Table of Contents
00false2020FY0001328919--12-31GRGRP12M2021-01-312028-01-31The sub-lease income represents only time charter revenue earned on the chartered-in contracts greater than 12 months. There is additional revenue of $482,879 earned from voyage charters on the same chartered-in contract which is recorded in Revenues in our consolidated statement of operations for the year ended December 31, 2019 (2020: nil). Additionally, there is revenue earned from time charters from chartered-in contracts 12 months or less which is included in Revenues in our consolidated statements of operations for the year ended December 31, 2019. 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xbrli:shares gass:Agreement gass:Segment gass:Vessel
Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
 
 
FORM
20-F
 
 
 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number
001-36797
 
 
STEALTHGAS INC.
(Exact name of Registrant as specified in its charter)
 
 
Not applicable
(Translation of Registrant’s Name into English)
Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)
331 Kifissias Avenue, Erithrea 14561 Athens, Greece
(Address of principal executive offices)
Harry N. Vafias
331 Kifissias Avenue, Erithrea 14561, Athens, Greece
Telephone: (011) (30) (210625 0001
Facsimile: (011) (30) (210) 625 0018
(Name, Telephone,
E-mail
and/or Facsimile Number and Address of Company Contact Person)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, par value $0.01 per share
 
GASS
 
The Nasdaq Stock Market LLC
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION
PURSUANT TO SECTION 15(d) OF THE ACT:
None
 
 
 

Table of Contents
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2020 was: 37,858,437 shares of Common Stock, par value $0.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☐  Yes    ☒  No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes   ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer    
Non-accelerated filer
    Emerging growth company  
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report:      Yes    ☐  No
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP  ☒           International Financial Reporting Standards as issued by the            Other  ☐
          International Accounting Standards Board       
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ☐  Item 17    ☐  Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    ☐  Yes      No
 
 
 

Table of Contents
TABLE OF CONTENTS
 
     1  
Part I      2  
Item 1.        2  
Item 2.        2  
Item 3.        2  
Item 4.        33  
Item 4A.        48  
Item 5.        48  
Item 6.        67  
Item 7.        73  
Item 8.        77  
Item 9.        78  
Item 10.        78  
Item 11.        91  
Item 12.        93  
PART II      94  
Item 13.        94  
Item 14.        94  
Item 15.        94  
Item 16A.        97  
Item 16B.        97  
Item 16C.        97  
Item 16D.        98  
Item 16E.        98  
Item 16F.        98  
Item 16G.        99  
Item 16H.        99  
PART III      100  
Item 17.        100  
Item 18.        100  
Item 19.        100  

Table of Contents
FORWARD-LOOKING INFORMATION
This Annual Report on
Form 20-F includes
assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking statements.” We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material.
All statements in this document that are not statements of historical fact are forward-looking statements as defined in Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”). Forward-looking statements include, but are not limited to, such matters as:
 
   
future operating or financial results;
 
   
global and regional economic and political conditions including the impact of
the COVID-19 pandemic
and efforts throughout the world to contain its spread, including effects on global economic activity, demand for seaborne transportation of LPG, oil and oil products, the ability and willingness of charterers to fulfill their obligations to us and prevailing charter rates, availability of shipyards performing scrubber installations, drydocking and repairs, changing vessel crews and availability of financing;
 
   
pending or recent acquisitions, business strategy and expected capital spending or operating expenses;
 
   
our cooperation with our joint venture partners and any expected benefits from such joint venture arrangements;
 
   
competition in the marine transportation industry;
 
   
shipping market trends, including charter rates, factors affecting supply and demand and world fleet composition;
 
   
potential disruption of shipping routes due to accidents, diseases, pandemics, political events, piracy or acts by terrorists, including the impact of
the COVID-19 pandemic
and the ongoing efforts throughout the world to contain it;
 
   
ability to employ our vessels profitably;
 
   
performance by the counterparties to our charter agreements;
 
   
future liquefied petroleum gas (“LPG”), refined petroleum product and oil prices and production;
 
   
future supply and demand for oil and refined petroleum products and natural gas of which LPG is a byproduct;
 
   
our financial condition and liquidity, including our ability to obtain financing in the future to fund capital expenditures, acquisitions and other general corporate activities, the terms of such financing and our ability to comply with covenants set forth in our existing and future financing arrangements;
 
   
performance by the shipyards constructing our newbuilding vessels; and
 
   
expectations regarding vessel acquisitions and dispositions.
When used in this document, the words “anticipate,” “believe,” “intend,” “estimate,” “project,” “forecast,” “plan,” “potential,” “may,” “should” and “expect” reflect forward-looking statements. Such statements reflect our current views and assumptions and all forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect our future financial results are discussed more fully under “Item 3. Key Information—Risk Factors,” as well as elsewhere in this Annual Report on Form
20-F
and in our other filings with the U.S. Securities and Exchange Commission (“SEC”). We caution readers of this Annual Report not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or revise any forward-looking statements.
 
1

Table of Contents
Part I
StealthGas Inc. is a Marshall Islands company that is referred to in this Annual Report on Form
20-F,
together with its subsidiaries, as “StealthGas,” the “Company,” “we,” “us,” or “our.” This Annual Report should be read in conjunction with our consolidated financial statements and the accompanying notes thereto, which are included in Item 18 to this Annual Report.
We use the term cubic meters, or “cbm,” in describing the size of our liquefied petroleum gas (“LPG”) carriers and the term deadweight tons, or “dwt,” in describing the size of our product carriers and crude oil tanker. We use the term “small” to describe LPG carriers of between 3,000 and 8,000 cbm in capacity and the term “medium range gas carriers” or “MGCs” to describe LPG carriers of between 34,000 and 39,000 cbm in capacity. Unless otherwise indicated, all references to currency amounts in this annual report are in U.S. dollars.
All data regarding our fleet and the terms of our charters is as of April 1, 2021, unless otherwise indicated. As of April 1, 2021, our operating fleet was composed of 46 LPG carriers with a total capacity of 436,692
cbm, three medium range product carriers with a total capacity of 140,000 dwt and one 115,804 dwt Aframax tanker. Our fleet on the water of 46 LPG carriers includes five
vessels in which we own a 50.1% equity interest pursuant to a joint venture agreement with an unaffiliated financial investor, and three vessels in which we own a 51% equity interest pursuant to a joint venture agreement with an unaffiliated third party (we refer to these eight vessels, collectively, as the “JV Vessels”). We do not consolidate the results of operations of these joint ventures and account for our equity interest in these joint ventures under the equity method of accounting. See “Item 4. Information on the Company—Business Overview—Our Fleet”.
 
Item 1.
Identity of Directors, Senior Management and Advisers
Not Applicable.
 
Item 2.
Offer Statistics and Expected Timetable
Not Applicable.
 
Item 3.
Key Information
A. Selected Consolidated Financial Data
The following table sets forth our selected consolidated financial data and other operating data shown in U.S. dollars, other than share and fleet data. The table should be read together with “Item 5. Operating and Financial Review and Prospects.”
Our audited consolidated statements of operations, comprehensive (loss)/income, stockholders’ equity and cash flows for the years ended December 31, 2018, 2019 and 2020 and the audited consolidated balance sheets as of December 31, 2019 and 2020, together with the notes thereto, are included in “Item 18. Financial Statements” and should be read in their entirety. The selected consolidated income statement data for the years ended December 31, 2016 and 2017 and the selected consolidated balance sheet data as of December 31, 2016, 2017 and 2018 have been derived from our audited consolidated financial statements which are not included in “Item 18. Financial Statements”.
 
   
Year Ended December 31,
 
   
2016
    
2017
    
2018
    
2019
    
2020
 
INCOME STATEMENT DATA
             
Revenues
  $ 136,539,399      $ 152,338,278      $ 164,330,202      $ 144,259,312      $ 145,003,021  
Revenues—related party
    7,592,784        1,973,643        —          —          —    
Total Revenues
  $ 144,132,183      $ 154,311,921      $ 164,330,202      $ 144,259,312      $ 145,003,021  
 
2

Table of Contents
   
Year Ended December 31,
 
   
2016
   
2017
   
2018
   
2019
   
2020
 
Operating expenses:
         
Voyage expenses
  $ 13,618,025     $ 13,804,032     $ 18,649,258     $ 15,201,978     $ 12,259,795  
Voyage expenses—related party
    1,772,240       1,912,505       2,037,917       1,788,543       1,799,209  
Vessels’ operating expenses
    55,680,993       58,618,526       59,920,278       48,619,594       52,344,721  
Vessels’ operating expenses-related party
    3,141,843       800,908       514,500       966,500       950,500  
Charter hire expenses
    4,054,387       3,524,770       6,150,780       6,268,988       318,606  
Dry-docking
costs
    3,613,230       3,529,047       3,617,577       1,094,306       3,640,327  
Management fees-related party
    7,346,180       7,205,490       7,027,195       5,730,910       5,599,351  
General and administrative expenses
    3,110,409       2,898,958       3,046,962       3,706,320       2,301,308  
Depreciation
    39,096,589       38,921,672       41,258,142       37,693,733       37,455,093  
Impairment loss
    5,735,086       6,461,273       11,351,821       993,916       3,857,307  
Other operating costs/(income)
    —         1,058,863       (549,804     —         —    
Net (gain)/loss on sale of vessels
    (118,427     77,314       763,925       485,516       1,134,854  
Total expenses
    137,050,555       138,813,358       153,788,551       122,550,304       121,661,071  
Income from operations
    7,081,628       15,498,563       10,541,651       21,709,008       23,341,950  
Interest and finance costs
    (14,268,148     (16,661,464     (23,286,547     (20,978,065     (14,129,893
Gain on deconsolidation of subsidiaries
    —         —         —         145,000       —    
Loss on derivatives
    (767,196     (403,943     (11,982     (107,550     (50,976
Interest income and other income
    454,472       322,868       587,477       846,271       167,794  
Foreign exchange (loss)/gain
    (299,056     25,739       (107,119     (8,235     (54,374
Other expenses, net
    (14,879,928     (16,716,800     (22,818,171     (20,102,579     (14,067,449
Equity earnings in joint ventures
    —         —         —         486,695       2,709,984  
Net (loss)/income
    (7,798,300     (1,218,237     (12,276,520     2,093,124       11,984,485  
(Loss)/earnings per share, basic
  $ (0.20   $ (0.03   $ (0.31   $ 0.05     $ 0.31  
(Loss)/earnings per share, diluted
  $ (0.20   $ (0.03   $ (0.31   $ 0.05     $ 0.31  
Weighted (basic and diluted) average number of shares outstanding
    39,824,038       39,809,364       39,860,563       39,800,434       38,357,893  
Dividends declared per share
  $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00  
 
3

Table of Contents
   
As of December 31,
 
   
2016
    
2017
    
2018
    
2019
    
2020
 
BALANCE SHEET DATA
             
Current assets, including cash
  $ 76,478,045      $ 62,838,725      $ 138,866,439      $ 77,932,439      $ 48,053,524  
Total assets
    1,001,942,344        996,226,191        1,036,722,488        954,188,931        944,006,307  
Current liabilities
    81,366,606        78,748,931        103,490,335        67,136,139        63,061,107  
Derivative liability
    364,823        126,525        465,389        2,655,817        5,240,911  
Total long-term debt, including current portion
    397,885,589        384,908,448        443,317,446        365,983,458        351,797,213  
Net assets
    573,975,304        573,478,772        561,252,511        559,186,640        564,596,415  
Capital stock
    442,850        442,850        445,496        445,496        431,836  
Number of shares of common stock outstanding
    39,860,563        39,860,563        39,860,563        39,584,274        37,858,437  
 
    
Year Ended December 31,
 
    
2016
   
2017
   
2018
   
2019
   
2020
 
OTHER FINANCIAL DATA
          
Net cash provided by operating activities
   $ 36,154,088     $ 52,354,053     $ 37,809,225     $ 30,818,599     $ 52,113,096  
Net cash (used in)/provided by investing
activities(13)
     (54,074,771     (48,913,177     (78,552,902     33,487,288       (58,074,154
Net cash (used in)/provided by financing activities
     (27,213,272     (14,069,329     57,271,476       (61,616,546     (23,119,072
FLEET DATA
          
Average number of vessels(1)
     53.4       52.6       50.8       42.6       41.6  
Total voyage days for fleet(2)
     19,999       19,717       19,363       16,230       15,079  
Total time and bareboat charter days for fleet(3)
     15,831       16,772       15,696       13,541       12,442  
Total spot market days for fleet(4)
     4,168       2,945       3,667       2,689       2,637  
Total calendar days for fleet(5)
     20,275       19,917       19,544       16,328       15,292  
Fleet utilization(6)
     98.6     99.0     99.1     99.4     98.6
Fleet operational utilization(7)
     91.1     96.2     95.5     97.5     96.1
AVERAGE DAILY RESULTS
          
Adjusted average charter rate(8)
   $ 6,437     $ 7,029     $ 7,418     $ 7,842     $ 8,684  
Vessel operating expenses(9)
     2,901       2,983       3,092       3,037       3,485  
General and administrative expenses(10)
     153       146       156       227       150  
Management fees(11)
     362       362       360       351       366  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total daily operating expenses(12)
     3,054       3,129       3,248     $ 3,264       3,635  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(1)
Average number of vessels is the number of owned vessels that constituted our fleet for the relevant period, as measured by the sum of the number of days each vessel was a part of our fleet during the period divided by the number of calendar days in that period.
(2)
Our total voyage days for our fleet reflect the total days the vessels we operated were in our possession for the relevant periods, net of
off-hire
days associated with major repairs, drydockings or special or intermediate surveys.
 
4

Table of Contents
(3)
Total time and bareboat charter days for fleet are the number of voyage days the vessels in our fleet operated on time or bareboat charters for the relevant period.
(4)
Total spot market charter days for fleet are the number of voyage days the vessels in our fleet operated on spot market charters for the relevant period.
(5)
Total calendar days are the total days the vessels we operated were in our possession for the relevant period including
off-hire
days associated with major repairs, drydockings or special or intermediate surveys.
(6)
Fleet utilization is the percentage of time that our vessels were available for revenue generating voyage days, and is determined by dividing voyage days by fleet calendar days for the relevant period.
(7)
Fleet operational utilization is the percentage of time that our vessels generated revenue, and is determined by dividing voyage days (excluding commercially idle days) by fleet calendar days for the relevant period.
(8)
Adjusted average charter rate is a measure of the average daily revenue performance of a vessel on a per voyage basis. We determine the adjusted average charter rate by dividing voyage revenues (net of voyage expenses) by voyage days for the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage and are payable by us under a spot charter (which would otherwise be paid by the charterer under a time or bareboat charter contract), as well as commissions or any voyage costs incurred while the vessel is idle. Charter equivalent revenues and adjusted average charter rate are
non-GAAP
measures which provide additional meaningful information in conjunction with voyage revenues, the most directly comparable GAAP measure, because they assist Company management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance. They are also standard shipping industry performance measures used primarily to compare
period-to-period
changes in a shipping company’s performance despite changes in the mix of charter types (i.e., spot charters or time charters, but not bareboat charters) under which the vessels may be employed between the periods. Our calculation of charter equivalent revenues and adjusted average charter rate may not be comparable to that reported by other companies in the shipping or other industries. Under bareboat charters, we are not responsible for either voyage expenses, unlike spot charters, or vessel operating expenses, unlike spot charters and time charters; Reconciliation of charter equivalent revenues as reflected in the consolidated statements of operations and calculation of adjusted average charter rate follow:
 
   
Year Ended December 31,
 
   
2016
   
2017
   
2018
   
2019
   
2020
 
Voyage revenues
  $ 144,132,183     $ 154,311,921     $ 164,330,202     $ 144,259,312     $ 145,003,021  
Voyage expenses
    (15,390,265     (15,716,537     (20,687,175     (16,990,521     (14,059,004
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Charter equivalent revenues
  $ 128,741,918     $ 138,595,384     $ 143,643,027     $ 127,268,791     $ 130,944,017  
Total voyage days for fleet
    19,999       19,717       19,363       16,230       15,079  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Adjusted average charter rate
  $ 6,437     $ 7,029     $ 7,418     $ 7,842     $ 8,684  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(9)
Vessel operating expenses, including related party vessel operating expenses, consist of crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, is calculated by dividing vessel operating expenses by fleet calendar days for the relevant time period.
(10)
Daily general and administrative expenses are calculated by dividing total general and administrative expenses by fleet calendar days for the relevant period.
(11)
Management fees are based on a fixed rate management fee of $440 per day for each vessel in our fleet under spot or time charter and a fixed rate fee of $125 per day for each of the vessels operating on bareboat charter. In addition to these fees there is also a fixed daily fee of $280 charged to four LPG vessels for which some services are currently provided by third party managers. Daily management fees are calculated by dividing total management fees by fleet calendar days for the relevant period.
(12)
Total operating expenses, or “TOE”, is a measurement of our total expenses associated with operating our vessels. TOE is the sum of vessel operating expenses and general and administrative expenses. Daily TOE is calculated by dividing TOE by fleet calendar days for the relevant time period.
(13)
Effective December 31, 2017, the Company adopted the new standard Accounting Standards Update ASU
2016-18
– Restricted Cash. The implementation of this update affected the presentation in the statement of
 
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  cash flows relating to changes in restricted cash which are presented as part of Cash whereas the Company previously presented these within investing activities. This standard was retrospectively applied to all periods presented.
(14)
As of January 1, 2018, the Company adopted Accounting Standards Update
2014-09,
“Revenue from Contracts with Customers” (“ASC 606”) utilizing the modified retrospective method of transition. The Company recorded an adjustment of approximately $0.3 million to decrease its opening retained earnings on its consolidated balance sheet on January 1, 2018.
B. Capitalization and Indebtedness
Not applicable
C. Reasons For the Offer and Use of Proceeds
Not Applicable.
D. Risk Factors
Summary of Risk Factors
An investment in our common stock is subject to a number of risks, including risks related to our industry, business and corporate structure. The following summarizes some, but not all, of these risks. Please carefully consider all of the information discussed in “Item 3. Key Information— Risk Factors” in this annual report for a more thorough description of these and other risks.
Risks Related To Our Industry
 
   
The cyclical nature of the demand for LPG transportation may lead to significant changes in our chartering and vessel utilization, which may result in difficulty finding profitable charters for our vessels.
 
   
Economic and political factors, including increased trade protectionism and tariffs and health pandemics, such as the
COVID-19
pandemic, could materially adversely affect our business, financial position and results of operations.
 
   
The impact of the
COVID-19
pandemic and efforts throughout the world to contain its spread, including effects on global economic activity, demand for energy and seaborne energy transportation, the ability and willingness of charterers to fulfill their obligations to us, charter rates for LPG carriers, crude oil and product tankers, drydocking and repairs, changing vessel crews and availability of financing.
 
   
Our revenues, operations and future growth could be adversely affected by a decrease in supply of liquefied natural gas, or natural gas.
 
   
The product carrier and crude oil tanker shipping sectors are cyclical, which may lead to lower charter rates and vessel values.
 
   
An over-supply of ships may lead to a reduction in charter rates, vessel values and profitability.
 
   
The market values of our vessels may remain at relatively low levels for a prolonged period and over time may fluctuate significantly. When the market values of our vessels are low, we may incur a loss on sale of a vessel or record an impairment charge, which may adversely affect our profitability and possibly lead to defaults under our loan agreements.
 
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Technological innovation could reduce our charter hire income and the value of our vessels.
 
   
Changes in fuel, or bunker, prices may adversely affect profits.
 
   
We are subject to regulation and liability under environmental laws that could require significant expenditures and affect our financial conditions and results of operations.
 
   
Risks involved with operating ocean-going vessels could affect our business and reputation, which would adversely affect our revenues and stock price.
 
   
Governments could requisition our vessels during a period of war or emergency, and maritime claimants could arrest our vessels.
 
   
Our operations outside the United States expose us to global risks, such as political conflict, terrorism and public health concerns, which may interfere with the operation of our vessels.
Risks Related To Our Business
 
   
We are dependent on the ability and willingness of our charterers to honor their commitments to us for all our revenues
.
 
   
We are exposed to the volatile spot market and charters at attractive rates may not be available when the charters for our vessels expire which would have an adverse impact on our revenues and financial condition.
 
   
We depend upon a few significant customers for a large part of our revenues. The loss of one or more of these customers could adversely affect our financial performance.
 
   
Our loan agreements or other financing arrangements contain restrictive covenants that may limit our liquidity and corporate activities.
 
   
The market values of our vessels may decrease, which could cause us to breach covenants in our credit and loan facilities, and could have a material adverse effect on our business, financial condition and results of operations.
 
   
A significant increase in our debt levels may adversely affect us and our cash flows.
 
   
We depend on our manager, Stealth Maritime Corporation S.A., to operate our business.
 
   
Delays in the delivery of any newbuilding or secondhand LPG carriers we agree to acquire could harm our operating results.
 
   
We are exposed to volatility in, and related to the phasing out of, LIBOR.
 
   
We may enter into derivative contracts to hedge our exposure to fluctuations in interest rates, which could result in higher than market interest rates and charges against our income.
Risks Related to Taxation
 
   
We may have to pay tax on U.S.-source income or may become a passive foreign investment company.
Risks Related to an Investment in a Marshall Islands Corporation
 
   
As a foreign private issuer we are entitled to claim an exemption from certain Nasdaq corporate governance standards, and if we elected to rely on this exemption, you may not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.
 
   
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law or a bankruptcy act, and it may be difficult to enforce service of process and judgments against us and our officers and directors.
 
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Risks Related To Our Common Stock
 
   
The market price of our common stock has fluctuated and may continue to fluctuate in the future, and we may not pay dividends on our common stock.
 
