2006, the Board of the
      Company approved the sale of six small LPG carriers to a special purpose German
      KG company to be formed by the German finance house MPC Steamship for a total
      sale price of $52 million. The Company will charter back the vessels for a
      period of four years and reinvest $5.75 million in the KG company for 25% of
      the
      equity (see Note 3: Acquisitions and sales of vessels to the Consolidated
      Financial Statements in Item 8). Mr. Schomburg (Director) is a member of the
      Supervisory Board of MPC Münchmeyer Petersen Steamship GmbH & Co. KG. Mr.
      Schomburg excused himself from discussions relating to this
      transaction.





***Other***





Certain
      of the directors and executive
      officers of the Company are involved in outside business activities similar
      to
      those conducted by the Company.  Mr. Bogazzi and Mr Wedell-Wedellsborg
      (Directors) are involved in the business of purchasing, owning and selling
      cargo
      vessels through their 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.





No
      officer was indebted to the Company
      at any time since the beginning of the fiscal year 2006.







65
 *Table
          of Contents*





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





**Audit
      fees**





Audit
      fees amounted to approximately USD $219,854 ($111,374 in 2005). Our auditors
      also provided tax related advice.





Year
                                  ended December 31
                              
                              2006
                              
                              
                              2005Audit
                                  fees
                              
                              $
                              186,555
                              
                              
                              $
                              25,721Audit
                                  related fees
                              
                              $
                              4,603
                              
                              
                              $
                              54,647Tax
                                  advice fees
                              
                              $
                              28,686
                              
                              
                              $
                              31,006All
                                  other fees
                              
                              
                              
                              
                              
                              
                              -Total
                              
                              $
                              219,854
                              
                              
                              $
                              111,374








**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 Audit Committee; or (ii) entered into
      pursuant to pre-approval policies and procedures, detailed as to particular
      service, established by the Audit Committee. The Audit Committee must
      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; or (iii)
      services that 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 Audit
      Committee must be informed of each service and may not delegate its
      responsibilities to the Company’s Management. All the services for which the
      above-described audit-related fees and tax advice fees were paid were
      pre-approved by the Audit Committee.


66
 *Table
            of Contents*




**PART
      IV**








**ITEM
      15:      EXHIBITS, FINANCIAL
      STATEMENT SCHEDULES AND REPORTS ON** **FORM
      10-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, 2006 and 2005;(iii)
                  Consolidated
                      Statements of Income for the Years ended December 31, 2006,
                      2005 and
                      2004;(iv)
                  Consolidated
                      Statements of Cash Flows for the Years ended December 31, 2006,
                      2005 and
                      2004;(v)
                  Consolidated
                      Statements of Shareholders’ Equity for the Years ended December 31, 2006,
                      2005 and 2004; 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 (incorporated by reference to the
                  Company's
                  Form 8-K filed on August 9, 2006).10.1
              -
              Agreements
                  for the purchase of Hermann Schulte and Dorothea Schulte dated
                  February
                  24, 2006 (incorporated by reference to Exhibit 10.6 to the Company’s Form
                  10-K for the year ended December 31, 2005).10.2
              -
              Loan
                  Agreement with Fortis Bank and Guarantee Agreement dated April
                  19, 2006
                  (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for
                  the quarter ended March 31, 2006).10.3
              -
              Agreement
                  for the purchase of Hans Maersk dated June 14, 2006 (incorporated
                  by
                  reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended
                  June 30, 2006).10.4
              -
              Agreement
                  for the purchase of Immanuel Kant dated June 21, 2006 (incorporated
                  by
                  reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended
                  June 30, 2006).10.5
              -
              Agreement
                  for the purchase of Tycho Brahe dated June 21, 2006 (incorporated
                  by
                  reference to Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended
                  June 30, 2006).10.6
              -
              Loan
                  and Guarantee Agreement with Scotia Bank dated July 10, 2006 (incorporated
                  by reference to Exhibit 99.1 to the Company’s Form 8-K dated July 20,
                  2006).
  67
 *Table
            of Contents*
 
 10.7
              -
              Agreement
                  for the sale of Auteuil dated December 18, 2006 (incorporated by
                  reference
                  to Exhibit 99.1 to the Company’s Form 8-K dated December 22,
                  2006)10.8
              -
              Agreement
                  for the sale of Deauville dated December 18, 2006 (incorporated
                  by
                  reference to Exhibit 99.2 to the Company’s Form 8-K dated December 22,
                  2006)10.9
              -
              Agreement
                  for the sale of Cheltenham dated December 18, 2006 (incorporated
                  by
                  reference to Exhibit 99.3 to the Company’s Form 8-K dated December 22,
                  2006)10.10
              -
              Agreement
                  for the sale of Malvern dated December 18, 2006 (incorporated by
                  reference
                  to Exhibit 99.5 to the Company’s Form 8-K dated December 22,
                  2006)10.11
              -
              Agreement
                  for the sale of Coniston dated December 18, 2006 (incorporated
                  by
                  reference to Exhibit 99.4 to the Company’s Form 8-K dated December 22,
                  2006)10.12
              -
              Agreement
                  for the sale of Longchamp dated December 18, 2006 (incorporated
                  by
                  reference to Exhibit 99.6 to the Company’s Form 8-K dated December 22,
                  2006)21
              -
              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
                  2002.32
              -
              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
                  2002.




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,
                2006:**





The
      Company filed a report on Form 8-K
      on February 23, 2007.


68
 *Table
            of Contents*




**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
      authorized.


MC
                  SHIPPING
                  INC.(Company)Date:
                  March 30, 2007
              
              /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 Officer and Treasurer
              
              March
                  30, 2007Dominique
                  Sergent
              
              (Principal
                  Accounting Officer)/S/
                  CHARLES B. LONGBOTTOM
              
              Chairman
                  of the Board
              
              March
                  30, 2007Charles
                  B. Longbottom/S/
                  ENRICO BOGAZZI
              
              Director
              
              March
                  30, 2007Enrico
                  Bogazzi/S/
                  JOHN H. BLANKLEY
              
              Director
              
              March
                  30, 2007John
                  H. Blankley/S/
                  ANTON
                  PARDINI
              
              Director
              
              March
                  30, 2007Anton
                  Pardini/S/
                  HORST
                  SCHOMBURG
              
              Director
              
              March
                  30, 2007Horst
                  Schomburg/S/
                  JOHAN WEDELL-WEDELLSBORG
              
              Director
              
              March
                  30, 2007Johan
                  Wedell-Wedellsborg
   69