   
Anti-takeover provisions in our organizational documents and other agreements could make it difficult for our stockholders to replace or remove our current Board of Directors or have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our common stock.
Risks Related To Our Industry
The cyclical nature of the demand for LPG transportation may lead to significant changes in our chartering and vessel utilization, which may adversely affect our revenues, profitability and financial position.
Historically, the international LPG carrier market has been cyclical with attendant volatility in profitability, charter rates and vessel values. The degree of charter rate volatility among different types of gas carriers has varied widely. Because many factors influencing the supply of and demand for vessel capacity are unpredictable, the timing, direction and degree of changes in the international gas carrier market are also not predictable. Charter rates for small LPG carriers generally improved from the second half of 2017 through 2019, however, the
COVID-19
pandemic and the resulting disruptions to the international shipping industry and energy demand, including the decline in the price of oil, have negatively affected, and could continue to negatively affect, small and medium range LPG carrier charter rates, as witnessed by the decline in rates throughout 2020.
If charter rates do not improve or further decline, our earnings may decrease, particularly with respect to our vessels deployed in the spot market, or those vessels whose charters will be subject to renewal during 2021, as they may not be extended or renewed on favorable terms when compared to the terms of the expiring charters. As of April 1, 2021, of our 46 operating LPG carriers, including eight JV Vessels, 12 were deployed in the spot market while another 19 were scheduled to complete their existing time or bareboat charters during 2021. Any of the foregoing factors could have an adverse effect on our revenues, profitability, liquidity, cash flow and financial position.
Future growth in the demand for LPG carriers and charter rates, including for the vessel size segments comprising our fleet, will depend on economic growth in the world economy and demand for LPG product transportation that exceeds the capacity of the growing worldwide LPG carrier fleet’s ability to match it. We believe that the future growth in demand for LPG carriers and the charter rate levels for LPG carriers will depend primarily upon the supply and demand for LPG, particularly in the economies of China, Japan, India and Southeast Asia, as well as U.S. shale production, and upon seasonal and regional changes in demand and changes to the capacity of the world fleet. The capacity of the world shipping fleet appears likely to increase in the near term, although growth in the 3,000 to 8,000 cbm segment of small LPG carriers, the largest segment in which we operate in, is expected to be limited in the period 2021-2022, as the order book is relatively small, while scrapping activity has intensified. Oil prices may remain relatively low and economic growth may be limited in the near term, and possibly for an extended period, which could have an adverse effect on our business and results of operations.
The factors affecting the supply and demand for LPG carriers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
The factors that influence demand for our vessels include:
 
   
supply and demand for LPG products;
 
   
the price of oil;
 
   
global and regional economic conditions;
 
   
the distance LPG products are to be moved by sea;
 
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availability of alternative transportation means;
 
   
changes in seaborne and other transportation patterns;
 
   
environmental and other regulatory developments;
 
   
weather; and
 
   
pandemics, such as the outbreak and spread of
COVID-19;
The factors that influence the supply of vessel capacity include:
 
   
the number of newbuilding deliveries;
 
   
the scrapping rate of older vessels;
 
   
LPG carrier prices;
 
   
changes in environmental and other regulations that may limit the useful lives of vessels; and
 
   
the number of vessels that are out of service.
A significant decline in demand for the seaborne transport of LPG or a significant increase in the supply of LPG carrier capacity without a corresponding growth in LPG carrier demand could cause a significant decline in prevailing charter rates, which could materially adversely affect our financial condition and operating results and cash flow.
Various economic and political factors, including increased trade protectionism and tariffs and health pandemics, such as the
COVID-19
pandemic, could materially adversely affect our business, financial position and results of operations, as well as our future prospects.
Our business and operating results have been, and will continue to be, affected by global and regional economic conditions. The recovery of the global economy from the severe decline in prior years remains subject to downside risks. More specifically, some LPG products we carry are used in cyclical businesses, such as the manufacturing of plastics and in the chemical industry, and, accordingly, weakness and reduction in demand in those industries could adversely affect the LPG carrier industry. In particular, an adverse change in economic conditions affecting China, Japan, India or Southeast Asia generally could have a negative effect on the demand for LPG products, thereby adversely affecting our business, financial position and results of operations, as well as our future prospects. In recent years China and India have been among the world’s fastest growing economies in terms of gross domestic product, and any economic slowdown in the Asia Pacific region particularly in China or India may adversely affect LPG demand and our results of operations. Moreover, any deterioration in the economy of the United States or the European Union (“EU”), may further adversely affect economic growth in Asia. In addition, although to date, the continuing adverse economic conditions in Greece have not had an adverse effect on our managers’ operations, the slow recovery of, and any renewed deterioration in, the Greek economy may result in the imposition of new regulations that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Greek government new taxes or other fees. Our business, financial position and results of operations, as well as our future prospects, could likely be materially and adversely affected by adverse economic conditions in any of these countries or regions.
The imposition by the U.S., China or other governments of protectionist trade measures, including tariffs and other trade restrictions, the exit of the United Kingdom from the EU, the continuing war in Syria, renewed terrorist attacks around the world and the refugee crisis could also adversely affect global economic conditions and the world LPG, oil and petroleum markets and in turn the demand for seaborne transportation of these commodities. The global response to the emergence of a pandemic crisis such as the
COVID-19
pandemic and the economic impact thereof has and, particularly if it persists, could continue to have a material adverse effect on our financial performance, particularly for our vessels in the spot market or with charters expiring in 2021.
 
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The
COVID-19
pandemic and the resulting disruptions to the international shipping industry and decreased energy demand, including the decline in the price of oil, may continue to negatively affect our business, financial performance and our results of operations, including our ability to obtain charters and financing.
The
COVID-19
pandemic has led a number of countries, ports and organizations to take measures against its spread, such as quarantines and restrictions on travel. Such measures were taken initially in Chinese ports, where we conduct a significant amount of our operations, and expanded to other countries globally covering most ports where we conduct business. These measures have and will likely continue to cause severe trade disruptions due to, among other things, the unavailability of personnel, supply chain disruption, interruptions of production, delays in planned strategic projects and closure of businesses and facilities.
The
COVID-19
pandemic has introduced uncertainty in a number of areas of our business, including our operational, commercial and financial activities. It has also negatively impacted, and may continue to impact negatively, global economic activity and demand for energy, including LPG and oil. The global response to the outbreak and the economic impact thereof, in particular decreased energy demand and lower oil prices, adversely affected our ability to secure charters at profitable rates in 2020, and may continue to do so, particularly for our vessels in the spot market or with charters expiring in 2021, as demand for additional charters may continue to be affected. These factors could also have a material adverse effect on the business of our charterers, which could adversely affect their ability and willingness to perform their obligations under our existing charters as well as decreasing demand for future
charters. COVID-19
is also affecting oil major vetting processes, which could lead to the loss of oil major approvals to conduct business with us and in turn the loss of revenue under existing charters or future chartering opportunities.
Travel restrictions imposed on a global level also caused disruptions in scheduled crew changes on our vessels and delays in carrying out of certain hull repairs and maintenance during 2020, which disruptions could also continue to affect our operations. Our business and the shipping industry as a whole may continue to be impacted by a reduced workforce and delays of crew changes as a result of quarantines applicable in several countries and ports, as well as delays in the construction of newbuild vessels, scheduled drydockings, intermediate or special surveys of vessels and scheduled and unscheduled ship repairs and upgrades. In addition, any case of
COVID-19 amongst
crew, could result in a quarantine period for that vessel and, in turn, loss of charter hire and additional costs. Complications relating to changing crews due to restrictions in various ports throughout the world increased the costs related to these activities in 2020, and may continue to do so in 2021. Prolongment of the
COVID-19
pandemic could impact credit markets and financial institutions and result in increased interest rate spreads and other costs of, and difficulty in obtaining bank financing, including our ability to refinance balloon payments due upon maturity of existing credit facilities and our ability to finance the purchase price of vessel acquisitions, which could limit our ability to grow our business in line with our strategy.
Declines in the price of oil, in part due to the
COVID-19
outbreak, and changes in production by oil producing countries, could make LPG a less attractive alternative for some uses and generally lead to reduced production of oil and gas, of which LPG is a byproduct. Reduced demand for LPG products and LPG shipping would have an adverse effect on our future growth and would harm our business, results of operations and financial condition.
Failure of the continued spread of the virus to be controlled could significantly impact economic activity, and demand for LPG and LPG shipping, which could further negatively affect our business, financial condition, results of operations and cashflows.
If the demand for LPG products and LPG shipping does not grow, or decreases, our business, results of operations and financial condition could be adversely affected.
Our growth, which depends on growth in the supply and demand for LPG products and LPG shipping, was adversely affected by the sharp decrease in world trade and the global economy experienced in the latter part of
 
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2008 and in 2009 and the decline in oil prices beginning in the third quarter of 2014. Although the global economy subsequently recovered, economic conditions, energy demand and oil prices have again declined significantly since the onset of the
COVID-19
pandemic in late 2019. World and regional demand for LPG products and LPG shipping can be adversely affected by a number of factors, such as:
 
   
adverse global or regional economic or political conditions, particularly in LPG consuming regions, which could reduce energy consumption;
 
   
a reduction in global or general industrial activity specifically in the plastics and chemical industries;
 
   
a renewed decline in the price of oil which makes LPG a less attractive alternative for some uses and generally leads to reduced production of oil and gas;
 
   
changes in the cost of petroleum and natural gas from which LPG is derived;
 
   
decreases in the consumption of LPG or natural gas due to availability of new alternative energy sources, or increases in the price of LPG or natural gas relative to other energy sources, or other factors making consumption of LPG or natural gas less attractive; and
 
   
increases in pipelines for LPG, which are currently few in number, linking production areas and industrial and residential areas consuming LPG, or the conversion of existing
non-petroleum
gas pipelines to petroleum gas pipelines in those markets.
Our operating results are subject to seasonal fluctuations, which could affect our operating results.
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter hire rates. This seasonality may result in
quarter-to-quarter
volatility in our operating results. The LPG carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of propane and butane for heating during the winter months. Tanker markets are also typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere, but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. As a result, our revenues may be stronger in fiscal quarters ended December 31 and March 31, and conversely, our revenues may be weaker during the fiscal quarters ended June 30 and September 30. This seasonality could materially affect our quarterly operating results.
Our revenues, operations and future growth could be adversely affected by a decrease in supply of liquefied natural gas, or natural gas.
In recent years, there has been a strong supply of natural gas and an increase in the construction of plants and projects involving natural gas, of which LPG is a byproduct. Several of these projects, however, have experienced delays in their completion for various reasons and thus the expected increase in the supply of LPG from these projects may be delayed significantly. The recent severe declines in the price of oil and natural gas could exacerbate these dynamics. If the supply of natural gas decreases, we may see a concurrent reduction in the production of LPG, resulting in lesser demand and lower charter rates for our vessels, which could ultimately have a material adverse impact on our revenues, operations and future growth.
The product carrier and crude oil tanker shipping sectors are cyclical, which may lead to lower charter rates and lower vessel values.
The medium range type product carrier and crude oil tanker shipping sectors are cyclical with attendant volatility in charter rates and vessel values. Two of our product carriers are currently operating on time charters scheduled to expire in August 2021 and March 2022, respectively, while our remaining product carrier is operating
under
a
bareboat charter scheduled to expire in
September 2021.
As of April 1, 2021, our crude oil aframax tanker was operating
under
a
time charter scheduled to expire in September 2021.
If prevailing market
 
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conditions in these sectors, which are currently at low levels as a result of the
COVID-19
pandemic and related decline in demand for oil and oil products further deteriorate, we may not be able to renew or replace existing charters for these vessels at the same or similar rates. If we were required to enter into a charter when charter hire rates are low, our results of operations could be adversely affected.
An over-supply of ships may lead to a reduction in charter rates, vessel values and profitability.
The market supply of LPG carriers and tankers is affected by a number of factors, such as supply and demand for LPG, natural gas and other energy resources, including oil and petroleum products, supply and demand for seaborne transportation of such energy resources, and the current and expected purchase orders for
new-buildings.
If the capacity of new LPG carriers and tankers delivered exceeds the capacity of such vessel types being scrapped and converted to
non-trading
vessels, global fleet capacity will increase. If the supply of LPG carrier or tanker capacity, for the vessel class sizes comprising our fleet in particular, increases, and if the demand for the capacity of such vessel types decreases, or does not increase correspondingly, charter rates could materially decline. A reduction in charter rates and the value of our vessels may have a material adverse effect on our results of operations.
The market values of our vessels may remain at relatively low levels for a prolonged period and over time may fluctuate significantly. When the market values of our vessels are low, we may incur a loss on sale of a vessel or record an impairment charge, as we did in each of the last five fiscal years, which may adversely affect our profitability and possibly lead to defaults under our loan agreements.
The market value of our vessels may fluctuate significantly, and these experienced significant declines during the economic crisis. Small LPG carrier and tanker values are currently at relatively low levels and remain well below the highs reached in 2007 and 2008. The market values of our vessels are subject to potential significant fluctuations depending on a number of factors including:
 
   
general economic and market conditions affecting the shipping industry;
 
   
age, sophistication and condition of our vessels;
 
   
types and sizes of vessels;
 
   
availability of other modes of transportation;
 
   
cost and delivery of schedules for
new-buildings;
 
   
governmental and other regulations;
 
   
supply and demand for LPG products and refined petroleum products and oil, respectively;
 
   
prevailing level of LPG charter rates and, with respect to our product carriers, the prevailing level of product carrier charter rates and crude oil tanker rates, respectively; and
 
   
technological advances.
In 2020, we recognized an impairment loss of $3.9 million relating to four of our oldest vessels. We also recognized impairment losses in 2019, 2018, 2017 and 2016 of $1.0 million, $11.4 million, $6.5 million and $5.7 million, respectively. If we sell vessels at a time when vessel prices have fallen, the sale may be for less than the vessel’s carrying value in our financial statements, resulting in a reduction in profitability. Furthermore, if vessel values experience significant declines, we may have to record an impairment adjustment in our financial statements, which would also result in a reduction in our profits. If the market value of our fleet declines, we may not be in compliance with certain provisions of our existing loan agreements and we may not be able to refinance our debt or obtain additional financing or, if reinstated, pay dividends. If we are unable to pledge additional collateral, our lenders could accelerate our debt and foreclose on our fleet. The loss of our vessels would mean we could not run our business.
 
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Technological innovation could reduce our charter hire income and the value of our vessels.
The charter hire rates and the value and operational life of a vessel are determined by a number of factors including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly, including the ability to use alternative combustion fuels. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. If new LPG carriers or tankers are built that are more efficient or more flexible or have longer physical lives than our vessels, including new vessels powered by alternative fuels, competition from these more technologically advanced vessels could adversely affect the amount of charter hire payments we receive for our vessels, and the resale value of our vessels could significantly decrease, which could also result in impairment costs. Consequently, our results of operations and financial condition could be adversely affected.
Changes in fuel, or bunker, prices may adversely affect profits.
While we do not bear the cost of fuel or bunkers under time and bareboat charters, fuel is a significant expense in our shipping operations when vessels are deployed under spot charters. The cost of fuel, including the fuel efficiency or capability to use lower priced fuel, can also be an important factor considered by charterers in negotiating charter rates. Changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the OPEC (“Organization Of Petroleum Exporting Countries”) and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Furthermore, fuel may become significantly more expensive in the future, which may reduce our profitability. In addition, the recent entry into force, on January 1, 2020, of the 0.5% global sulfur cap in marine fuels used by vessels that are not equipped with sulfur oxide (“SOx”) exhaust gas cleaning systems (“scrubbers”) under the International Convention for Prevention of Pollution from Ships (“MARPOL”) Annex VI may lead to changes in the production quantities and prices of different grades of marine fuel by refineries and introduces an additional element of uncertainty in fuel markets, which could result in additional costs and adversely affect our cash flows, earnings and results from operations.
We are subject to regulation and liability under environmental laws that could require significant expenditures and affect our financial conditions and results of operations.
Our business and the operation of our vessels are materially affected by government regulation in the form of international conventions and national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration. These regulations include, but are not limited to the U.S. Oil Pollution Act of 1990, or OPA, that establishes an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills and applies to any discharges of oil from a vessel, including discharges of fuel oil (bunkers) and lubricants, the U.S. Clean Air Act, U.S. Clean Water Act and the U.S. Marine Transportation Security Act of 2002, and regulations of the International Maritime Organization, or the IMO, including the International Convention for the Prevention of Pollution from Ships of 1975, the International Convention for the Prevention of Marine Pollution of 1973, and the International Convention for the Safety of Life at Sea of 1974. To comply with these and other regulations, including the January 1, 2020 entry into force of the MARPOL Annex VI sulfur emission requirements instituting a global 0.5% (lowered from 3.5%) sulfur cap on marine fuels used by vessels not equipped with scrubbers and the International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM Convention”), which requires vessels to install expensive ballast water treatment systems, we may be required to incur additional costs to meet maintenance and inspection requirements, to develop contingency plans for potential spills, and to obtain additional insurance coverage. Environmental laws and regulations are often revised, and we cannot predict the ultimate cost of complying with them, or the impact they may have on the resale prices or useful lives of our vessels. However, a failure to comply with applicable laws and regulations
 
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may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Additional laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which could materially adversely affect our operations. We are also required by various governmental and quasi-governmental agencies to obtain permits, licenses, certificates and financial assurances with respect to our operations. These permits, licenses, certificates and financial assurances may be issued or renewed with terms that could materially and adversely affect our operations.
The operation of our vessels is affected by the requirements set forth in the International Management Code for the Safe Operation of Ships and Pollution Prevention (“ISM Code”). The ISM Code requires ship owners and bareboat charterers to develop and maintain an extensive “Safety Management System” (“SMS”) that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation of the ship and describing procedures for dealing with emergencies. The failure of a ship owner or bareboat charterer to comply with the ISM Code may subject the owner or charterer to increased liability, may decrease available insurance coverage for the affected vessels, may result in a denial of access to, or detention in, certain ports or may result in a breach of our bank covenants. Currently, each of the vessels in our fleet is ISM Code-certified. Because these certifications are critical to our business, we place a high priority on maintaining them. Nonetheless, there is the possibility that such certifications may not be renewed.
We currently maintain for each of our vessels pollution liability insurance coverage in the amount of $1.0 billion per vessel, per incident. In addition, we carry hull and machinery and protection and indemnity insurance to cover the risks of fire and explosion. Under certain circumstances, fire and explosion could result in a catastrophic loss. We believe that our present insurance coverage is adequate, but not all risks can be insured, and there is the possibility that a specific claim may not be paid, or that we will not always be able to obtain adequate insurance coverage at reasonable rates. If the damages from a catastrophic spill exceed our insurance coverage, the effect on our business would be severe and could possibly result in our insolvency.
We believe that regulations of the shipping industry will continue to become more stringent and compliance with such new regulations will be more expensive for us as well as our competitors. Substantial violations of applicable requirements or a catastrophic spill from one of our vessels could have a material adverse impact on our financial condition and results of operations.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risks of climate change, a number of countries and the IMO have adopted, or are considering the adoption of regulatory frameworks to reduce greenhouse gas emission from ships. These regulatory measures may include adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. Emissions of greenhouse gases from international shipping currently are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or the “Kyoto Protocol,” or any amendments or successor agreements, including the Paris Agreement adopted under the United Nations Framework Convention on Climate Change in December 2015, which contemplates commitments from each nation party thereto to take action to reduce greenhouse gas emissions and limit increases in global temperatures but did not include any restrictions or other measures specific to shipping emissions. However, restrictions on shipping emissions are likely to continue to be considered, and a new treaty may be adopted in the future that includes additional restrictions on shipping emissions to those already adopted under MARPOL. Compliance with future changes in laws and regulations relating to climate change could increase the costs of operating and maintaining our ships and could require us to install new emission controls, as well as acquire allowances, pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program.
Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also have an effect on demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the
 
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demand for oil, refined petroleum products, liquefied natural gas or liquefied petroleum gas in the future or create greater incentives for use of alternative energy sources. Any long-term material adverse effect on the oil and gas industry could have significant financial and operational adverse impacts on our business that we cannot predict with certainty at this time.
Our vessels are subject to periodic inspections by a classification society.
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention. Our fleet is currently classed with Lloyds Register of Shipping, Nippon Kaiji Kyokai, or NKK, the American Bureau of Shipping and Bureau Veritas.
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Our vessels are on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel is also required to be dry docked every two to three years for inspection of the underwater parts of such vessel. However, for vessels not exceeding 15 years that have means to facilitate underwater inspection in lieu of dry docking, the dry docking may be skipped and be conducted concurrently with the special survey.
If a vessel does not maintain its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable; we would then be in violation of covenants in our loan agreements and insurance contracts or other financing arrangements. This would adversely impact our operations and revenues.
Maritime claimants could arrest our vessels, which could interrupt our cash flow.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and others may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums of funds to have the arrest lifted.
In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our ships or, possibly, another vessel managed by Stealth Maritime, as was the case with the arrest of one of our vessels in August 2015.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of revenues.
A government could requisition for title or seize our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. Also, a government could requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels would adversely impact our operations and revenues, thereby resulting in loss of revenues.
Risks involved with operating ocean-going vessels could affect our business and reputation, which would adversely affect our revenues and stock price.
The operation of an ocean-going vessel carries inherent risks. These risks include the possibility of:
 
   
marine accident or disaster;
 
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piracy and terrorism;
 
   
explosions;
 
   
environmental accidents;
 
   
pollution;
 
   
loss of life;
 
   
cargo and property losses or damage; and
 
   
business interruptions caused by mechanical failure, human error, war, political action in various countries, labor strikes or adverse weather conditions.
Any of these circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in a serious accident could harm our reputation as a safe and reliable vessel operator and lead to a loss of business.
Our vessels may suffer damage and we may face unexpected repair costs, which could affect our cash flow and financial condition.
If our vessels suffer damages, they may need to be repaired at a shipyard facility. The costs of repairs are unpredictable and can be substantial. We may have to pay repair costs that our insurance does not cover. The loss of earnings while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, would have an adverse effect on our cash flow and financial condition. We do not intend to carry business interruption insurance.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf of Aden, off the coast of Somalia. If these piracy attacks occur in regions in which our vessels are deployed and are characterized by insurers as “war risk” zones, as the Gulf of Aden continues to be, or Joint War Committee (JWC) “war and strikes” listed areas, premiums payable for such coverage, for which we are responsible with respect to vessels employed on spot charters, but not vessels employed on bareboat or time charters, could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including employing onboard security guards, could increase in such circumstances. We usually employ armed guards on board the vessels on time and spot charters that transit areas where Somali pirates operate. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition and results of operations.
Our operations outside the United States expose us to global risks, such as political conflict, terrorism and public health concerns, which may interfere with the operation of our vessels.
We are an international company and primarily conduct our operations outside the United States. Changing economic, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered affect us. In the past, political conflicts, particularly in the Arabian Gulf, resulted in attacks on vessels, mining of waterways and other efforts to disrupt shipping in the area. Continuing conflicts, instability and other recent developments in the Middle East and elsewhere, including recent attacks involving vessels and vessel seizures in the Strait of Hormuz and off the coast of Gibraltar, the recent attack on an Iranian tanker near the Saudi Arabian port city of Jeddah and the presence of U.S. or other armed forces in Syria and Afghanistan, may lead to additional acts of terrorism or armed conflict around the world, and our vessels may face higher risks of being attacked or detained, or shipping routes transited by our vessels, such as the Strait of Hormuz, may be
 
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otherwise disrupted. Acts of terrorism may increase with the continuing conflicts in the Middle East and North Africa, and therefore our vessels may face higher risks of being attacked. In addition, future hostilities or other political instability in regions where our vessels trade could affect our trade patterns and adversely affect our operations and performance. If certain shipping lanes were to close, such as Iran’s past threat to close the Strait of Hormuz, it could adversely affect the availability of, and the demand for crude oil and petroleum products, as well as LPG. This would negatively affect our business and our customers’ investment decisions over an extended period of time. In addition, sanctions against oil exporting countries such as Iran, Syria and Venezuela, and the events in Ukraine and related sanctions against Russia, may also impact the availability of crude oil, petroleum products and LPG and which would increase the availability of applicable vessels, thereby impacting negatively charter rates. In addition, any charters that we enter into with Chinese customers may be subject to new regulations in China that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Chinese government new taxes or other fees. Changes in laws and regulations, including tax matters and their implementation by local authorities could affect our vessels chartered to Chinese customers, as well as our vessels calling to Chinese ports, and could have a material adverse effect on our business, results of operations and financial condition.
Terrorist attacks, or the perception that LPG or natural gas facilities or oil refineries and LPG carriers, natural gas carriers or product carriers are potential terrorist targets, could materially and adversely affect the continued supply of LPG, natural gas and refined petroleum products to the United States and to other countries. Concern that LPG and natural gas facilities may be targeted for attack by terrorists has contributed to a significant community and environmental resistance to the construction of a number of natural gas facilities, primarily in North America. If a terrorist incident involving a gas facility or gas carrier did occur, the incident may adversely affect necessary LPG facilities or natural gas facilities currently in operation. Furthermore, future terrorist attacks could result in increased volatility of the financial markets in the United States and globally, and could result in an economic recession in the United States or the world. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.
In addition, public health threats, such as the coronavirus, influenza and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate, including China, could adversely impact our operations, and the operations of our customers.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
Our vessels call in ports in certain geographic areas where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims or penalties which could have an adverse effect on our business, results of operations, cash flows and financial condition.
Our vessels may call on ports located in countries that are subject to sanctions and embargoes imposed by the U.S. or other governments, which could adversely affect our reputation and the market for our common stock.
From time to time on charterers’ instructions, our vessels have called and may again call on ports located in countries subject to sanctions and embargoes imposed by the United States government and countries identified by the United States government as state sponsors of terrorism, such as Iran, Syria and North Korea. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. On January 16, 2016, “Implementation Day” for the Iran Joint Comprehensive Plan of Action (JCPOA), the United States lifted its nuclear-related secondary sanctions against Iran which prohibited certain conduct by
non-U.S.
companies and individuals that occurred entirely outside of
 
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U.S. jurisdiction involving specified industry sectors in Iran, including the energy, petrochemical, automotive, financial, banking, mining, shipbuilding and shipping sectors. By lifting the secondary sanctions against Iran, the U.S. government effectively removed U.S. imposed restraints on dealings by
non-U.S.
companies, such as our Company, and individuals with these formerly targeted Iranian business sectors.
Non-U.S.
companies continued to be prohibited under U.S. sanctions from (i) knowingly engaging in conduct that seeks to evade U.S. restrictions on transactions or dealings with Iran or that causes the export of goods or services from the United States to Iran, (ii) exporting,
re-exporting
or transferring to Iran any goods, technology, or services originally exported from the U.S. and / or subject to U.S. export jurisdiction and (iii) conducting transactions with of the Iranian or Iran-related individuals and entities that remain or are placed in the future on OFAC’s list of Specially Designated Nationals and Blocked Persons (SDN List), notwithstanding the lifting of secondary sanctions. However, on August 6, 2018, the U.S.
re-imposed
an initial round of secondary sanctions and as of November 5, 2018, all of the secondary sanctions the U.S. had suspended under the JCPOA were
re-imposed.
The U.S. government’s primary Iran sanctions have remained largely unchanged, including during the period from the JCPOA Implementation Day to the
re-imposition
of secondary sanctions in 2018, and as a consequence, U.S. persons also continue to be broadly prohibited from engaging in transactions or dealings with the Government of Iran and Iranian financial institutions, which effectively impacts the transfer of funds to, from, or through the U.S. financial system whether denominated in US dollars or any other currency.
In 2020, one of our vessels made a total of three port calls to Cuba, representing 0.11% of the 2,707 port calls made by all of the vessels in our operating fleet for that year. None of our vessels called in any ports in Cuba, North Korea, Syria or Iran in 2014, 2015, 2019. In 2016, two of our vessels made a total of two port calls to Iran, representing less than 0.1% of the 2,412 total port calls made by all the vessels owned by us in 2016 and in 2017 six of our vessels made a total of 82 port calls to Iran which represents 2.67% of the 3,074 port calls made by all of our operating fleet within the stated year. In 2018, 4 of our vessels made a total of 12 port calls to Iran, all prior to November 5, 2018, representing 0.5% of the 2,653 port calls made by all of the vessels in our operating fleet in 2018. We believe all such port calls were made in full compliance with applicable economic sanctions laws and regulations, including those of the United States, the EU and other relevant jurisdictions. Our charter agreements include provisions that restrict trades of our vessels to countries targeted by economic sanctions unless such transportation activities involving sanctioned countries are permitted under applicable economic sanctions and embargo regimes. Our ordinary chartering policy is to seek to include similar provisions in all of our period charters. Prior to agreeing to waive existing charter party restrictions on carrying cargoes to or from ports that may implicate sanctions risks, we ensure that the charterers have proof of compliance with international and U.S. sanctions requirements, or applicable licenses or other exemptions.
Although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may vary or may be subject to changing interpretations and we may be unable to prevent our charterers from violating contractual and legal restrictions on their operations of the vessels. Any such violation could result in fines or other penalties for us and could result in some investors deciding, or being required, to divest their interest, or not to invest, in the Company. Additionally, some investors may decide to divest their interest, or not to invest, in the Company simply because we do business with companies that do lawful business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. Investor perception of the value of our common stock may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
 
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Failure to comply with the U.S. Foreign Corrupt Practices Act and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on our business.
We operate in a number of countries through the world, including countries that may be known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted policies which are consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) and other anti-bribery laws. We are subject, however, to the risk that we, our affiliated entities or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
A cyber-attack could materially disrupt our business.
Our business operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information on our systems. Any such attack or other breach of our information technology systems could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Risks Related To Our Business
We are dependent on the ability and willingness of our charterers to honor their commitments to us for all our revenues.
We derive all our revenues from the payment of charter hire by charterers of our vessels. The ability and willingness of each of our counterparties to perform their obligations under charter agreements with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the LPG carrier sector, or in the case of our product carriers the refined petroleum product carrier sector and in the case of our crude oil tanker the crude oil tanker sector, of the shipping industry and the overall financial condition of the counterparties, all of which may continue to be negatively impacted by the
COVID-19
pandemic and related containment efforts. In addition, in depressed market conditions, charterers may seek to renegotiate their charters or may default on their obligations under charters and our charterers may fail to pay charter hire or attempt to renegotiate charter rates. For example, in 2020 a charterer of four of our vessels sought bankruptcy protection, purported to cancel the charters for these vessels and returned the vessels to us. Should a counterparty fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on bareboat or time charters could be at lower rates. If we lose a charter, we may be unable to
re-deploy
the related vessel on terms as favorable to us. We would not receive any revenues from such a vessel while it remained unchartered, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition, insure it and service any indebtedness secured by such vessel. The failure by charterers to meet their obligations to us or an attempt by charterers to renegotiate our charter agreements could have a material adverse effect on our revenues, results of operations and financial condition.
We are exposed to the volatile spot market and charters at attractive rates may not be available when the charters for our vessels expire which would have an adverse impact on our revenues and financial condition.
As of April 1, 2021, of our 50 vessels in the water, including eight JV Vessels, 38 were under period charters (bareboat charters and time charters), while 12 were deployed in the spot market. As of April 1, 2021,
 
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52% of our anticipated fleet days, including our JV vessels, were covered by period charter contracts for the remainder of 2021 and 11% for 2022, with period charters for 22 of our vessels scheduled to expire in 2021 and 14 of our period charters scheduled to expire in 2022.
We are exposed to fluctuations in the charter market for the remaining anticipated voyage days that are not covered by fixed-rate contracts, and to the extent the counterparties to our fixed-rate charter contracts fail to honor their obligations to us. The successful operation of our vessels in the competitive and highly volatile spot charter market depends on, among other things, obtaining profitable spot charters, which depends greatly on vessel supply and demand, and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unloaded to pick up cargo. When the current charters for our fleet expire or are terminated, it may not be possible to
re-charter
these vessels at similar rates, or at all, or to secure charters for any additional LPG carrier acquisitions at similarly profitable rates, or at all. As a result, we may have to accept lower rates or experience off hire time for our vessels, which would adversely impact our revenues, results of operations and financial condition.
We depend upon a few significant customers for a large part of our revenues. The loss of one or more of these customers could adversely affect our financial performance.
In our operating history we have derived a significant part of our revenue from a small number of charterers. For the year ended December 31, 2020 we had two customers from which we derived more than 10% of our revenues, while in 2019 we had three such customers and in 2017 and 2018 we had no such customers. For the year ended December 31, 2020, our three largest customers accounted for 32.7% of our revenues. Overall, we anticipate a limited number of customers will continue to represent significant amounts of our revenue. If these customers cease doing business or do not fulfill their obligations under the charters for our vessels, our results of operations and cash flows could be adversely affected. Further, if we encounter any difficulties in our relationships with these charterers, our results of operations, cash flows and financial condition could be adversely affected.
Our loan agreements or other financing arrangements contain restrictive covenants that may limit our liquidity and corporate activities.
Our loan agreements impose, and our future financing arrangements may impose, operating and financial restrictions on us. These restrictions may limit our ability to:
 
   
incur additional indebtedness;
 
   
create liens on our assets;
 
   
sell capital stock of our subsidiaries;
 
   
make investments;
 
   
engage in mergers or acquisitions;
 
   
pay dividends; and
 
   
make capital expenditures.
Our loan agreements require us to maintain specified financial ratios, satisfy financial covenants and contain cross-default clauses.
They also require that our Chief Executive Officer, Harry Vafias, together with his immediate family, at all times own at least 10% of our outstanding capital stock and certain of our loan agreements provide that it would be an event of default if Harry Vafias ceased to serve as an executive officer or director of our company, Harry Vafias together with his immediate family, ceased to control our company or any other person or group
 
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controlled 25% or more of the voting power of our outstanding capital stock. In addition, our loan agreements include restrictions on the payment of dividends in amounts exceeding 50% of our free cash flow in any rolling
12-month
period. As of December 31, 2020, we were in compliance with the covenants in our loan agreements.
As a result of the restrictions in our loan agreements, or similar restrictions in our future financing arrangements with respect to future vessels which we have yet to identify, we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours, and we may not be able to obtain their permission when needed. This may prevent us from taking actions that we believe are in our best interest which may adversely impact our revenues, results of operations and financial condition.
A failure by us to meet our payment and other obligations, including our financial covenants and security coverage requirement, could lead to defaults under our secured loan agreements. Our lenders could then accelerate our indebtedness and foreclose on our fleet. The loss of our vessels would mean we could not run our business.
The market values of our vessels may decrease, which could cause us to breach covenants in our credit and loan facilities, and could have a material adverse effect on our business, financial condition and results of operations.
Our loan agreements, which are secured by liens on our vessels, contain various financial covenants, including requirements that relate to our financial condition, operating performance and liquidity. For example, we are required to maintain a maximum consolidated leverage ratio that is based, in part, upon the market value of the vessels securing the applicable loan, as well as a minimum ratio of the market value of vessels securing a loan to the principal amount outstanding under such loan. The market value of LPG carriers, product carriers and crude oil tankers is sensitive to, among other things, changes in the LPG carrier, product carrier and crude oil tanker charter markets, respectively, with vessel values deteriorating in times when LPG carrier, product carrier and tanker charter rates, as applicable, are falling and improving when charter rates are anticipated to rise. Lower charter rates in the LPG carrier, product carrier and crude oil tanker markets coupled with the difficulty in obtaining financing for vessel purchases have adversely affected product carrier and Aframax tanker values, and the impact of the dramatic decline in oil prices on demand for LPG has adversely affected LPG carrier values since the fourth quarter of 2014, with some improvement alongside increasing oil prices in the second half of 2017 through 2019, before again declining with the decline in the price of oil relating to increases in oil production by various countries and the
COVID-19
pandemic. A continuation or worsening of these conditions would lead to a significant decline in the fair market values of our vessels, which may affect our ability to comply with these loan covenants. If the value of our vessels deteriorates, we may have to record an impairment adjustment in our financial statements as we did in each of our last five fiscal years which would adversely affect our financial results and could further hinder our ability to raise capital.
A failure to comply with our covenants and/or obtain covenant waivers or modifications could result in our lenders requiring us to post additional collateral, enhance our equity and liquidity, increase our interest payments or pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet or accelerate our indebtedness, which would impair our ability to continue to conduct our business. If our indebtedness is accelerated, we may not be able to refinance our debt or obtain additional financing and could lose our vessels if our lenders foreclose their liens. In addition, if we find it necessary to sell our vessels at a time when vessel prices are low, we will recognize losses and a reduction in our earnings, which could affect our ability to raise additional capital necessary for us to comply with our loan agreements.
 
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Global economic conditions and disruptions in world financial markets, including renewed disruptions as a consequence of the current
COVID-19
pandemic, and the resulting governmental action could have a material adverse impact on our results of operations, financial condition and cash flows.
Global financial markets and economic conditions have been disrupted and volatile at times over the past decade, including in 2020 and early 2021 as a result of the
COVID-19
pandemic. While the global economy had improved in recent years, the recent outbreak of
COVID-19
has dramatically disrupted the global economy. This may also prolong tight credit markets and potentially cause such conditions to become more severe. These issues, along with the limited supply of credit to the shipping industry and the
re-pricing
of credit risk and the difficulties currently experienced by financial institutions, have made, and will likely continue to make, it difficult to obtain financing, all of which could be exacerbated by the
COVID-19
pandemic. As a result of the disruptions in the credit markets and higher capital requirements, many lenders had already in prior years increased margins on lending rates, enacted tighter lending standards, required more restrictive terms (including higher collateral ratios for advances, shorter maturities and smaller loan amounts), or refused to refinance existing debt on terms similar to existing debt or at all, which may also be further negatively impacted by the
COVID-19
pandemic. Furthermore, certain banks that have historically been significant lenders to the shipping industry have reduced or ceased lending activities in the shipping industry in recent years. New banking regulations, including tightening of capital requirements and the resulting policies adopted by lenders, could further reduce lending activities. We may experience difficulties in obtaining financing commitments, or be unable to fully draw on the capacity under our committed credit facilities in the future, or refinance our credit facilities when our current facilities mature if our lenders are unwilling to extend financing to us or unable to meet their funding obligations due to their own liquidity, capital or solvency issues. We cannot be certain that financing will be available on acceptable terms or at all. In the absence of available financing, we also may be unable to take advantage of business opportunities or respond to competitive pressures.
Our ability to obtain additional debt financing may be dependent on the performance of our then existing charters and the creditworthiness of our charterers, as well as the perceived impact of emissions by our vessels on the climate.
The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources that we will require in order to purchase additional vessels or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing, or obtain financing at a higher than anticipated cost may materially affect our results of operation and our ability to implement our business strategy.
In 2019, a number of leading lenders to the shipping industry and other industry participants announced a global framework by which financial institutions can assess the climate alignment of their ship finance portfolios, called the Poseidon Principles, and additional lenders have subsequently announced their intention to adhere to such principles. If the ships in our fleet are deemed not to satisfy the emissions and other sustainability standards contemplated by the Poseidon Principles, or other ESG standards required by lenders or investors, the availability and cost of bank financing for such vessels may be adversely affected.
A significant increase in our debt levels may adversely affect us and our cash flows.
As of December 31, 2020 we had outstanding indebtedness, net of deferred arrangement fees, of $351.8 million. We would expect to incur further indebtedness in connection with any further expansion of our fleet. This increase in the level of indebtedness and the need to service the indebtedness may impact our profitability and cash available for growth of our fleet, working capital and dividends if any. Additionally, further increases in interest rate levels, which have started to increase in the last few years from historically low levels, may increase the cost of servicing our indebtedness with similar results.
To finance our future fleet expansion program beyond our current fleet, we expect to incur additional secured debt. We have to dedicate a portion of our cash flow from operations to pay the principal and interest on
 
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our debt. These payments limit funds otherwise available for working capital, capital expenditures, and other purposes, including any distributions of cash to our stockholders, and our inability to service our debt could lead to acceleration of our debt and foreclosure on our fleet.
Moreover, carrying secured indebtedness exposes us to increased risks if the demand for LPG, oil or
oil-related
marine transportation decreases and charter rates and vessel values are adversely affected.
We are exposed to volatility in the London Interbank Offered Rate (“LIBOR”).
The amounts outstanding under our senior secured credit facilities have been, and we expect borrowings under additional credit facilities we have entered into and may enter into in the future will generally be, advanced at a floating rate based on LIBOR which can affect the amount of interest payable on our debt, and which, in turn, could have an adverse effect on our earnings and cash flow. In addition, LIBOR, which was at low levels for an extended period of time, increased in 2017 and 2018. It marked a decline in 2019 and since
mid-2020
decreased sharply following the
COVID-19
pandemic outbreak. Since then, LIBOR has remained at relatively low levels but it may potentially again increase from these levels. Our financial condition could be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our exposure to the interest rates applicable to our credit facilities and any other financing arrangements we may enter into in the future, including those we enter into to finance a portion of the amounts payable with respect to
new-buildings.
As of December 31, 2020, we had approximately 23% of our loan exposure under interest rate swap arrangements. Even if we enter into interest rate swaps or other derivative instruments for the purpose of managing our interest rate exposure, our hedging strategies may not be effective and we may incur substantial losses.
Increased regulatory oversight, uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2023 may adversely affect the amounts of interest we pay under our debt arrangements and our results of operations.
The United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, has announced that it will
phase-out
LIBOR by the end of 2023. It is unclear whether an extension will be granted or new methods of calculating LIBOR will be established such that it continues to exist after 2023, or if alternative rates or benchmarks will be adopted. Various alternative reference rates are being considered in the financial community. The Secured Overnight Financing Rate has been proposed by the Alternative Reference Rate Committee, a committee convened by the U.S. Federal Reserve that includes major market participants and on which regulators participate, as an alternative rate to replace U.S. dollar LIBOR. However, it is not possible at this time to know the ultimate impact a
phase-out
of LIBOR may have, or how any such changes or alternative methods for calculating benchmark interest rates would be applied to any particular existing agreement containing terms based on LIBOR, such as our existing loan agreements, which generally have alternative calculation provisions, however, if implicated, these could also create additional risks and uncertainties. The changes may adversely affect the trading market for LIBOR based agreements, including our credit facilities and interest rate swaps. We may need to negotiate the replacement benchmark rate on our credit facilities and interest rate swaps, and the use of an alternative rate or benchmark may negatively impact our interest rate expense. Any other contracts entered into in the ordinary course of business which currently refer to, use or include LIBOR may also be impacted.
The derivative contracts we have entered into to hedge our exposure to fluctuations in interest rates could result in higher than market interest rates and charges against our income, as well as reductions in our stockholders’ equity.
We have entered into interest rate swaps for purposes of managing our exposure to fluctuations in interest rates applicable to indebtedness under our credit facilities which were advanced at floating rates based on LIBOR. Our hedging strategies, however, may not be effective and we may incur substantial losses if interest rates or currencies move materially differently from our expectations.
 
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To the extent our interest rate swaps do not qualify for treatment as hedges for accounting purposes, we recognize fluctuations in the fair value of such contracts in our statement of operations. In addition, changes in the fair value of any derivative contracts that do qualify for treatment as hedges, are recognized in “Accumulated other comprehensive income” on our balance sheet. Our financial condition could also be materially adversely affected to the extent we do not hedge our exposure to interest rate fluctuations under our financing arrangements under which loans have been advanced at a floating rate based on LIBOR.
In addition, we had entered in the past and may enter in the future into foreign currency derivative contracts in order to hedge an exposure to foreign currencies related to shipbuilding contracts.
Any hedging activities we engage in may not effectively manage our interest rate and foreign exchange exposure or have the desired impact on our financial condition or results of operations.
Because we generate all of our revenues in U.S. dollars but incur a portion of our expenses in other currencies, exchange rate fluctuations could adversely affect our results of operations.
We generate all of our revenues in U.S. dollars and the majority of our expenses are also in U.S. dollars. However, a relatively small portion of our overall expenses, mainly executive compensation, is incurred in Euros. This could lead to fluctuations in net income due to changes in the value of the U.S. dollar relative to the other currencies, in particular the Euro. Expenses incurred in foreign currencies against which the U.S. dollar falls in value can thereby increase, decreasing our net income.
We are dependent on our relationship with Stealth Maritime Corporation S.A.
As of April 1, 2021, Stealth Maritime Corporation S.A. (“Stealth Maritime”) served as commercial manager for all 50 operating vessels in our fleet, including our 8 JV vessels and technical manager for 37 of the 45 operating vessels in our fleet not deployed on bareboat charters, while subcontracting the technical management of 8 of the remaining vessels in our fleet not deployed on bareboat charters, 2 vessels to Brave Maritime, which is affiliated with Stealth Maritime, and 6 to an unaffiliated third party. We are accordingly dependent upon our fleet manager, Stealth Maritime, for:
 
   
the administration, chartering and operations supervision of our fleet;
 
   
our recognition and acceptance as owners of LPG, product and crude oil carriers, including our ability to attract charterers;
 
   
relations with charterers and charter brokers;
 
   
operational expertise; and
 
   
management experience.
The loss of Stealth Maritime’s services or its failure to perform its obligations to us properly for financial or other reasons could materially and adversely affect our business and the results of our operations. Although we may have rights against Stealth Maritime if it defaults on its obligations to us, you would have no recourse against Stealth Maritime. In addition, we might not be able to find a replacement manager on terms as favorable as those currently in place with Stealth Maritime. Further, we expect that we will need to seek approval from our lenders to change our manager. In addition, if Stealth Maritime or Brave Maritime suffers material damage to its reputation or relationships, including as a result of a spill or other environmental incident or an accident, or any violation or alleged violation of U.S., EU or other sanctions, involving ships managed by Stealth Maritime or Brave Maritime whether or not owned by us, it may harm the ability of us or our subsidiaries to successfully compete in our industry.
We depend on third party managers to manage part of our fleet.
Stealth Maritime subcontracts the management for some of our vessels to third parties, including technical support, crewing, operation, maintenance and repair. The loss of their services or their failure to perform their
 
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obligations could materially and adversely affect the results of our operations. Although we may have rights against these managers if they default on their obligations, you would have no recourse against these parties. In addition, we might not be able to find replacement technical managers on terms as favorable as those currently in place.
We may enter into certain significant transactions with companies affiliated with members of the Vafias family which may result in conflicts of interests.
In addition to our management contract with Stealth Maritime, a company controlled by members of the Vafias family other than our Chief Executive Officer, from time to time we may enter into other transactions with companies affiliated with members of the Vafias family such as the two charters we entered into in April 2012, the agreements for the acquisition of four newbuilding LPG carriers in September 2012 and the agreements for the acquisition of two newbuilding LPG carriers in June 2020. Stealth Maritime also contracts for the crewing of vessels in our fleet with Hellenic Manning Overseas Inc, formerly known as Navis Maritime Services Inc., which is 25% owned by an affiliate of Stealth Maritime. Such transactions could create conflicts of interest that could adversely affect our business or your interests as holders of our common stock, as well as our financial position, results of operations and our future prospects.
Our directors and officers may in the future hold direct or indirect interests in companies that compete with us.
Our directors and officers each have a history of involvement in the shipping industry and may in the future, directly or indirectly, hold investments in companies that compete with us. In that case, they may face conflicts between their own interests and their obligations to us.
Companies affiliated with us, including Stealth Maritime and Brave Maritime, may manage or acquire vessels that compete with our fleet.
It is possible that Stealth Maritime or companies affiliated with Stealth Maritime, including Brave Maritime, could, in the future, agree to manage vessels that compete directly with ours. As long as Stealth Maritime (or an entity with respect to which Harry N. Vafias is an executive officer, director or the principal shareholder) is our fleet manager or Harry Vafias is an executive officer or director of the Company, Stealth Maritime has granted us a right of first refusal to acquire any LPG carrier, which Stealth Maritime may acquire in the future. In addition, Stealth Maritime has agreed that it will not
charter-in
any LPG carrier without first offering the opportunity to
charter-in
such vessel to us. Our President and Chief Executive Officer, Harry N. Vafias, has granted us an equivalent right with respect to any entity that he is an executive officer, director or principal shareholder of, so long as he is an executive officer or a director of our company. Were we, however, to decline any such opportunity offered to us or if we do not have the resources or desire to accept any such opportunity, Stealth Maritime or the entity controlled by Mr. Vafias could retain and manage the vessel. This right of first refusal does not cover product carriers or crude oil tankers. In addition, these restrictions, including the right of first refusal, do not apply to Brave Maritime. Furthermore, this right of first refusal does not prohibit Stealth Maritime from managing vessels owned by unaffiliated third parties in competition with us. In such cases, they could compete with our fleet and may face conflicts between their own interests and their obligations to us. In the future, we may also consider further diversifying into wet, dry or other gas shipping sectors, which, like product carriers and crude oil tankers, are not covered by this right of first refusal agreement. Any such vessels would be in competition with Stealth Maritime and companies affiliated with Stealth Maritime. Stealth Maritime might be faced with conflicts of interest with respect to their own interests and their obligations to us that could adversely affect our business and your interests as stockholders.
 
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As our fleet has grown in size, we have needed to improve our operations and financial systems, staff and crew; if we cannot maintain these systems or continue to recruit suitable employees, our business and results of operations may be adversely affected.
We have significantly expanded our fleet since our initial public offering in October 2005, and as a consequence of this, Stealth Maritime has invested considerable sums in upgrading its operating and financial systems, as well as hiring additional well-qualified personnel to manage the vessels now managed by Stealth Maritime. In addition, as we have expanded our fleet, we have had to rely on our technical managers to recruit suitable additional seafarers and ashore administrative and management personnel. Stealth Maritime and those technical managers may not be able to continue to hire suitable employees to the extent we continue to expand our fleet. Our vessels, in particular our LPG carriers, require a technically skilled staff with specialized training. If the technical managers’ crewing agents are unable to employ such technically skilled staff, they may not be able to adequately staff our vessels. If Stealth Maritime is unable to operate our financial and operations systems effectively, or our technical managers are unable to recruit suitable employees as we expand our fleet, our results of operation and our ability to expand our fleet may be adversely affected.
Delays in the delivery of any newbuilding or secondhand LPG carriers we agree to acquire could harm our operating results.
Delays in the delivery of any
new-building
or second-hand vessels we may agree to acquire in the future, would delay our receipt of revenues generated by these vessels and, to the extent we have arranged charter employment for these vessels, could possibly result in the cancellation of those charters, and therefore adversely affect our anticipated results of operations. Although this would delay our funding requirements for the installment payments to purchase these vessels, it would also delay our receipt of revenues under any charters we arrange for such vessels. The delivery of newbuilding vessels could be delayed, other than at our request, because of, among other things, work stoppages or other labor disturbances; bankruptcy or other financial crisis of the shipyard building the vessel; hostilities, health pandemics such as
COVID-19
or political or economic disturbances in the countries where the vessels are being built, including any escalation of tensions involving North Korea; weather interference or catastrophic event, such as a major earthquake, tsunami or fire; our requests for changes to the original vessel specifications; requests from our customers, with whom we have arranged any charters for such vessels, to delay construction and delivery of such vessels due to weak economic conditions and shipping demand and a dispute with the shipyard building the vessel.
In addition, the refund guarantors under the newbuilding contracts, which are banks, financial institutions and other credit agencies, may also be affected by financial market conditions in the same manner as our lenders and, as a result, may be unable or unwilling to meet their obligations under their refund guarantees. If the shipbuilders or refund guarantors are unable or unwilling to meet their obligations to the sellers of the vessels, this may impact our acquisition of vessels and may materially and adversely affect our operations and our obligations under our credit facilities. The delivery of any secondhand vessels could be delayed because of, among other things, hostilities or political disturbances,
non-performance
of the purchase agreement with respect to the vessels by the seller, our inability to obtain requisite permits, approvals or financing or damage to or destruction of the vessels while being operated by the seller prior to the delivery date.
If we fail to manage our growth properly, we may not be able to successfully expand our market share.
As and when market conditions permit, we intend to continue to prudently grow our fleet over the long term. The acquisition of such additional vessels could impose significant additional responsibilities on our management and staff, and may necessitate that we, and they, increase the number of personnel. In the future, we may not be able to identify suitable vessels, acquire vessels on advantageous terms or obtain financing for such acquisitions. Any future growth will depend on:
 
   
locating and acquiring suitable vessels;
 
   
identifying and completing acquisitions or joint ventures;
 
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integrating any acquired business successfully with our existing operations;
 
   
expanding our customer base; and
 
   
obtaining required financing.
Growing a business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel, managing relationships with customers and our commercial and technical managers and integrating newly acquired vessels into existing infrastructures. We may not be successful in executing any growth initiatives and may incur significant expenses and losses in connection therewith.
We may decide to sell certain of the vessels in our fleet if in our view market conditions are favorable for such sales or sell our LPG carriers in our fleet that are subject to purchase options held by the charterers of the respective vessels, which, if exercised, could reduce the size of our LPG carrier fleet and reduce our future revenues.
Since our initial public offering through to December 31, 2020 we have sold 40 LPG carriers, including 4 LPG carriers of which 49.9% equity interest was sold to a JV arrangement. We may decide to sell more vessels from our fleet if, in our view, the market conditions are favorable for such sales. The chartering arrangements with respect to four LPG carriers of our fleet include options for the respective charterers to purchase the vessels at stipulated prices at any time during the term of the existing charter for the respective vessels which are due to end in 2022. The option exercise prices with respect to these vessels decline over time and reflect an estimate, made at the time of entry into the applicable charter in the first quarter of 2014, of market prices. This might result in our company realizing losses or gains depending on the time each vessel option is exercised. If the charterers were to exercise these options with respect to any or all of these vessels or if we sell additional vessels, the expected size of our LPG carrier fleet would be reduced and, if there were a scarcity of secondhand LPG carriers available for acquisition at such time and because of the delay in delivery associated with commissioning newbuilding LPG carriers, we could be unable to replace these vessels with other comparable vessels, or any other vessels, quickly or, if LPG carrier values were higher than currently anticipated at the time we were required to sell these vessels, at a cost equal to the purchase price paid by the charterer. Consequently, if we sell additional vessels or if these purchase options were to be exercised, the expected size of our LPG carrier fleet would be reduced, and as a result our anticipated level of revenues would be reduced.
In addition, the operation of our two JV agreements present certain operational risks. Pursuant to one JV arrangement we sold a 49.9% equity interest in four JV vessels in the first quarter of 2019, and we acquired pursuant to the same JV arrangement a 50.1% equity interest in a 38,000 cbm LPG carrier in the second quarter of 2019. In addition, we further acquired, through a separate joint venture, a 51% equity interest in three 35,000 cbm LPG carriers in the first quarter of 2020. These acquisitions and vessel operations under a JV structure may increase certain administrative burdens, delay decision-making, and make it more difficult to obtain debt financing or complicate the operation of the vessels acquired under the joint venture agreements. For example, the joint venture agreements require that certain decisions regarding chartering or sale of the JV vessels be made jointly by us and the applicable JV investor. Accordingly, if the respective JV investors were to fail to cooperate with us with respect to these matters, such JV vessels may have to be sold or fixed on a period charter at an inopportune time, which could adversely affect our results of operations.
We may be unable to attract and retain key management personnel and other employees in the shipping industry, which may negatively affect the effectiveness of our management and our results of operation.
Our success depends to a significant extent upon the abilities and efforts of our management team, including our Chief Executive Officer, Harry Vafias. In addition, Harry Vafias is a member of the Vafias family, which controls Stealth Maritime, our fleet manager. Our success will depend upon our and Stealth Maritime’s ability to hire and retain qualified managers to oversee our operations. The loss of any of these individuals could adversely
 
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affect our business prospects and financial condition. Difficulty in hiring and retaining personnel could adversely affect our results of operations. We do not have employment agreements directly with our key personnel who are technically employees of Stealth Maritime, our fleet manager, although under our management agreement with Stealth Maritime, our relationship is governed by terms substantially similar to those typically included in employment agreements. We do not maintain “key man” life insurance on any of our officers.
In the highly competitive international LPG carrier, product carrier and crude oil tanker markets, we may not be able to compete for charters with new entrants or established companies with greater resources.
We deploy our vessels in highly competitive markets that are capital intensive. Competition arises primarily from other vessel owners, some of which have greater resources than we do. Competition for the transportation of LPG, refined petroleum products and crude oil can be intense and depends on price, location, size, age, condition and the acceptability of the vessel and its managers to the charterers. Competitors with greater resources could enter and operate larger LPG carrier fleets through consolidations or acquisitions, and many larger fleets that compete with us in each of these sectors may be able to offer more competitive prices and fleets.
We have three medium range product carriers and one Aframax crude oil tanker; however, we principally operate LPG carriers and our lack of a diversified business could adversely affect us.
Unlike many other shipping companies, which may carry dry bulk, crude oil, oil products or products or goods shipped in containers, we currently depend primarily on the transport of LPG. The vast majority of our revenue has been and is expected to be derived from this single source—the seaborne transport of LPG. Due to our lack of a more diversified business model, adverse developments in the seaborne transport of LPG and the market for LPG products have a significantly greater impact on our financial conditions and results of operations than if we maintained more diverse assets or lines of business.
Purchasing and operating previously owned, or secondhand, vessels may result in increased operating costs and vessels
off-hire,
which could adversely affect our revenues.
Our examination of secondhand vessels, which may not include physical inspection prior to purchase, does not provide us with the same knowledge about their condition and cost of any required (or anticipated) repairs that we would have had if these vessels had been built for and operated exclusively by us. Generally, we do not receive the benefit of warranties on secondhand vessels.
In general, the cost of maintaining a vessel in good operating condition increases with its age. As of April 1, 2021, the average age of the vessels in our fleet, including the JV vessels, was approximately 9.3 years. Older vessels are typically less fuel efficient and more costly to maintain and operate than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.
Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to our vessels and may restrict the type of activities in which the vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives. If we sell vessels, the sales prices may not equal and could be less than their carrying values at that time.
The shipping industry has inherent operational risks that may not be adequately covered by our insurance.
We procure hull and machinery insurance, protection and indemnity insurance, which include environmental damage and pollution insurance coverage, and war risk insurance for our fleet. While we endeavor to be adequately insured against all known risks related to the operation of our ships, there remains the possibility that a liability may not be adequately covered and we may not be able to obtain adequate insurance coverage for
 
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our fleet in the future. The insurers may also not pay particular claims. Even if our insurance coverage is adequate, we may not be able to timely obtain a replacement vessel in the event of a loss. Our insurance policies contain deductibles for which we will be responsible and limitations and exclusions which may increase our costs or lower our revenue. In addition, if one of our ships, or other ships managed by Stealth Maritime or Brave Maritime and owned by an affiliated entity of Stealth Maritime or Brave Maritime, were to incur significant costs from an accident, spill or other environmental liability, our insurance premiums and costs could increase significantly.
Our major stockholder exerts considerable influence on the outcome of matters on which our stockholders are entitled to vote and his interests may be different from yours.
Our major stockholder, our Chief Executive Officer, together with a company he controls, owns approximately 20.5% of our outstanding common stock as of April 1, 2021 and exerts considerable influence on the outcome of matters on which our stockholders are entitled to vote, including the election of our Board of Directors and other significant corporate actions. The interests of this stockholder may be different from yours.
Risks Related to Taxation
We may have to pay tax on United States-source income, which would reduce our earnings.
Under the United States Internal Revenue Code of 1986, as amended, or the Code, 50% of the gross shipping income of vessel owning or chartering corporations, such as our subsidiaries, that is attributable to transportation that begins or ends, but does not both begin and end, in the United States is characterized as United States-source shipping income. United States-source shipping income is subject to either a (i) 4% United States federal income tax without allowance for deductions or (ii) taxation at the standard United States federal income tax rates (and potentially to a 30% branch profits tax), unless derived by a corporation that qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.
Generally, we and our subsidiaries will qualify for this exemption for a taxable year if our shares are treated as “primarily and regularly traded” on an established securities market in the United States. Our shares of common stock will be so treated if (i) the aggregate number of our shares of common stock traded during such year on an established securities market in the United States exceeds the aggregate number of our shares of common stock traded during that year on established securities markets in any other single country, (ii) either (x) our shares of common stock are regularly quoted during such year by dealers making a market in our shares or (y) trades in our shares of common stock are effected, other than in de minimis quantities, on an established securities market in the United States on at least 60 days during such taxable year and the aggregate number of our shares of common stock traded on an established securities market in the United States during such year equals at least 10% of the average number of our shares of common stock outstanding during such taxable year and (iii) our shares of common stock are not “closely held” during such taxable year. For these purposes, our shares of common stock will be treated as closely held during a taxable year if, for more than
one-half
the number of days in such taxable year, one or more persons each of whom owns either directly or under applicable attribution rules, at least 5% of our shares of common stock, own, in the aggregate, 50% or more of our shares of common stock, unless we can establish, in accordance with applicable documentation requirements, that a sufficient number of the shares of common stock in the closely-held block are owned, directly or indirectly, by persons that are residents of foreign jurisdictions that provide United States shipping companies with an exemption from tax that is equivalent to that provided by Section 883 to preclude other stockholders in the closely-held block from owning 50% or more of the closely-held block of shares of common stock.
We believe that it is currently the case, and may also be the case in the future, that, one or more persons each of whom owns, either directly or under applicable attribution rules, at least 5% of our shares of common stock own, in the aggregate, 50% or more of our shares of common stock. In such circumstances, we and our
 
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subsidiaries may qualify for the exemption provided in Section 883 of the Code only if a sufficient number of shares of the closely-held block of our shares of common stock were owned or treated as owned by “qualified stockholders” so it could not be the case that, for more than half of the days in the taxable year, the shares of common stock in the closely-held block not owned or treated as owned by qualified stockholders represented 50% or more of our shares of common stock. For these purposes, a “qualified stockholder” includes an individual that owns or is treated as owning shares of our common stock and is a resident of a jurisdiction that provides an exemption that is equivalent to that provided by Section 883 of the Code and certain other persons; provided in each case that such individual or other person complies with certain documentation and certification requirements set forth in the Section 883 regulations and designed to establish status as a qualified stockholder.
Our Chief Executive Officer, who beneficially owned approximately 20.5% of our outstanding shares of common stock as of April 1, 2021, has entered into an agreement with us regarding his compliance, and the compliance by certain entities that he controls and through which he owns our shares, with the certification procedures designed to establish status as a qualified stockholder. In certain circumstances, his compliance and the compliance of such entities he controls with the terms of that agreement may enable us and our subsidiaries to qualify for the benefits of Section 883 even where persons (each of whom owns, either directly or under applicable attribution rules, 5% or more of our shares) own, in the aggregate, more than 50% of our outstanding shares. However, his compliance and the compliance of such entities he controls with the terms of that agreement may not enable us or our subsidiaries to qualify for the benefits of Section 883. We or any of our subsidiaries may not qualify for the benefits of Section 883 for any year.
If we or our subsidiaries do not qualify for the exemption under Section 883 of the Code for any taxable year, then we or our subsidiaries would be subject for those years to the 4% United States federal income tax on gross United States shipping income or, in certain circumstances, to net income taxation at the standard United States federal income tax rates (and potentially also to a 30% branch profits tax). The imposition of such tax could have a negative effect on our business and would result in decreased earnings and cash flow.
We could become a “passive foreign investment company,” which would have adverse United States federal income tax consequences to United States holders and, in turn, us.
A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income” and working capital and similar assets held pending investment in vessels will generally be treated as an asset which produces passive income. United States stockholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
In connection with determining our PFIC status we treat and intend to continue to treat the gross income that we derive or are deemed to derive from our time chartering and voyage chartering activities as services income, rather than rental income. We believe that our income from time chartering and voyage chartering activities does not constitute “passive income” and that the assets that we own and operate in connection with the production of that income do not constitute assets held for the production of passive income. We treat and intend to continue to treat, for purposes of the PFIC rules, the income that we derive from bareboat charters as passive income and the assets giving rise to such income as assets held for the production of passive income. There is, however, no legal authority specifically under the PFIC rules regarding our current and proposed method of operation and it is possible that the Internal Revenue Service, or IRS, may not accept our positions and that a court may uphold such
 
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challenge, in which case we and certain of our subsidiaries could be treated as PFICs. In this regard we note that a federal court decision addressing the characterization of time charters concludes that they constitute leases for federal income tax purposes and employs an analysis which, if applied to our time charters, could result in our treatment and the treatment of our vessel-owning subsidiaries as PFICs. In addition, in making the determination as to whether we are a PFIC, we intend to treat the deposits that we make on our newbuilding contracts and that are with respect to vessels we do not expect to bareboat charter as assets which are not held for the production of passive income for purposes of determining whether we are a PFIC. We note that there is no direct authority on this point and it is possible that the IRS may disagree with our position.
We do not believe that we were a PFIC for 2020. This belief is based in part upon our beliefs regarding the value of the assets that we hold for the production of or in connection with the production of passive income relative to the value of our other assets. Should these beliefs turn out to be incorrect, then we and certain of our subsidiaries could be treated as PFICs for 2020. There can be no assurance that the U.S. Internal Revenue Service (“IRS”) or a court will not determine values for our assets that would cause us to be treated as a PFIC for 2020 or a subsequent year.
In addition, although we do not believe that we were a PFIC for 2020, we may choose to operate our business in the current or in future taxable years in a manner that could cause us to become a PFIC for those years. Because our status as a PFIC for any taxable year will not be determinable until after the end of the taxable year, and depends upon our assets, income and operations in that taxable year, there can be no assurance that we will not be considered a PFIC for 2021 or any future taxable year.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States stockholders would face adverse United States tax consequences. Under the PFIC rules, unless those stockholders make an election available under the Code (which election could itself have adverse consequences for such stockholders, as discussed below under “Item 10 Additional Information—E. Tax Considerations—United States Federal Income Taxation of United States Holders”), such stockholders would be liable to pay United States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our shares of common stock, as if the excess distribution or gain had been recognized ratably over the stockholder’s holding period of our shares of common stock. See “Item 10. Additional Information—E. Tax Considerations—United States Federal Income Tax Consequences—United States Federal Income Taxation of United States Holders” for a more comprehensive discussion of the United States federal income tax consequences to United States stockholders if we are treated as a PFIC. As a result of these adverse tax consequences to United States stockholders, such a finding by the IRS may result in sales of our common stock by United States stockholders, which could lower the price of our common stock and adversely affect our ability to raise capital.
Risk Related to an Investment in a Marshall Islands Corporation
As a foreign private issuer we are entitled to claim an exemption from certain Nasdaq corporate governance standards, and if we elected to rely on this exemption, you may not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.
As a foreign private issuer, we are entitled to claim an exemption from many of Nasdaq’s corporate governance practices. Currently, our corporate governance practices comply with the Nasdaq corporate governance standards applicable to U.S. listed companies other than that, while Nasdaq requires listed companies to obtain prior shareholder approval for certain issuances of authorized stock in transactions not involving a public offering, as permitted under Marshall Islands law and our articles of incorporation and bylaws, we do not need prior shareholder approval to issue shares of authorized stock. To the extent we rely on this or other exemptions you may not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.
 
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We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law or a bankruptcy act.
Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the law of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Stockholder rights may differ as well. While the BCA does specifically incorporate the
non-statutory
law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public stockholders may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling stockholders than would stockholders of a corporation incorporated in a U.S. jurisdiction. The Marshall Islands has no established bankruptcy act, and as a result, any bankruptcy action involving our company would have to be initiated outside the Marshall Islands, and our public stockholders may find it difficult or impossible to pursue their claims in such other jurisdictions.
It may be difficult to enforce service of process and judgments against us and our officers and directors.
We are a Marshall Islands company, and our executive offices are located outside of the United States. All of our directors and officers reside outside of the United States, and most of our assets and their assets are located outside the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in the U.S. courts against us or these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. There is also substantial doubt that the courts of the Marshall Islands would enter judgments in original actions brought in those courts predicated on U.S., federal or state securities laws.
Risks Related To Our Common Stock
The market price of our common stock has fluctuated and may continue to fluctuate in the future.
The market price of our common stock has fluctuated widely since our initial public offering in October 2005 and may continue to do so as a result of many factors, including our actual results of operations and perceived prospects, the prospects of our competition and of the shipping industry in general and in particular the LPG carrier sector, differences between our actual financial and operating results and those expected by investors and analysts, changes in analysts’ recommendations or projections, changes in general valuations for companies in the shipping industry, particularly the LPG carrier sector, changes in general economic or market conditions and broad market fluctuations.
If the market price of our common stock remains below $5.00 per share, under stock exchange rules, our stockholders will not be able to use such shares as collateral for borrowing in margin accounts. This inability to use shares of our common stock as collateral may depress demand and certain institutional investors are restricted from investing in or holding shares priced below $5.00, which could lead to sales of such shares creating further downward pressure on and increased volatility in the market price of our common stock.
We may not pay dividends on our common stock.
We have not paid a dividend since the first quarter of 2009, when our Board of Directors decided to suspend dividend payments in light of the volatile global economic situation and conditions in the LPG shipping market. Our board of directors will evaluate our dividend policy consistent with our cash flows and liquidity requirements. In addition, other external factors, such as our existing loan agreements, future financing
 
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arrangements and capital expenditures, as well as Marshall Islands law, may also restrict or prohibit our declaration and payment of dividends under some circumstances. For instance, we are not permitted to declare or pay cash dividends, or repurchase shares, in any twelve-month period that exceed 50% of our free cash flow in the preceding twelve-month period. Due to these constraints on dividend payments we may not be able to pay regular quarterly dividends in the future. See “Item 5. Operating and Financial Review and Prospects—Credit Facilities—Financial Covenants.”
The declaration and payment of dividends will be subject at all times to the discretion of our Board of Directors. The timing and amount of future dividends will depend on the state of the LPG carrier and tanker markets, our earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in our loan agreements or other financing arrangements, the provisions of Marshall Islands law affecting the payment of dividends and other factors. Marshall Islands law generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent upon the payment of such dividends.
Anti-takeover provisions in our organizational documents and other agreements could make it difficult for our stockholders to replace or remove our current Board of Directors or have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our common stock.
Several provisions of our amended and restated articles of incorporation and bylaws could make it difficult for our stockholders to change the composition of our Board of Directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable.
These provisions include:
 
   
authorizing our Board of Directors to issue “blank check” preferred stock without stockholder approval;
 
   
providing for a classified Board of Directors with staggered three-year terms;
 
   
prohibiting cumulative voting in the election of directors;
 
   
authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of 80% of the outstanding shares of our common stock entitled to vote for the directors;
 
   
limiting the persons who may call special meetings of stockholders;
 
   
establishing advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted on by stockholders at stockholder meetings; and
 
   
prohibiting certain transactions with interested stockholders.
Our current loan agreements also require that our Chief Executive Officer, Harry Vafias, together with his immediate family, at all times own at least 10% of our outstanding capital stock and certain of our loan agreements provide that it would be an event of default if Harry Vafias ceased to serve as an executive officer or director of our company, Harry Vafias together with his immediate family, ceased to control our company or any other person or group controlled 25% or more of the voting power of our outstanding capital stock. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control and, as a result, may adversely affect the market price of our common stock and your ability to realize any potential change of control premium.
 
Item 4.
Information on the Company
A. History and Development of the Company
StealthGas Inc. was incorporated in December 2004 in the Republic of the Marshall Islands. Our registered address in the Marshall Islands is Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall
 
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Islands MH96960. The name of our registered agent at such address is The Trust Company of the Marshall Islands, Inc. Our principal executive offices are located at 331 Kifissias Avenue, Erithrea 14561 Athens, Greece. Our telephone number for calls originating from the United States is
(011) (30) (210) 625-0001.
In October 2005, we completed an initial public offering of our common stock in the United States and our common stock began trading on the Nasdaq National Market and now trades on the Nasdaq Global Select Market under the symbol “GASS”.
Prior to the initial public offering, we owned nine LPG carriers. Since the initial public offering and as of December 31, 2020, we acquired an additional 71 LPG carriers, including 3 MGC LPG carriers of which we acquired a 51% equity interest through one of our JV arrangements in 2020, three product carriers and one Aframax crude oil tanker and we concluded with the sale of 40 LPG carriers, including 4 LPG carriers of which a 49.9% equity interest was sold to the JV arrangement in 2019. As of December 31, 2020, we had a fleet of 45 LPG carriers, including eight JV vessels, three product carriers, and one Aframax crude oil tanker, and had contracted to acquire one 11,000 cbm LPG carrier newbuilding under construction, which was delivered in February 2021. As of April 1, 2021, our fleet is composed of 46 LPG carriers, including eight JV vessels which aggregate 165,121 cbm, with a total capacity of approximately 436,692
cbm, three medium range product carriers with a total capacity of 140,000 dwt and one 115,804 dwt Aframax tanker.
Our company operates through a number of subsidiaries which either directly or indirectly own or charter in the vessels in our fleet. A list of our subsidiaries, including their respective jurisdiction of incorporation, as of April 1, 2021, all of which are wholly-owned by us other than as indicated therein, is set forth in Exhibit 8 to this Annual Report on Form
20-F.
B. Business Overview
We own a fleet of LPG carriers providing international seaborne transportation services to LPG producers and users, as well as crude oil and product carriers chartered to oil producers, refiners and commodities traders. Our LPG carriers carry various petroleum gas products in liquefied form, including propane, butane, butadiene, isopropane, propylene and vinyl chloride monomer, which are all byproducts of the production of crude oil and natural gas. The three medium range product carriers in our fleet are capable of carrying refined petroleum products such as gasoline, diesel, fuel oil and jet fuel, as well as edible oils and chemicals, while our Aframax tanker is used for carrying crude oil. We believe that we have established a reputation as a safe, cost-efficient operator of modern and well-maintained LPG carriers. We also believe that these attributes, together with our strategic focus on meeting our customers’ chartering needs, has contributed to our ability to attract leading charterers as our customers and to our success in obtaining charter renewals. On occasions we
charter-in
vessels to supplement our own fleet and employ them both on time charters and voyage charters. We are managed by Stealth Maritime, a privately owned company controlled by other members of the Vafias family, of which our Chief Executive Officer is a member.
As of April 1, 2021, our fleet consisted of 46
LPG carriers, including eight JV vessels, with an average age of
9.0 years, two 2008-built product carriers, one 2009-built product carrier and one 2010-built Aframax crude oil tanker.
The table below describes our fleet and its deployment as of April 1, 2021.
Owned LPG Carriers (38 Vessels)
 
Name
  
Year
Built
  
Vessel Size
(cbm)
  
Vessel
Type
  
Employment Status
  
Expiration of
Charter(1)
Eco Arctic
   2018    22,363   
semi-refrigerated
   Time Charter    September 2021
Eco Ice
   2018    22,358    semi-refrigerated    Time Charter    February 2022
 
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Name
  
Year
Built
  
Vessel Size
(cbm)
  
Vessel
Type
  
Employment Status
  
Expiration of
Charter(1)
Eco Freeze
   2018    22,353   
semi-refrigerated
   Time Charter    October 2021
Eco Frost
   2017    22,359    semi-refrigerated    Time Charter    February 2022
Eco Blizzard
   2021    11,013    fully-pressurized    Time Charter    May 2021
Eco Alice
   2020    7,543    fully-pressurized    Spot   
Eco Nical
   2016    7,541    fully-pressurized    Time Charter    June 2021
Gas Husky
   2012    7,516    fully-pressurized    Time Charter    August 2021
Gas Esco
   2012    7,514    fully-pressurized    Time Charter    June 2021
Eco Dominator
   2016    7,221    fully-pressurized    Time Charter    June 2021
Eco Galaxy
   2015    7,213    fully-pressurized    Spot   
Eco Chios(4)
   2014    7,211    fully-pressurized    Bareboat Charter    May 2022
Eco Stream(4)
   2014    7,210    fully-pressurized    Bareboat Charter    March 2022
Gas Flawless
   2007    6,337    fully-pressurized    Time Charter    June
2021
Gas Prodigy
   2003    5,031    fully-pressurized    Spot   
Eco Enigma
   2015    5,025    fully-pressurized    Time Charter    January 2022
Eco Universe(6)
   2015    5,025    fully-pressurized    Time Charter    February 2022
Eco Czar
   2015    5,020    fully-pressurized    Time Charter    April 2021
Eco Nemesis(6)
   2015    5,019    fully-pressurized    Time Charter    March 2022
Gas Monarch
   1997    5,018    fully-pressurized    Spot   
Gas Elixir
   2011    5,018    fully-pressurized    Spot   
Gas Cerberus
   2011    5,018    fully-pressurized    Spot   
Gas Myth(6)
   2011    5,018    fully-pressurized    Time Charter    January 2023
Gas Inspiration
   2006    5,018    fully-pressurized    Spot   
Eco Invictus(6)
   2014    5,016    fully-pressurized    Time Charter    November 2021
Eco Texiana
   2020    5,030    fully-pressurized    Time Charter    June 2021
Eco Green
   2015    4,991    fully-pressurized    Spot   
Eco Dream
   2015    4,989    fully-pressurized    Spot   
Gas Spirit
   2001    4,112    fully-pressurized    Time Charter    November 2021
Eco Loyalty(7)
   2015    3,529    fully-pressurized    Time Charter    February 2022
Eco Elysium(5)
   2014    3,526    fully-pressurized    Time Charter    June 2024
Eco Royalty(7)
   2015    3,525    fully-pressurized    Time Charter    February 2022
Eco Corsair
   2014    3,524    fully-pressurized    Time Charter    February 2022
Gas Imperiale
   2008    3,515    fully-pressurized    Spot   
Gas Astrid(4)
   2009    3,514    fully-pressurized    Bareboat Charter    March 2022
Gas Exelero(4)
   2009    3,513    fully-pressurized    Bareboat Charter    June 2022
Gas Alice
   2006    3,513    fully-pressurized    Time Charter    August 2021
Gas Galaxy
   1997    3,312    fully-pressurized    Time Charter    September 2022
     
271,571 cbm
        
JV LPG Vessels (8 vessels)
              
Eco Nebula(2)
   2007    38,898   
fully-refrigerated
   Time Charter    June 2021
Gaschem Bremen(3)
   2010    35,232    fully-refrigerated    Time Charter    August 2021
Eco Evoluzione (ex. Gaschem Stade)(3)
   2010    35,214    fully-refrigerated    Time Charter    August 2021
Gaschem Hamburg(3),(8)
   2010    35,204    fully-refrigerated    Time Charter    April 2021
Gas Haralambos(2)
   2007    7,020    fully-pressurized    Spot   
Gas Defiance(2)
   2008    5,018    fully-pressurized    Spot   
Gas Shuriken(2)
   2008    5,018    fully-pressurized    Time Charter    May 2021
Eco Lucidity(2)
   2015    3,517    fully-pressurized    Time Charter    April 2021
     
165,121 cbm
        
Total LPG Carrier Fleet:   46 vessels
     
436,692 cbm
        
 
(1)
Earliest date charters could expire.
 
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(2)
JV vessel owned by a joint venture established in 2019 in which we own a 50.1% equity interest.
(3)
JV vessel owned by a joint venture established in 2020 in which we own a 51% equity interest.
(4)
Subject to a purchase option pursuant to which the charterer may purchase such vessel at any time during the charter at a price that declines over time by an agreed annual amount or
pro-rated
from the agreed value of the vessel at the time of entering into the charter in the first quarter of 2014.
(5)
Charterer has option to extend charter for an additional three-year period.
(6)
Charterer has option to extend charter for an additional year.
(7)
Charterer has two options to extend, each, of
one-year
duration.
(8)
In March 2021, we entered into a memorandum of agreement to sell this vessel for further trading.
Product Carriers/Crude Oil Tanker (4 Vessels)
 
Name
  
Year
Built
  
Vessel Size
(dwt)
  
Vessel
Type
  
Employment
Status
    
Expiration of
Charter(1)
 
Magic Wand (ex. Navig8 Fidelity)
   2008    47,000    MR product carrier      Time Charter        March 2022  
Clean Thrasher
   2008    47,000    MR product carrier      Time Charter        August 2021  
Falcon Maryam (ex.Stealth Bahla)
   2009    46,000    MR product carrier      Bareboat Charter        September 2021  
Stealth Berana (ex. Spike)
   2010    115,804    Aframax oil tanker      Time Charter        September 2021  
     
255,804 dwt
        
 
(1)
Earliest date charters could expire.
In 2019, we sold a 49.9% equity interest in the subsidiaries owning four of our vessels, the
Gas
Haralambos
, the
Gas Defiance
, the
Gas Shuriken
and the
Eco Lucidity
, to a leading maritime-focused investor, and acquired a 2007-built, 38,000 cbm LPG carrier, the
Eco Nebula
with this same investor, in which we also have a 50.1% equity interest. We and the investor each have certain rights to purchase or bid for the purchase of vessels subject to this arrangement in the event of their proposed sale. In the first quarter of 2020, we acquired three 2010-built Medium Gas Carriers, the
Gaschem Bremen
, the
Eco Evoluzione (ex. Gaschem Stade)
and the
Gaschem Hamburg
, of an aggregate capacity of 105,650 cbm pursuant to a separate joint venture arrangement with an unaffiliated third party, in which we have a 51% equity interest. These joint venture vessels are managed by our manager, Stealth Maritime. As of April 1, 2021, two out of the three medium range gas carriers acquired in 2020 are also managed by a third party manager through the end of their current charters, at which time the management is expected to be fully performed by Stealth Maritime.
Commercial and Technical Management of Our Fleet
We have a management agreement with Stealth Maritime, pursuant to which Stealth Maritime provides us with technical, administrative, commercial and certain other services. Stealth Maritime is a leading ship-management company based in Greece, established in 1999 in order to provide shipping companies with a range of services. Our manager’s safety management system is ISM certified in compliance with IMO’s regulations by Lloyd’s Register. In relation to the technical services, Stealth Maritime is responsible for arranging for the crewing of the vessels, the day to day operations, inspections and vetting, maintenance, repairs,
dry-docking
and insurance. Administrative functions include, but are not limited to accounting, back-office, reporting, legal and secretarial services. In addition, Stealth Maritime provides services for the chartering of our vessels and monitoring thereof, freight collection, and sale and purchase. In providing most of these services, Stealth Maritime pays third parties and receives reimbursement from us. In addition, Stealth Maritime may subcontract technical management and crew management for some of our vessels to third parties, including Hellenic Manning Overseas Inc, formerly known as Navis Maritime Services Inc., in which an affiliate of Stealth Maritime has a 25% interest, and Jebsens Maritime Inc. – previously Selandia Crew Management Philippines Inc, both based in Manila, and Brave Maritime (an affiliate of Stealth Maritime) based in Greece. As of April 1, 2021, the technical management of two of our ships was subcontracted by Stealth Maritime to Brave Maritime.
 
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These crew and technical managers are supervised by Stealth Maritime. As of April 1, 2021, four of our wholly owned LPG vessels along with two of the three medium range gas carrier JV vessels acquired in the first quarter of 2020 under one of our JV arrangement were also managed by third party managers.
Under the November 2006 agreement, which was amended effective January 1, 2007, as approved by our Board of Directors, including all of our independent directors, we pay Stealth Maritime a fixed management fee of $440 per vessel operating under a voyage or time charter per day (except for four vessels for which a fixed daily fee of $280 is charged by Stealth Maritime as part of the services is currently provided by third party managers) on a monthly basis in advance,
pro-rated
for the calendar days we own the vessels. We pay a fixed fee of $125 per vessel per day for each of our vessels operating on bareboat charter. We are also obligated to pay Stealth Maritime a fee equal to 1.25% of the gross freight, demurrage and charter hire collected from the employment of our vessels. Stealth Maritime will also earn a fee equal to 1.0% of the contract price of any vessel bought or sold by them on our behalf. In addition, as long as Stealth Maritime (or an entity with respect to which Harry N. Vafias is an executive officer, director or the principal shareholder) is our fleet manager or Harry N. Vafias is an executive officer or director of the Company, Stealth Maritime has granted us a right of first refusal to acquire any LPG carrier which Stealth Maritime may acquire in the future. In addition, Stealth Maritime has agreed that it will not
charter-in
any LPG carrier without first offering the opportunity to
charter-in
such vessels to us. This right of first refusal does not prohibit Stealth Maritime from managing vessels owned by unaffiliated third parties in competition with us, nor does it cover product carriers or crude oil tankers.
The initial term of our management agreement with Stealth Maritime expired in June 2010; however, unless six months’ notice of
non-renewal
is given by either party prior to the end of the then current term, this agreement automatically extends for additional 12 month periods. No such notice has been given, and accordingly, this agreement will extend to June 2022.
For additional information about the management agreement, including the calculation of management fees, see “Item 7. Major Shareholders and Related Party Transactions” and our consolidated financial statements which are included as Item 18 to this Annual Report.
Crewing and Employees
Stealth Maritime ensures that all seamen have the qualifications and licenses required to comply with international regulations and shipping conventions, and that our vessels employ experienced and competent personnel. In 2020, Hellenic Manning Overseas Inc, formerly known as Navis Maritime Services Inc., and Jebsens Maritime Inc.—previously Selandia Crew Management Philippines Inc., which are both based in Manila, were responsible for providing the crewing of our fleet, under Stealth Maritime’s technical management (excluding our aframax tanker for which crew management is provided by another crew manager), to the extent that these vessels were not deployed on bareboat charters. These responsibilities include training, compensation, transportation and additional insurance of the crew.
Chartering of the Fleet
We, through Stealth Maritime, manage the employment of our fleet. We deploy our LPG carriers and tankers on period charters, including time and bareboat charters that can last up to several years, and spot market charters (through voyage charters and short-term time charters), which generally last from one to six months, subject to market conditions. Time and bareboat charters are for a fixed period of time. A voyage charter is generally a contract to carry a specific cargo from a loading port to a discharging port for an agreed-upon total charge. Under voyage charters we pay for voyage expenses such as port, canal and fuel costs. Under a time charter the charterer pays for voyage expenses while under a bareboat charter the charterer pays for voyage expenses and operating expenses such as crewing, supplies, maintenance and repairs including special survey and
dry-docking
costs.
 
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Vessels operating in the spot market generate revenues that are less predictable but may enable us to capture increased profit margins during periods of improvements in LPG charter rates, although we are then exposed to the risk of declining LPG carrier charter rates. Typically spot market charters can last from a few days up to two months. If we commit vessels to period charters, future spot market rates may be higher or lower than those rates at which we have period chartered our vessels.
In formulating our chartering strategy, we evaluate past, present and future performance of the freight markets and balance the mix of our chartering arrangements in order to achieve optimal results for the fleet. As of April 1, 2021 and including our eight JV vessels, we had 12 vessels operating in the spot market, 21 vessels on time charters expiring in 2021, 12 on time charters expiring from 2022 to 2024 and 5 on bareboat charters expiring from 2021 to 2022. In terms of charter coverage as of April 1, 2021, we had 52% of the available calendar days fixed under period charters for 2021, and 11% for 2022.
While a significant part our fleet is operating in the Far East, we deploy vessels globally. Some of the areas where we usually operate are the Middle East, the Mediterranean, North West Europe, Africa and Latin America. According to industry reports, the United States is currently expected to continue to increase its exports of LPG products. In the event this creates more demand for vessels like ours, we would expect to deploy more vessels in the United States and the Caribbean. As freight rates usually vary between these areas as well as voyage and operating expenses, we evaluate such parameters when positioning our vessels for new employment.
Customers
Our assessment of a charterer’s financial condition and reliability is an important factor in negotiating employment for our vessels. Principal charterers include producers of LPG products, such as national, major and other independent energy companies and energy traders, and industrial users of those products. For the year ended December 31, 2020, we had two customers accountable for more than 10% of our total revenues. In addition, vessels under bareboat charter may be
sub-chartered
to third parties.
Environmental and other Regulations
Government regulations significantly affect the ownership and operation of our vessels. They are subject to international conventions and national, state and local laws and regulations in force in the countries in which they may operate or are registered.
A variety of governmental and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (United States Coast Guard, harbor master or equivalent), classification societies, flag state administration (country of registry), charterers and particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and financial assurances for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations. However, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, any future requirements may limit our ability to do business, increase our operating costs, force the early retirement of one or more of our vessels, and/or affect their resale value, all of which could have a material adverse effect on our financial condition and results of operations.
 
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Environmental Regulations—International Maritime Organization (“IMO”)
The IMO, the United Nations agency for maritime safety and the prevention of pollution by ships, has negotiated international conventions relating to pollution by ships. In 1973, IMO adopted the MARPOL, which has been periodically updated with relevant amendments. MARPOL addresses pollution from ships by oil, noxious liquid substances carried in bulk, harmful substances carried by sea in packaged form, sewage, garbage, and air emissions. Our vessels are subject to standards imposed by the IMO.
In September 1997, the IMO adopted MARPOL Annex VI to address air pollution from ships. Effective in May 2005, Annex VI set limits on SOx and nitrogen oxide (“NOx”) emissions from ship exhausts and prohibited deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also included a global cap on the sulfur content of fuel oil and allowed for special areas to be established with more stringent controls on emissions. Options for complying with the requirements of Annex VI include use of low sulfur fuels, modifications to vessel engines, or the addition of post combustion emission controls. Annex VI has been ratified by some, but not all IMO member states. Vessels that are subject to Annex VI must obtain an International Air Pollution Prevention Certificate evidencing compliance with Annex VI.
In October 2008, the IMO adopted amendments to Annex VI, and the United States ratified the Annex VI amendments in October 2008. Beginning in 2011 the amendments required a progressive reduction of sulfur levels in bunker fuels to be phased in by 2020 and imposed more stringent NOx emission standards on marine diesel engines, depending on their date of installation. Since January 1, 2020, the amended Annex VI required that fuel oil contain no more than 0.50% sulfur. It is up to individual parties to MARPOL to enforce fines and sanctions, and several major port state regimes have announced plans to do so. We may incur costs to comply with the amended Annex VI requirements.
We currently have no committed capital expenditure obligations for the installation of scrubbers.
More stringent emission standards apply in coastal areas designated by the IMO as SOx Emission Control Areas, or ECAs, such as the Baltic and North Seas, United States (including Hawaii) and Canadian (including the French territories of St. Pierre and Miquelon) coastal areas, and the United States Caribbean Sea (including Puerto Rico and the US Virgin Islands). Similar restrictions apply in Icelandic and inland Chinese waters. Specifically, as of January 1, 2019, China expanded the scope of its Domestic Emission Control Areas to include all coastal waters within 12 nautical miles of the mainland. Vessels operating within an ECA or an area with equivalent standards must use fuel with a sulfur content that does not exceed 0.10%. Additionally, two new NOx ECAs, the Baltic Sea and the North Sea, will be enforced for ships constructed (keel laying) on or after January 1, 2021, or existing ships which replace an engine with
“non-identical”
engines, or install an “additional” engine. Other ECAs may be designated, and the jurisdictions in which our vessels operate may adopt more stringent emission standards independent of IMO. We have obtained International Air Pollution Prevention Certificates for all of our vessels and believe they are compliant in all material respects with current Annex VI requirements.
Our LPG carriers must have an IMO Certificate of Fitness demonstrating compliance with construction codes for LPG carriers. These codes, and similar regulations in individual member states, address fire and explosion risks posed by the transport of liquefied gases. Collectively, these standards and regulations impose detailed requirements relating to the design and arrangement of cargo tanks, vents, and pipes; construction materials and compatibility; cargo pressure; and temperature control. All of our LPG carriers have Certificates of Fitness and we intend to obtain such certificates for the vessels that we have agreed to acquire.
Many countries have ratified and follow the liability plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969 (the “CLC”) (the United States, with its separate OPA regime described below, is not a party to the CLC). This convention generally applies to vessels that carry oil in bulk as cargo. Under this convention and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, the registered owner of a regulated vessel is strictly
 
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liable for pollution damage in the territorial waters or exclusive economic zone of a contracting state caused by the discharge of any oil from the ship, subject to certain defenses. Under an amendment to the 1992 Protocol that became effective on November 1, 2003, for vessels of 5,000 to 140,000 gross tons, liability per incident is limited to 4.51 million Special Drawing Rights (“SDR”) plus 631 SDR for each additional gross ton over 5,000. For a vessel over 140,000 gross tons, liability is limited to 89.77 million SDR. The SDR is an International Monetary Fund unit pegged to a basket of currencies. The right to limit liability under the CLC is forfeited where the spill is caused by the owner’s actual fault and, under the 1992 Protocol, where the spill is caused by the owner’s intentional or reckless conduct. Vessels trading in states that are parties to the CLC must provide evidence of insurance covering the liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law regimes govern, and liability is imposed either on the basis of fault or in a manner similar to that convention. We believe that our protection and indemnity insurance will cover any liability under the CLC.
In 2001, the IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention, which imposes strict liability on ship owners for pollution damage caused by discharges of bunker oil in jurisdictional waters of ratifying states. The Bunker Convention also requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended). Because the Bunker Convention does not apply to pollution damage governed by the CLC, it applies only to discharges from any of our vessels that are not transporting oil. The Bunker Convention entered into force on November 21, 2008. Liability limits under the Bunker Convention were increased as of June 2015. In jurisdictions where the Bunker Convention has not been adopted, such as the United States, liability for spill or releases of oil from ship’s bunkers typically is determined by national or other domestic laws in the jurisdiction where the events occur.
Our LPG vessels and product carriers may also become subject to the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea adopted in 1996 as amended by the Protocol to the HNS Convention, adopted in April 2010 (2010 HNS Protocol) (collectively, the “2010 HNS Convention”), if it enters into force. The Convention creates a regime of liability and compensation for damage from hazardous and noxious substances (or HNS), including liquefied gases. The 2010 HNS Convention sets up a
two-tier
system of compensation composed of compulsory insurance taken out by ship owners and an HNS Fund that will come into play when the insurance is insufficient to satisfy a claim or does not cover the incident. Under the 2010 HNS Convention, if damage is caused by bulk HNS, claims for compensation will first be sought from the ship owner up to a maximum of 100 million SDR. If the damage is caused by packaged HNS or by both bulk and packaged HNS, the maximum liability is 115 million SDR. Once the limit is reached, compensation will be paid from the HNS Fund up to a maximum of 250 million SDR. The 2010 HNS Convention has not been ratified by a sufficient number of countries to enter into force, and at this time we cannot estimate with any certainty the costs of compliance with its requirements should it enter into force.
The IMO adopted the BWM Convention in February 2004. The Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention took effect on September 8, 2017. Many of the implementation dates originally contained in the BWM Convention had already passed prior to its effectiveness, so that the period for installation of mandatory ballast water exchange requirements would be very short, with several thousand ships per year needing to install the systems. Consequently, the IMO Assembly passed a resolution in December 2013 revising the dates for implementation of the ballast water management requirements so that they are triggered by the entry into force date. In effect, this makes all vessels constructed before September 8, 2017 “existing” vessels, allowing for the installation of ballast water management systems on such vessels at the first renewal International Oil Pollution Prevention (“IOPP”) survey following entry into force of the BWM Convention. In July 2017, the implementation scheme was further changed to require vessels
 
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with IOPP certificates expiring between September 8, 2017 and September 8, 2019 to comply at their second IOPP renewal. All ships must have installed a ballast water treatment system by September 8, 2024. Each vessel in our current fleet has been issued or will be issued a ballast water management plan Statement of Compliance by the classification society with respect to the applicable IMO regulations and guidelines. The cost of compliance could increase for our vessels as a result of these requirements, although it is difficult to predict the overall impact of such a requirement on our operations.
The operation of our vessels is also affected by the requirements set forth in the ISM Code of the IMO. The ISM Code requires ship owners and bareboat charterers to develop and maintain an extensive SMS that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Vessel operators must obtain a “Safety Management Certificate” from the government of the vessel’s flag state to verify that it is being operated in compliance with its approved SMS. The failure of a ship owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, decrease available insurance coverage for the affected vessels and result in a denial of access to, or detention in, certain ports. Currently, each of the vessels in our fleet is ISM code-certified. However, there can be no assurance that such certification will be maintained indefinitely.
The operations of our product carriers are subject to compliance with the IMO’s International Code for the Construction and Equipment of Ships carrying Dangerous Chemicals in Bulk (“IBC Code”) for chemical tankers built after July 1, 1986. The IBC Code includes ship design, construction and equipment requirements and other standards for the bulk transport of certain liquid chemicals. Amendments to the IBC Code pertaining to revised international certificates of fitness for the carriage of dangerous goods entered into force in June 2014, and additional requirements regarding stability, tank purging, venting and inerting requirements entered into force in January 2016. Further amendments to the IBC Code entered into force on January 1, 2021 including revisions to carriage requirements for products. We may need to make certain expenditures to comply with these amendments.
Environmental Regulations—The United States Oil Pollution Act of 1990 (“OPA”) and the U.S. Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”)
The United States Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA applies to discharges of any oil from a vessel, including discharges of fuel oil (bunkers) and lubricants. OPA affects all owners and operators whose vessels trade in the United States, its territories and possessions or whose vessels operate in United States waters, which include the United States’ territorial sea and its two hundred nautical mile exclusive economic zone. The United States has also enacted the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of hazardous substances other than oil, whether on land or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Accordingly, both OPA and CERCLA impact our operations.
Under OPA, vessel owners, operators and bareboat charterers are “responsible parties” and are jointly, severally and strictly liable (unless the discharge of pollutants results solely from the act or omission of a third party, an act of God or an act of war) for all containment and
clean-up
costs and other damages arising from discharges or threatened discharges of pollutants from their vessels. OPA broadly defines these other damages to include:
 
   
natural resources damage and the costs of assessment thereof;
 
   
real and personal property damage;
 
   
net loss of taxes, royalties, rents, fees and other lost revenues;
 
   
lost profits or impairment of earning capacity due to property or natural resources damage; and
 
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net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.
The current limits of OPA liability for double-hulled tank vessels larger than 3,000 gross tons are the greater of $2,300 per gross ton or $19,943,400, subject to adjustment for inflation by the United States Coast Guard every three years. These limits of liability do not apply if an incident was directly caused by violation of applicable United States federal safety, construction or operating regulations or by a responsible party’s gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with oil removal activities.
OPA requires owners and operators of vessels over 300 gross tons to establish and maintain with the United States Coast Guard evidence of financial responsibility sufficient to meet their potential liabilities under the OPA. Under the United States Coast Guard regulations implementing OPA, vessel owners and operators may evidence their financial responsibility by showing proof of insurance, surety bond, self-insurance, or guaranty. Under the OPA regulations, an owner or operator of a fleet of vessels is required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the vessels in the fleet having the greatest maximum liability under OPA.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damage for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
We currently maintain, for each of our vessels, pollution liability coverage insurance in the amount of $1 billion per vessel per incident. In addition, we carry hull and machinery and protection and indemnity insurance to cover the risks of fire and explosion. Under certain circumstances, fire and explosion could result in a catastrophic loss. While we believe that our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates. If the damages from a catastrophic spill exceeded our insurance coverage, it would have a severe effect on us and could possibly result in our insolvency.
OPA and CERCLA both require owners and operators of vessels to establish and maintain with the United States Coast Guard evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject as discussed above. Under the self-insurance provisions, the ship owner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the United States Coast Guard regulations by providing a financial guaranty evidencing sufficient self-insurance.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills. In some cases, states, which have enacted such legislation, have not yet issued implementing regulations defining vessels owners’ responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our vessels call.
 
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Environmental Regulations—Other Environmental Initiatives
The EU has adopted legislation that: (1) requires member states to refuse access to their ports to certain
sub-standard
vessels, according to vessel type, flag and number of previous detentions; (2) creates an obligation on member states to inspect at least 25% of vessels using their ports annually and provides for increased surveillance of vessels posing a high risk to maritime safety or the marine environment; (3) provides the EU with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies; and (4) requires member states to impose criminal sanctions for certain pollution events, such as the unauthorized discharge of tank washings. It is impossible to predict what additional legislation or regulations, if any, may be promulgated by the EU or any other country or authority.
On March 23, 2012, the United States Coast Guard adopted ballast water discharge standards under the U.S. National Invasive Species Act, or NISA. The regulations, which became effective on June 21, 2012, set maximum acceptable discharge limits for living organisms and established standards for ballast water management systems, and they are consistent with the requirements under the BWM Convention described above. The requirements are being phased in based on the size of the vessel and its next dry docking date. As of the date of this report, the United States Coast Guard has approved forty Ballast Water Treatment Systems. A list of approved equipment can be found on the Coast Guard Maritime Information Exchange web page. Several U.S. states, such as California, have also adopted more stringent legislation or regulations relating to the permitting and management of ballast water discharges compared to U.S. Environmental Protection Agency (“EPA”) regulations.
The U.S. Clean Water Act (“CWA”) prohibits the discharge of oil or hazardous substances in navigable waters and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA. Under EPA regulations we are required to obtain a CWA permit to discharge ballast water and other wastewaters incidental to the normal operation of our vessels if we operate within the three mile territorial waters or inland waters of the United States. This permit, which the EPA has designated as the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or VGP, incorporates the current United States Coast Guard requirements for ballast water management, as well as supplemental ballast water requirements, and includes requirements applicable to 26 specific discharge streams, such as deck runoff, bilge water and gray water. The United States Coast Guard and the EPA have entered into a memorandum of understanding which provides for collaboration on the enforcement of the VGP requirements. As a result, the United States Coast Guard includes the VGP as part of its normal Port State Control inspections. The EPA issued a VGP that became effective in December 2013. Among other things, it contained numeric ballast water discharge limits for most vessels and more stringent requirements for exhaust gas scrubbers and required the use of environmentally friendly lubricants. We have submitted NOIs (Notices Of Intent) for Discharges Incidental to the Normal Operation of a Vessel under the 2013 VGP to the U.S. EPA for all our ships trading in U.S. waters. The 2013 VGP was set to expire on December 13, 2018; however, its provisions will remain in effect until the regulations under the 2018 Vessel Incidental Discharge Act (“VIDA”) are final and enforceable. VIDA, signed into law on December 4, 2018, establishes a new framework for the regulation of vessel incidental discharges under CWA Section 312(p). VIDA requires the EPA to develop performance standards for those discharges within two years of enactment, and requires the United States Coast Guard to develop implementation, compliance, and enforcement regulations within two years of the EPA’s promulgation of its performance standards. All provisions of the 2013 VGP will remain in force and effect until the United States Coast Guard regulations under VIDA are finalized. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking – Vessel Incident Discharge National Standards of Performance in the Federal Register for public comment. The comment period closed on November 25, 2020. Compliance with the EPA and United States Coast Guard ballast water management regulations could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements at potentially substantial cost, or may otherwise restrict our vessels from entering United States waters.
 
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Climate Control Initiatives
Although the Kyoto Protocol requires adopting countries to implement national programs to reduce emissions of greenhouse gases, emissions of greenhouse gases from international shipping are not currently subject to the Kyoto Protocol. The Kyoto Protocol was extended to 2020 at the 2012 United Nations Climate Change Conference, with the hope that a new climate change treaty would be adopted by 2015 and come into effect by 2020. The Paris Agreement adopted under the United Nations Framework Convention on Climate Change in December 2015 contemplates commitments from each nation party thereto to take action to reduce greenhouse gas emissions and limit increases in global temperatures but did not include any restrictions or other measures specific to shipping emissions. However, restrictions on shipping emissions are likely to continue to be considered and a new treaty may be adopted in the future that includes restrictions on shipping emissions. International or multi-national bodies or individual countries may adopt their own climate change regulatory initiatives. The IMO’s Marine Environment Protection Committee adopted two sets of mandatory requirements to address greenhouse gas emissions from shipping that entered into force in January 2013. The Energy Efficiency Design Index establishes minimum energy efficiency levels per capacity mile and applies to new vessels of 400 gross tons or greater. Currently operating vessels must develop and implement Ship Energy Efficiency Plans. By 2025, all new ships built must be 30% more energy efficient than those built in 2014, but it is likely that the IMO will increase these requirements such that new ships must be up to 50% more energy efficient than those built in 2014 by 2022. These new requirements could cause us to incur additional costs to comply. Draft MARPOL amendments released in November 2020 would build on the EEDI and SEEMP and require ships to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index and reduce operational carbon intensity reductions based on a new operational carbon intensity indicator, in line with the IMO strategy which aims to reduce carbon intensity of international shipping by 40% by 2030. The draft amendments will be put forward for formal adoption at MEPC 76, to be held during 2021. The IMO is also considering the development of market-based mechanisms for limiting greenhouse gas emissions from ships, but it is impossible to predict the likelihood of adoption of such a standard or the impact on our operations. In April 2015, the EU adopted regulations requiring the monitoring and reporting of greenhouse gas emissions from marine vessels (of over 5,000 gross tons) which went into effect in January 2018. The EPA has issued a finding that greenhouse gas emissions endanger the public health and safety and has adopted regulations under the Clean Air Act to limit emissions of greenhouse gases from certain mobile sources and proposed regulations to limit greenhouse gas emissions from large stationary sources, although the mobile source regulations do not apply to greenhouse gas emissions from vessels. Any passage of climate control initiatives by the IMO, the EU or the individual countries in which we operate that limit greenhouse gas emissions from vessels could require us to limit our operations or make significant financial expenditures that we cannot predict with certainty at this time. Passage of climate control initiatives that affect the demand for LPG products and oil may also materially affect our business. Even in the absence of climate control legislation and regulations, our business may be materially affected to the extent that climate change may result in sea level changes or more intense weather events.
On June 29, 2017, the Global Industry Alliance, or the GIA, was officially inaugurated. The GIA is a program, under the Global Environmental Facility-United Nations Development Program-IMO project, which supports shipping, and related industries, as they move towards a low carbon future. Organizations including, but not limited to, ship owners, operators, classification societies, and oil companies, signed to launch the GIA.
In addition, the United States is currently experiencing changes in its environmental policy, the results of which have yet to be fully determined. Additional legislation or regulation applicable to the operation of our ships that may be implemented in the future could negatively affect our profitability. Furthermore, recent action by the IMO’s Maritime Safety Committee and U.S. agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats, as described below. This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is difficult to predict at this time.
 
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Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the Maritime Transportation Security Act of 2002, or MTSA, came into effect in the United States. To implement certain portions of the MTSA, in July 2003, the United States Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to the International Convention for the Safety of Life at Sea, or SOLAS, created a new chapter of the convention dealing specifically with maritime security. The chapter went into effect in July 2004, and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the newly created International Ship and Port Facilities Security or, ISPS, Code. Among the various requirements are:
 
   
on-board
installation of automatic information systems, or AIS, to enhance
vessel-to-vessel
and
vessel-to-shore
communications;
 
   
on-board
installation of ship security alert systems;
 
   
the development of vessel security plans; and
 
   
compliance with flag state security certification requirements.
The United States Coast Guard regulation’s aim to align with international maritime security standards exempted
non-United
States vessels from MTSA vessel security measures provided such vessels have on board, by July 1, 2004, a valid International Ship Security Certificate (“ISSC”) that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. We have obtained ISSCs for all of our vessels and implemented the various security measures addressed by the MTSA, SOLAS and the ISPS Codes to ensure that our vessels attain compliance with all applicable security requirements within the prescribed time periods. We do not believe these requirements will have a material financial impact on our operations.
IMO Cyber Security
The Maritime Safety Committee, at its 98th session in June 2017, adopted Resolution MSC.428(98) - Maritime Cyber Risk Management in Safety Management Systems. The resolution encourages administrations to ensure that cyber risks are appropriately addressed in existing safety management systems (as defined in the ISM Code) no later than the first annual verification of the company’s Document of Compliance after January 1, 2021. Owners risk having ships detained if they have not included cyber security in the SMS of ships by January 1, 2021.
Vessel Recycling Regulations
The EU has adopted a regulation that seeks to facilitate the ratification of the IMO Recycling Convention and sets forth rules relating to vessel recycling and management of hazardous materials on vessels. In addition to new requirements for the recycling of vessels, the new regulation contains rules for the control and proper management of hazardous materials on vessels and prohibits or restricts the installation or use of certain hazardous materials on vessels. The new regulation applies to vessels flying the flag of an EU member state and certain of its provisions apply to vessels flying the flag of a third country calling at a port or anchorage of a member state. For example, when calling at a port or anchorage of a member state, a vessel flying the flag of a third country will be required, among other things, to have on board an inventory of hazardous materials that complies with the requirements of the new regulation and the vessel must be able to submit to the relevant authorities of that member state a copy of a statement of compliance issued by the relevant authorities of the country of the vessel’s flag verifying the inventory. The new regulation took effect on
non-EU-flagged
vessels calling on EU ports of call beginning on December 31, 2020.
 
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Classification and Inspection
All our vessels are certified as being “in class” by a classification society member of the International Association of Classification Societies such as Lloyds Register of Shipping, Bureau Veritas, American Bureau of Shipping and Nippon Kaiji Kyokai. All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard contracts and memoranda of agreement. If the vessel is not certified on the date of closing, we have no obligation to take delivery of the vessel. Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a classification society that is a member of the International Association of Classification Societies. Every vessel’s hull and machinery is “classed” by a classification society authorized by its country of registry. The classification society certifies that the vessel has been built and maintained in accordance with the rules of such classification society and complies with applicable rules and regulations of the country of registry of the vessel and the international conventions of which that country is a member. Each vessel is inspected by a surveyor of the classification society every year—an annual survey, every two to three years—an intermediate survey, and every four to five years—a special survey. Vessels also may be required, as part of the intermediate survey process, to be
dry-docked
every 30 to 36 months for inspection of the underwater parts of the vessel and for necessary repairs related to such inspection; alternatively, such requirements may be dealt concurrently with the special survey.
In addition to the classification inspections, many of our customers, including the major oil companies, regularly inspect our vessels as a
pre-condition
to chartering voyages on these vessels. We believe that our well-maintained, high quality tonnage should provide us with a competitive advantage in the current environment of increasing regulations, and customer emphasis on quality of service.
All areas subject to surveys as defined by the classification society, are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.
Vessels are dry docked for the special survey for inspection of the underwater parts and for repairs related to inspections. If any defects are found, the classification surveyor will issue a “recommendation” which must be rectified by the ship owner within the prescribed time limits.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. While we believe that our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery Insurance
We have obtained marine hull and machinery and war risk insurance, which include the risk of actual or constructive total loss, for all of our vessels. The vessels are each covered up to at least fair market value, with deductibles of $100,000 per vessel.
We also maintain increased value insurance for most of our vessels. Under the increased value insurance, in case of total loss of the vessel, we will be able to recover the sum insured under the increased value policy in addition to the sum insured under the Hull and Machinery policy. Increased value insurance also covers excess liabilities which are not recoverable in full by the Hull and Machinery policies by reason of under insurance.
 
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Protection and Indemnity Insurance
Protection and indemnity insurance, is a form of mutual indemnity insurance, which covers our third party liabilities in connection with our shipping activities. It is provided
by non-profit-making protection
and indemnity commonly known as P&I Associations or “clubs.” This insurance provides cover towards third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargoes, claims arising from collisions with other vessels, damage to third-party properties, pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal.
Our current protection and indemnity insurance provides cover for Oil Pollution up to $1.0 billion per vessel per incident. The 13 P&I Associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. Claims pooling between the clubs is regulated by the Pooling Agreement which defines the risks that can be pooled and how losses are to be shared between the participating clubs. The Pool provides a mechanism for sharing all claims in excess of US$10 million up to, approximately US$3.1 billion.
Under the current structure, clubs’ contributions to claims in the lower pool layer from $10 million to $50 million are assessed on a tripartite formula which takes account of each club’s contributing tonnage, premium and claims record. For claims falling in the upper pool layer from $50 million to $100 million, 7.5% is retained by the club bringing the claim and 92.5% is shared by all on a tonnage-weighted basis.
The Group clubs arrange a common market reinsurance contract to provide reinsurance for claims which exceed the upper limit of the pool (US $100 million) up to an amount of US $3.1 billion any one claim (US $1 billion for Oil Pollution claims). It is said to be the largest single marine reinsurance contract in the market.
As members of Mutual P&I Associations, we may become subject to unbudgeted supplementary calls payable to the P&I Club depending on its financial year results that they are determined by 3 main parameters, i.e their exposure from payment of claims, the income through premium and the income arising from investments. Our aim at every renewal is to conclude our P&I insurance with “A rated” P&I clubs as this, amongst other benefits, eliminates the risk of unbudgeted supplementary calls being imposed.
Competition
We operate in a highly competitive global market based primarily on supply and demand of vessels and cargoes. While the worldwide LPG sector is comparatively smaller than other shipping sectors, consisting of vessels of varying sizes between 1,000 and 85,000 cbm, it is a diversified global market with many charterers, owners and operators of vessels. As of April 1, 2021, our LPG carrier fleet, including our eight JV vessels, had an average age of 9.0 years. Accordingly, we believe we are well positioned from a competitive standpoint in terms of our vessels meeting the ongoing needs of charterers. Also, as of April 1, 2021, we had one of the largest single-owned fleets in our primary sector segment (3,000 cbm to 8,000 cbm), which, in our view, also positions us well from the standpoint of charterers and competitors. We believe, however, that the LPG shipping sector will continue to be highly competitive, and will be driven by both energy production and consumption.
Ownership of medium range product carriers and crude oil tankers capable of transporting crude oil and refined petroleum products, such as gasoline, diesel, fuel oil and jet fuel, as well as edible oils and chemicals, is highly diversified and is divided among many independent tanker owners. Many oil companies and other oil trading companies, the principal charterers of our product carriers and crude oil tankers, also operate their own vessels and transport oil for themselves and third party charterers in direct competition with independent owners and operators. Competition for charters, including for the transportation of oil and oil products, can be intense and depends on price as well as on the location, size, age, condition, specifications and acceptability of the vessel and its operator to the charterer and is frequently tied to having an available vessel with the appropriate approvals
 
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from oil majors. Principal factors that are important to our charterers include the quality and suitability of the vessel, its age, technical sophistication, safety record, compliance with IMO standards and the heightened industry standards that have been set by some energy companies, and the competitiveness of the bid in terms of overall price.
Seasonality
The LPG carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of propane and butane for heating during the winter months. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere, but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. As a result, our revenues may be stronger in fiscal quarters ended December 31 and March 31 and relatively weaker during the fiscal quarters ended June 30 and September 30, as was generally the case in each of the last five fiscal years other than the fourth quarter of 2018 which did not reflect this typical strength mostly as a result of weak conditions in the Asian LPG market.
C. Organizational Structure
As of April 1, 2021, other than the entities owning the JV Vessels, as indicated therein, we were the sole owner of all the outstanding shares of the subsidiaries listed in Exhibit 8.
D. Properties
Other than our vessels we do not have any material property. For information on our fleet, see “Item 4. Information on the Company—Business Overview.” Our vessels are subject to priority mortgages, which secure our obligations under our various credit facilities. For further details regarding our credit facilities, refer to “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities.”
We have no freehold or material leasehold interest in any real property. We lease office space from an affiliated company of Stealth Maritime. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Office Space.”
 
Item 4A.
Unresolved Staff Comments
None.
 
Item 5.
Operating and Financial Review and Prospects
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this Annual Report. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Item 3. Key Information—Risk Factors” and elsewhere in this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
We are a provider of international seaborne transportation services to LPG producers and users, as well as crude oil and product carriers to oil producers, refineries and commodities traders. As of December 31, 2020, we operated a fleet of 45 LPG carriers, including eight JV vessels, that carry various petroleum gas products in liquefied form, including propane, butane, butadiene, isopropane, propylene and VCM (“Vinyl Chloride Monomer”), three medium range product carriers that carry refined petroleum products such as gasoline, diesel,
 
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fuel oil and jet fuel, as well as edible oils and chemicals, and one Aframax tanker which is used for carrying crude oil, and had contracted to acquire one LPG carrier newbuilding under construction which was delivered in February 2021. As of April 1, 2021, our fleet is composed of 46 LPG carriers including eight JV vessels which aggregate 165,121 cbm with a total capacity of approximately 436,692
cubic meters (cbm), three medium range product carriers with a total capacity of 140,000 dwt and one 115,804 dwt Aframax tanker. For the years ended December 31, 2018, 2019 and 2020, we owned an average of 50.8, 42.6 and 41.6 vessels, respectively, generating revenues of $164.3 million, $144.3 million and $145.0 million, respectively.
In the first quarter of 2019, we sold a 49.9% equity interest in the subsidiaries owning four of our vessels, the
Gas
Haralambos
, the
Gas Defiance
, the
Gas Shuriken
and the
Eco Lucidity
, to a leading maritime-focused investor. We and our manager, Stealth Maritime, continue to manage these vessels. These four vessels were classified as held for sale as of December 31, 2018, and following the closing date of these sales, the entities owning these vessels, including associated debt totaling $30.1 million, are no longer fully consolidated in our balance sheet as we and the investor have joint control over these entities. In the second quarter of 2019 we acquired a 2007-built, 38,000 cbm LPG carrier, the Eco Nebula, with this same investor, in which we have a 50.1% equity interest. In the first quarter of 2020, a separate joint venture arrangement with an unaffiliated third party, in which we have a 51% equity interest and joint control, acquired three 2010-built Medium Gas Carriers, the
Gaschem Hamburg
, the
Gaschem Stade
and the
Gaschem Bremen
, of an aggregate capacity of 105,650 cbm. Due to the joint control over these entities, our equity interest percentages in the entities owning these eight vessels, are accounted for under the equity method.
We, through Stealth Maritime, manage the employment of our fleet. We intend to continue to deploy our fleet under period charters including time and bareboat charters, which can last up to several years, and spot market or voyage charters, which generally last from one to six months, subject to market conditions. Period charters and short term time charters are for a fixed period of time.
 
   
Charters and revenues.
Under a time charter, the charterer pays a fixed rate per day over the term of the charter; a time charter, including a short term time charter, may provide for rate adjustments and profit sharing. Under a bareboat charter, the charterer pays us a fixed rate for its use of our ship for the term of the charter. Under a voyage charter, we agree to transport a specified cargo from a loading port to a discharging port for a fixed amount.
 
   
Charters and expenses.
Under a time charter, we are responsible for the vessel’s operating costs (crew, provisions, stores, lubricants, insurance, maintenance and repairs) incurred during the term of the charter, while the charterer pays voyage expenses (port, canal and fuel costs) that are unique to each particular voyage. Under a bareboat charter, the charterer is responsible for all vessel operating expenses and voyage expenses incurred during the term of the charter. Under a voyage or spot charter, we are responsible for both the vessel operating expenses and the voyage expenses incurred in performing the charter.
As of April 1, 2021 and excluding our JV vessels, 4 of our LPG carriers and 1 of our medium range product carriers were deployed on bareboat charters, under which the charterer is responsible for the costs associated with the operations of the vessels. Of the remaining vessels in our fleet excluding our JV vessels, as of April 1, 2021, 10 were employed in the spot market, with the remaining vessels deployed on period charters. As of April 1, 2021 and excluding our JV vessels, 58% of our anticipated fleet days were covered by period charter contracts for the remainder of 2021 and 14% for 2022. The corresponding forward coverage as of April 1, 2020 was 66% for the remainder of 2020 and 28% for 2021. We are, however, exposed to prevailing charter rate fluctuations for the remaining fleet days not covered by period charter contracts, as well as performance by our counterparties for the chartered days.
 
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A. Operating Results
Factors Affecting Our Results of Operations
We believe that the important measures for analyzing trends in the results of our operations consist of the following:
 
   
Calendar days
. We define calendar days as the total number of days in a period during which each vessel in our fleet was in our possession including
off-hire
days associated with major repairs, dry dockings or special or intermediate surveys. Calendar days are an indicator of the size of our fleet over a period and affect both the amount of revenue and the amount of expense that we record during that period. In the first quarter of 2019, we agreed to sell a 49.9% equity interest in the entities owning four of our LPG carriers. We may also elect to sell additional vessels in our fleet from time to time, generally older and smaller vessels, such as the two old LPG carriers we sold in 2020, one LPG carrier we agreed to sell in 2019 (excluding four of our vessels in which we sold a 49.9% equity interest in our joint venture arrangement) and seven LPG carriers we agreed to sell in 2018. Four of our LPG carriers are subject to arrangements pursuant to which the charterer has options to purchase the vessels at declining stipulated prices at any time during the current charter for the respective vessels, which expire in 2022. If any of these purchase options were to be exercised, the expected size of our LPG carrier fleet would be reduced, and as a result our anticipated level of calendar days and revenues would be reduced.
 
   
Voyage days
. We define voyage days as the total number of days in a period during which each vessel in our fleet was in our possession net of
off-hire
days associated with major repairs, dry dockings or special or intermediate surveys. The shipping industry uses voyage days (also referred to as available days) to measure the number of days in a period during which vessels are available to generate revenues.
 
   
Fleet utilization; Fleet operational utilization
. We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our calendar days during that period, and we calculate fleet operational utilization by dividing the number of our voyage days-excluding commercially idle days-during a period, by the number of our calendar days during that period. The shipping industry uses fleet utilization to measure a company’s efficiency in minimizing the amount of days that its vessels are
off-hire
for reasons such as scheduled repairs, vessel upgrades or drydockings and other surveys, and uses fleet operational utilization to also measure a company’s efficiency in finding suitable employment for its vessels.
 
   
Cyclicality
. The international gas carrier market, including the transport of LPG, is cyclical with attendant volatility in profitability, charter rates and vessel values, resulting from changes in the supply of, and demand for, LPG carrier capacity. From the last quarter of 2011 until the third quarter of 2014, LPG carrier market conditions generally improved from low levels with higher LPG carrier charter rates and utilization levels, however, the impact of the dramatic decline in oil prices on demand for LPG adversely affected LPG carrier charter rates and utilization levels from the fourth quarter of 2014 until the latter part of 2017, particularly in the smaller vessel classes. In 2017, there were increases in oil prices and in the second half of 2017 some limited improvement in LPG carrier charter rates and utilization levels which continued in 2018 and until the beginning of 2020, when the broader shipping market was globally affected by the outbreak of the
COVID-19
virus and the resulting disruptions to the international shipping industry and energy demand, including the recent sharp decline in the price of oil, have and could continue to negatively affect small and medium range LPG carrier charter rates.
As of April 1, 2021 and including our JV vessels, we had 12 vessels trading in the spot market and 22 vessels with period charters expiring in 2021. Charter rates currently face significant downside risks, including in the event of renewed weakness in the global economy and lower demand for the seaborne transport of LPG, particularly resulting from the
COVID-19
outbreak and lower oil prices, as well as reduced supply in the event of lower oil and natural gas production. With regards to the vessels
 
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in the spot market, we are exposed to changes in spot rates for LPG carriers and such changes affect our earnings and the value of our LPG carriers at any given time. When LPG vessel prices are considered to be low, companies not usually involved in shipping may make speculative vessel orders, thereby increasing the global supply of LPG carriers, satisfying demand sooner and potentially suppressing charter rates. With regards to the four tankers in our fleet, two of our product carriers are employed on fixed-rate time charters expiring in August 2021 and March 2022, respectively, and one product carrier is deployed on fixed rate bareboat charter expiring in
September 2021, while the Aframax tanker is deployed on a fixed-rate time charter expiring in September 2021. Accordingly, we are exposed to prevailing charter rates in the product and crude tanker sectors when these vessels’ existing charters expire. Currently tanker charter market rates are very weak, reflecting the impact of the
COVID-19
pandemic which has reduced demand for oil and in turn demand the seaborne transportation of oil and oil products, and production cuts.
 
   
Seasonality
. The LPG carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of propane and butane for heating during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. As a result, our revenues may be stronger in fiscal quarters ending December 31 and March 31 and relatively weaker during the fiscal quarters ending June 30 and September 30, as was the case in 2017, 2019 and 2020 however, the fourth quarter of 2018 did not exhibit this strength mainly due to a weakness in the Asian LPG market. Our product carriers are currently deployed on short term period charters expiring in 2021 and 2022 while our Aframax tanker is on a time charter expiring in 2021. The short term duration of these period charters and their potential operation in the spot market, may expose us to seasonal changes in the tanker markets, which are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance, to the extent we charter our tankers on shorter term charters.
Our ability to control our fixed and variable expenses, including those for commission expenses, crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses also affect our financial results. Factors beyond our control, such as developments relating to market premiums for insurance and the value of the U.S. dollar compared to currencies in which certain of our expenses, primarily crew wages are denominated, can also cause our vessel operating expenses to increase. In addition, our net income is affected by our financing arrangements, including our interest rate swap arrangements.
Impact of
COVID-19
on our Business
The spread of the
COVID-19
virus, which was declared a pandemic by the World Health Organization in March 2020, has caused and will likely continue to cause substantial disruptions in the global economy and trade, including reduced demand for energy, with many countries, ports and organizations, including those where we conduct a large part of our operations, having implemented measures to combat the outbreak, such as quarantines and travel restrictions. It has also negatively impacted, and may continue to impact negatively, global economic activity, demand for energy including LPG and oil. The global response to the outbreak and the economic impact thereof, in particular decreased energy demand and lower oil prices, adversely affected our ability to secure charters at attractive rates in 2020, and may continue to do so, particularly for our vessels in the spot market or with charters expiring in 2021, as demand for additional charters could continue to be affected. Our business, and the LPG shipping industry as a whole, is also likely to be impacted by delays in crew changes as well as delays in the construction of
new-build
vessels, scheduled
dry-dockings,
intermediate or special surveys of vessels and ship repairs and upgrades, as well as reducing the availability of financing. Complications relating to changing crews due to restrictions in various ports throughout the world increased the costs related to these activities in 2020, and may continue to do so in 2021. The extent to which
COVID-19
will impact our future results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be
 
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predicted, including new information which may emerge concerning the duration and severity of the virus and the actions to contain or treat its impact.
In response to the pandemic, we have instituted enhanced safety protocols such as regular disinfection of our
on-shore
facilities, regular employee
COVID-19
testing, digital temperature reading facilities, limitation of
on-site
visitors and travel, mandatory self-isolation of personnel returning from travel and replacing physical meetings with virtual meetings. We expect to continue such measures, which have not had a significant impact on our expenses, to some degree until the pandemic abates. In addition, the prevailing low interest rates, in part due to actions taken by central banks to stimulate economic activity in the face of the pandemic, has also reduced our interest expense.
Joint Ventures
As of April 1, 2021, eight of the vessels in our fleet were owned through two separate joint venture arrangements. Pursuant to one JV arrangement we sold a 49.9% equity interest in four JV vessels in the first quarter of 2019, and we acquired with the same JV arrangement a 38,000 cbm LPG carrier in the second quarter of 2019 in which we also have a 50.1% equity interest. See “Note 7 Investments in Joint Ventures” in our audited consolidated financial statements include elsewhere in this report, for additional information regarding this joint venture. In addition, we further acquired, through a separate joint venture, a 51% equity interest in three 35,000 cbm LPG carriers in the first quarter of 2020. We report our equity interest in these joint ventures under the equity method of accounting.
Basis of Presentation and General Information
Revenues
Our voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days during which our vessels generate revenues and the amount of daily charter hire that our vessels earn under charters which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in dry dock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels and the levels of supply and demand in the LPG carrier, product carrier and crude oil tanker charter markets.
We employ our vessels under time, bareboat and spot charters. Bareboat charters provide for the charterer to bear the cost of operating the vessel and as such typically market rates for bareboat charters are lower than those for time charters. Vessels operating on period charters, principally time and bareboat charters, provide more predictable cash flows, but can yield lower profit margins than vessels operating in the spot charter market during periods characterized by favorable market conditions. As a result, during the time our vessels are committed on period charters we will be unable, during periods of improving charter markets, to take advantage of improving charter rates as we could if our vessels were employed only on spot charters. Vessels operating in the spot charter market generate revenues that are less predictable but may enable us to capture increased profit margins during periods of improving charter rates, although we are then exposed to the risk of declining LPG carrier, product carrier or crude oil tanker charter rates, which may have a materially adverse impact on our financial performance. If we commit vessels on period charters, future spot market rates may be higher or lower than those rates at which we have time chartered our vessels.
Voyage Expenses
Voyage expenses include port and canal charges, bunker (fuel oil) expenses and commissions. These charges and expenses increase in periods during which vessels are employed on the spot market, because under these charters, these expenses are for the account of the vessel owner. Under period charters, these charges and
 
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expenses, including bunkers (fuel oil) but excluding commissions which are always paid by the vessel owner, are paid by the charterer. Bunkers (fuel oil), the price of which declined beginning in the third quarter of 2014 into 2017 and then following a rise, decreased again at the beginning of 2020 and remained at low levels for the majority of the year, after the onset of the COVID
-19
pandemic, accounted for 47.2% of total voyage expenses for the year ended December 31, 2020, 48.0% of total voyage expenses for the year ended December 31, 2019, and 56.3% of total voyage expenses for the year ended December 31, 2018. Commissions on hire are paid to our manager Stealth Maritime and/or third party brokers. Stealth Maritime receives a fixed brokerage commission of 1.25% on freight, hire and demurrage for each vessel based on our management agreement since 2005. In 2020, port and canal charges and bunker expenses represented a relatively small portion of our vessels’ overall expenses, 7.8%, because the majority of our vessels were employed under period charters, including time and bareboat charters, that require the charterer to bear such expenses. As of April 1, 2021, we had 10 vessels in the spot market for which we pay voyage expenses; the corresponding number as of April 1, 2020 was 4 and as of April 1, 2019 was 7.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our ability to control these fixed and variable expenses, also affects our financial results. In addition, the type of charter under which our vessels are employed (time, bareboat or spot charter) also affects our operating expenses because we do not pay the operating expenses of vessels that we deploy on bareboat charters. Factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for insurance and regulations related to safety and environmental matters may also cause these expenses to increase.
Management Fees
During each of the years ended December 31, 2018, 2019 and 2020, we paid Stealth Maritime, our fleet manager, a fixed rate management fee of $440 per day for each vessel in our fleet under spot or time charter (except for four vessels for which, since 2020, a fixed daily fee of $280 is charged by our fleet manager as part of the services is currently provided by third party managers) and a fixed rate fee of $125 per day for each of the vessels operating on bareboat charter. These rates have been in effect since January 1, 2007. Stealth Maritime also receives a fee equal to 1% calculated on the price stated in the relevant memorandum of agreement for any vessel bought or sold by them on our behalf. From these management fees paid to Stealth Maritime, Stealth Maritime pays one technical manager that is responsible for the technical management of some of our vessels that are not technically managed by Stealth Maritime on a
day-to-day
basis.
General and Administrative Expenses
We incur general and administrative expenses that consist primarily of legal fees, audit fees, office rental fees, officers and board remuneration or reimbursement, directors’ and officers’ insurance, listing fees and other general and administrative expenses. Our general and administrative expenses also include our direct compensation expenses and the value of
non-cash
executive services provided through, and other expenses arising from, our management agreement with Stealth Maritime, our directors’ compensation and the value of the lease expense for the space we rent from Stealth Maritime. For our compensation expenses, pursuant to our management agreement, we currently reimburse Stealth Maritime for its payment of the compensation of our Chief Executive Officer, Chief Technical Officer and Internal Auditor. During the year ended December 31, 2020, such compensation was in the aggregate amount of $1.0 million.
Inflation
Inflation has only a moderate effect on our expenses given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating, voyage, administrative and financing expenses.
 
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Depreciation and Dry docking
We depreciate our vessels on a straight-line basis over their estimated useful lives, determined to be 30 years from the date of their initial delivery from the shipyard in the case of our LPG carriers and 25 years in the case of our product carriers and crude oil tanker. Depreciation is based on cost less the estimated scrap value of the vessels. We expense costs associated with dry dockings and special and intermediate surveys as incurred which may affect the volatility of our results. During 2020, we dry docked seven vessels at a total cost of $3.6 million, while in 2019, two small LPG vessels underwent drydocking and one small LPG vessel completed its docking survey at a total cost of $1.1 million. We expect that during 2021 our dry docking costs will be higher than in 2020, as nine vessels are scheduled to be dry docked.
Impairment Loss
Based on the accounting standards followed by the Company, impairment losses are recognized on long-lived assets used in operations or held for sale, when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts and the asset’s carrying value exceeds its fair value. The Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value and the difference is recorded as an impairment loss in the consolidated statements of operations. For the years ended December 31 2020, 2019 and 2018, we recognized an impairment loss of $3.9 million on four of our oldest vessels, $1 million on two of our oldest vessels and $11.4 million on eleven of our vessels respectively.
Net (Gain)/Loss on Sale of Vessels
The carrying value of our vessels includes the original cost of the vessels plus capitalized expenses since acquisition relating to improvements and upgrading of the vessels, less accumulated depreciation and less any impairment. Depreciation is calculated using the straight line method, from the date the vessel was originally built, over an estimated useful life of 25 years for the tankers in our fleet and 30 years for the LPG carriers in our fleet. LPG carriers tend to trade for longer periods due to the less corrosive nature of the cargoes they carry. Residual values used in depreciation calculations are based on $350 per light weight ton.
In 2020, we sold and delivered to their new owners two of our LPG vessels, the
Gas Nemesis II
and the
Gas Pasha
, both for further trading for which we recognized an aggregate loss of $1.1 million. In 2019, we sold 49.9% equity stake of four of our small LPG vessels, the
Gas Defiance
, the
Gas Shuriken
, the
Gas Haralambos
and the
Eco Lucidity
to our joint venture arrangement. In addition, in 2019, we sold and delivered to their new owners the
Gas Sincerity
, the
Gas Texiana
, and the
Gas Ethereal
, all for further trading; from these sales we recognized an aggregate loss of $0.5 million. Another two of our vessels, the
Gas Sincerity
and the
Gas Texiana
, which were agreed to be sold in 2018, were delivered to their new owners in the first quarter of 2019.
During the year ended December 31, 2014, we sold two vessels, the
Gas Cathar
and the
Gas Premiership
, that were leased back by our Company on a bareboat hire basis. The aforementioned transaction is classified as a sale and lease back transaction and in accordance with U.S. GAAP ASC
840-40,
the net gain on sale of vessels of $0.8 million must be amortized throughout the lease period of the vessels. The lease for the
Gas Cathar
expired in the first quarter of 2020 while the lease for the
Gas Premiership
expired in the fourth quarter of 2018.
Loss on Derivatives
All of our six interest rate swaps, as of December 31, 2020, are accounted for as cash flow hedges (2019: six of our nine interest rate swaps) and the changes in their fair values are recorded in “Accumulated other comprehensive loss”. All changes in the fair value of our cash flow interest rate swaps that are not accounted for as cash flow hedges, are recorded in earnings under “Loss on Derivatives.” Interest rate swaps recorded under
 
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this latter category increase the potential volatility of our reported earnings, as opposed to incidences where such arrangements qualify for hedge accounting, due to the recognition of
non-cash
fair value movements of our cash flow interest rate swaps and foreign currency exchange arrangements directly in our statement of operations.
Interest Expense and Finance Costs
We have entered into credit facilities to fund a portion of the purchase price of the vessels in our fleet, which are described in the “—Credit Facilities” section below. We incur interest expense on outstanding indebtedness under these credit facilities, which we include in interest expense. We also incurred financing costs in connection with establishing those facilities, which are deferred and amortized over the period of the facility, which we also include in interest expense. We will incur additional interest expenses under any new credit facilities we enter into to finance or refinance the purchase price of additional vessels as described in the “—Liquidity and Capital Resources” section below.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies that involve a high degree of judgment and the methods of their application. For a description of all of our significant accounting policies, see Note 2 to our consolidated financial statements included elsewhere herein.
Impairment or disposal of long-lived assets:
We follow the Accounting Standards Codification (“ASC”) Subtopic
360-10,
“Property, Plant and Equipment” (“ASC
360-10”),
which requires long-lived assets used in operations be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. On a quarterly basis, in case an impairment indicator exists, we perform an analysis of the anticipated undiscounted future net cash flows of our long-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows and the fair market value of the asset, the carrying value is reduced to its fair value and the difference is recorded as an impairment loss in the consolidated statement of operations.
We review certain indicators of potential impairment, such as vessel fair values, vessel sales and purchases, business plans and overall market conditions including any regulatory changes that may have a material impact on the vessel lives. The decline in the values of some of the vessels included in our LPG fleet was considered to be an indicator of potential impairment. As of the end of each respective quarter of 2020, we performed step one, the undiscounted cash flow test as required by the ASC guidance. We determined undiscounted projected net operating cash flows for each vessel with carrying value exceeding its fair value and compared it to the vessel’s carrying value. This assessment was made at the individual vessel level since separately identifiable cash flow information for each vessel was available. In developing estimates of future cash flows to be generated over remaining useful lives of the vessels, we made assumptions about the future, such as: (1) vessel charter rates, (2) vessel utilization rates, (3) vessel operating expenses, (4) dry docking costs, (5) vessel scrap values at the end of vessels’ remaining useful lives and (6) the remaining useful lives of the vessels. These assumptions were based on historical trends as well as future expectations in line with our historical performance and our expectations for future fleet utilization under our current fleet deployment strategy, vessel sales and purchases, and overall market conditions.
 
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Projected cash flows were determined for the vessels by considering the revenues from existing charters for those vessels that have long term employment, and:
 
   
revenue estimates based on nine-year historical average rates (base rate) for periods for which there is no charter in place for vessels of less than twenty years of age and,
 
   
revenue estimates based on five-year historical average rates for periods for which there is no charter in place for vessels of twenty years of age and above,
Utilization rate was assumed to be:
 
   
94.0% for vessels of less than twenty years of age, and
 
   
actual five-year historical average utilization rate for the vessels of twenty years of age and above.
Based on our historical experience and future expectations, we believe the use of different assumptions for these items depending on whether a vessel is less than 20 years old or 20 years old or more, provides a better estimate of the expected future chartering profile and associated operating costs to calculate future cash flows. Such assumptions are highly subjective.
With regards to operating expenses, these were based on historical trends.
During the first nine months of 2020, the Company identified and recorded an impairment loss of $2,836,805 for two of its vessels, the
Gas Pasha
and the
Gas NemesisII
, which were agreed to be sold for further trading and an impairment loss of $305,607 for the
Gas Galaxy
for which the undiscounted estimated future net operating cash flows did not exceed its carrying value. As of December 31, 2020, the Company identified and recorded an additional impairment loss of $714,895 relating to the vessel
Gas Monarch
, for which the estimated future net operating cash flows did not exceed its carrying value.
During the first nine months of 2019, the Company identified and recorded no impairment loss for any of its vessels. As of December 31, 2019 the Company recorded an impairment loss of $993,916 relating to two of its oldest vessels
Gas Galaxy
and
Gas Pasha
. In each of these cases the estimated future undiscounted net operating cash flows of each of these vessels did not exceed the respective vessel’s carrying value.
During the first nine months of 2018, the Company identified and recorded an impairment loss of $8,161,963 for seven of its vessels, the
Gas Legacy
, the
Gas Enchanted
, the
Gas Evoluzione
, the
Gas Sikousis,
the
Gas Marathon,
the
Gas Sincerity
and
the
Gas Texiana,
which were agreed to be sold for further trading. As of December 31, 2018, the Company identified and recorded an additional impairment loss of $3,189,858 relating to vessels
Gas Shuriken,
Gas Defiance,
Gas Haralambos
and
Eco Lucidity,
following the decision to enter into, or potentially enter into, as applicable, joint venture agreements with a third party investor based on which the third party investor would acquire a 49.9% equity interest in these four vessel owning companies of the Company and the vessels were classified as vessels held for sale. For the three months ended December 31, 2018, no impairment loss was identified and recorded for the Company’s vessels that are held for use.
The carrying values of our vessels may not represent their fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of
new-buildings.
Sensitivity Analysis.
The impairment test is highly sensitive to variances in future charter rates. When we conducted the analysis of the impairment test as of December 31, 2020 we also performed a sensitivity analysis related to the future cash flow estimates. Set forth below is an analysis, as of December 31, 2020, of the percentage difference between the current average rates for our fleet compared with the base rates used in the impairment test as described above, as
 
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well as an analysis of the impact on our impairment analysis if we were to utilize the most recent five-year, three-year and
one-year
historical average rates, which shows the number of vessels whose carrying value would not have been recovered and the related impairment charge.
 
    
Percentage difference between
our average 2020
rates as compared
with the base rates for the
vessels
   
5-year
historical
average rate
    
3-year
historical
average rate
    
1-year
historical
average rate
 
    
of less than
twenty years
of age
   
of twenty years
of age and
above
   
No. of
vessels
    
Amount
($ million)
    
No. of
vessels
    
Amount
($ million)
    
No. of
vessels
    
Amount
($ million)
 
LPG Carriers
     1.55     5.52     1        0.7        1        0.7        2        2.8  
Product Carriers
     -20.45           3        34.6        3        34.6        3        34.6  
Aframax Tanker
     0.33                                               
Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to how long charter rates and vessel values will remain at their current levels or whether they will improve by any significant degree. Charter rates may remain at relatively low levels for some time, or decline, which could adversely affect our revenue and profitability, and future assessments of vessel impairment.
Based on the carrying value of each of our vessels held for use as of December 31, 2020 and what we believe the charter-free market values of each of these vessels was as of December 31, 2020, 25 of our 41 owned vessels in the water had current carrying values, before the impairment loss recorded in 2020, above their market values (24 of our 41 vessels in the water as at December 31, 2019). We believe that the aggregate carrying value of these vessels, assessed separately, exceeds their aggregate charter-free market value by approximately $73 million and $62 million as of December 31, 2020 and 2019, respectively. However, we believe that with respect to each of these 25 vessels except for the
Gas Monarch
for which we recorded an impairment loss as of December 31, 2020, we will recover their carrying values at the end of their useful lives, based on their undiscounted cash flows.
The Company’s estimates of market values assume that the vessels are all in good and seaworthy condition without need for repair and, if inspected, would be certified as being in class without recommendations of any kind. In addition, because vessel values are highly volatile, these estimates may not be indicative of either the current or future prices that the Company could achieve if it were to sell any of the vessels. The Company would not record an impairment charge for any of the vessels for which the fair market value is below its carrying value unless and until the Company either determines to sell the vessel for a loss or determines that the vessel’s carrying amount is not recoverable.
Vessel depreciation:
We record the value of our vessels at their cost (which includes acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for its initial voyage) less accumulated depreciation and impairment, if any. We depreciate our vessels on a straight-line basis over their estimated useful lives, estimated to be 25 or 30 years from date of initial delivery from the shipyard depending on the vessel type. We believe that a
30-year
depreciable life is consistent with that of other gas vessel owners and reflects management’s intended use and a
25-year
depreciable life is consistent with other product carrier vessel owners and reflects management’s intended use. Depreciation is based on cost less the estimated residual scrap value. An increase in the useful life of the vessel or in the residual value would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the useful life of the vessel or in the residual value would have the effect of increasing the annual depreciation charge. No events or circumstances occurred in 2020 that would require us to revise estimates related to depreciation and such revisions are not expected to occur in the future.
Investments in joint ventures:
Our investments in joint ventures are accounted for using the equity method of accounting since we have joint control over the joint venture entities. We do not consolidate the joint venture
 
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entities because we do not have a controlling financial interest. The significant factors considered and judgments made in determining that the power to direct the activities of the joint venture entities that most significantly impact their economic performance are shared, are that all significant business decisions over operating and financial policies of the joint venture entities, require unanimous consent from each joint venture investor.
Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and our proportionate share of earnings or losses and distributions. We evaluate our investments in joint ventures for impairment when events or circumstances indicate that the carrying value of such investments may have experienced other than temporary decline in value below their carrying value. If the estimated fair value is less than the carrying value and is considered other than a temporary decline, the carrying value is written down to its estimated fair value and the resulting impairment is recorded in the consolidated statements of operations.
Results of Operations
Year ended December 31, 2020 compared to the year ended December 31, 2019
The average number of vessels in our fleet was 41.6 for the year ended December 31, 2020 compared to 42.6 for the year ended December 31, 2019.
REVENUES—Voyage revenues for the year ended December 31, 2020 were $145.0 million compared to $144.3 million for the year ended December 31, 2019, an increase of $0.7 million, primarily due to higher revenues stemming from our time charter contracts along with a reduction of our bareboat activity, partially offset by the reduction of our fleet calendar days by 6.3% and the significant reduction in the calendar days of our
charter-in
vessels. Total calendar days for our fleet were 15,292 for the year ended December 31, 2020 compared to 16,328 for the year ended December 31, 2019, due to the decrease in the number of our
charter-in
vessels and the average number of vessels in our fleet. Of the total calendar days in 2020, 3,426 or 22.4% were bareboat charter days, 9,016 or 59.0% were time charter days and 2,637 or 17.2% were spot days. This compares to 4,191 or 25.7% bareboat charter days, 9,350 or 57.3%-time charter days and 2,689 or 16.5% spot days in 2019. Our fleet operational utilization was 96.1% and 97.5% for the years ended December 31, 2020 and December 31, 2019, respectively.
VOYAGE EXPENSES—Voyage expenses were $14.1 million for the year ended December 31, 2020 compared to $17.0 million for the year ended December 31, 2019, a decrease of $2.9 million, or 17.1%, mostly attributed to the 18.7% reduction in bunker costs due to low prevailing oil prices. Voyage expenses consisted largely of bunker charges amounting to $6.6 million for 2020 compared to bunker charges amounting to $8.2 million for 2019, a decrease of $1.6 million. Under spot charters we are responsible for paying the vessels’ bunkers consumption, as well as most expenses. Voyage expenses also included port expenses of $2.9 million for the year ended December 31, 2020 compared to $3.2 million for the year ended December 31, 2019, a decrease of $0.3 million and commissions to third parties which were $2.7 million for both years ended December 31, 2020 and December 31, 2019.
VESSEL OPERATING EXPENSES— Vessel operating expenses were $53.3 million for the year ended December 31, 2020 compared to $49.6 million for the year ended December 31, 2019, an increase of $3.7 million, or 7.5%. The increase in operating expenses was due to the reduction in the number of our vessels on bareboat- since under bareboat charter arrangements we are not responsible for vessel operating expenses, in conjunction with increased crew costs faced due the
COVID-19
pandemic. Other components of vessel operating expenses were repairs and maintenance costs which increased from $5.7 million in the year ended December 31, 2019 to $6.6 million in the year ended December 31, 2020 mainly due to several of our vessels coming off bareboat that required additional fittings and repairs.
DRY DOCKING COSTS—Dry docking costs were $3.6 million for the year ended December 31, 2020 compared to $1.1 million for the year ended December 31, 2019, an increase of $2.5 million, or 227.3%. Dry
 
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docking costs for the year ended December 31, 2020 related to the dry docking of seven vessels while the costs for the same period of last year related to the docking survey of one small LPG, and the dry docking of two LPG vessels.
MANAGEMENT FEES—Management fees were $5.6 million for the year ended December 31, 2020 compared to $5.7 million for the year ended December 31, 2019, a decrease of $0.1 million or 1.8%. The decrease was due to the lower average number of vessels in the fleet. The daily management fees per vessel did not change during these periods and remained at $440 per day for vessels under time and spot charter (except for four vessels for which a fixed daily fee of $280 is charged) and $125 per day for vessels under bareboat charter.
GENERAL AND ADMINISTRATIVE EXPENSES— General and administrative expenses for the year ended December 31, 2020 were $2.3 million compared to $3.7 million for the year ended December 31, 2019, a decrease of $1.4 million or 37.8%, mainly due to fact that for the year ended December 31, 2019 share based compensation expenses were incurred, which was not the case for the year ended December 31, 2020 since all the shares awarded under our equity compensation plan vested in August 2019. Included in the general and administrative expenses for the years ended December 31, 2020 and December 31, 2019 were $1.0 million and $1.1 million respectively, paid to our manager for the services of the Company’s executive officers pursuant to our management agreement.
DEPRECIATION—Depreciation expenses for the 41.6 average number of vessels in our fleet for the year ended December 31, 2020 were $37.5 million compared to $37.7 million for the 42.6 average number of vessels in our fleet for the year ended December 31, 2019, a decrease of $0.2 million or 0.5%. This decrease in depreciation expenses was due to the net reduction of the average number of vessels in our owned fleet.
IMPAIRMENT LOSS—During the year ended December 31, 2020 the Company recognized an impairment loss of $3.9 million for four of its oldest LPG vessels. During the year ended December 31, 2019 the Company recognized an impairment loss of $1.0 million for two of its oldest vessels.
NET / LOSS ON SALE OF VESSELS—During the year 2020, we sold and delivered to their new owners, the
Gas Nemesis II
and the
Gas Pasha
for which we incurred an aggregate net loss on the sale of these vessels of $1.1 million. In the year 2019 we concluded the sales of the
Gas Sincerity,
the
Gas Texiana,
and the
Gas Ethereal,
for which we incurred a net loss of $0.5 million on the sale of these vessels.
INTEREST AND FINANCE COSTS—Interest and finance costs were $14.1 million for the year ended December 31, 2020 compared to $21.0 million for the year ended December 31, 2019, a decrease of $6.9 million, or 32.9%. The sharp decrease in interest and finance cost was mostly attributed to the decline of LIBOR rates in 2020, along with the decrease of our indebtedness.
INTEREST INCOME—Interest income was $0.2 million for the year ended December 31, 2020 compared to $0.8 million for the year ended December 31, 2019, a decrease of $0.6 million due to less time deposits, and lower deposit rates offered compared to rates offered in the same period of last year.
EQUITY EARNINGS IN JOINT VENTURES—was $2.7 million for the year ended December 31, 2020 compared to $0.5 million in the year ended December 31, 2019. The $2.2 million increase in 2020 compared to 2019 was mainly due to the profitability of our second Joint Venture arrangement in which we hold a 51% equity interest and comprises of three secondhand 35,000 Medium Gas Carriers. This Joint Venture arrangement commenced operations in the first quarter of 2020.
NET INCOME—As a result of the above factors, we recorded a net income of $12.0 million for the year ended December 31, 2020, compared to net income of $2.1 million for the year ended December 31, 2019.
 
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Year ended December 31, 2019 compared to the year ended December 31, 2018
The average number of vessels in our fleet was 42.6 for the year ended December 31, 2019 compared to 50.8 for the year ended December 31, 2018.
REVENUES—Voyage revenues for the year ended December 31, 2019 were $144.3 million compared to $164.3 million for the year ended December 31, 2018, a decrease of $ 20.0 million, primarily due to the strategic decision to sell mostly older small LPG vessels for further trading. Total calendar days for our fleet were 16,328 for the year ended December 31, 2019 compared to 19,554 for the year ended December 31, 2018; due to the decrease in the average number of vessels in our fleet. Of the total calendar days in 2019, 4,191 or 25.7% were bareboat charter days and 9,350 or 57.3% were time charter days and 2,689 or 16.5% were spot days. This compares to 4,691 or 24.0% bareboat charter days and 11,005 or 56.3%-time charter days and 3,667 or 18.8% spot days in 2018. Our fleet operational utilization was 97.5% and 95.5% for the years ended December 31, 2019 and December 31, 2018, respectively.
VOYAGE EXPENSES—Voyage expenses were $17.0 million for the year ended December 31, 2019 compared to $20.7 million for the year ended December 31, 2018, a decrease of $3.7 million, or 17.9%. This was primarily due to the decreased number of spot days by 26.7%. Voyage expenses consisted largely of bunker charges in the amount of $8.2 million for 2019 compared to bunker charges in the amount of $11.6 million for 2018, a decrease of $3.4 million. Under spot charters we are responsible for paying the vessels’ bunkers consumption, as well as most expenses. Voyage expenses also included port expenses of $3.2 million for the year ended December 31, 2019 compared to $2.8 million for the year ended December 31, 2018, an increase of $0.4 million and commissions to third parties which were $2.7 million for the year ended December 31, 2019 and $2.8 million for the year ended December 31, 2018.
VESSEL OPERATING EXPENSES—Vessel operating expenses were $49.6 million for the year ended December 31, 2019 compared to $60.4 million for the year ended December 31, 2018, a decrease of $10.8 million, or 17.9%. The decrease in operating expenses, was due to the net reduction of the average number of our owned fleet by 8.2 vessels. Other components of vessel operating expenses were repairs and maintenance costs which decreased from $7.4 million in the year ended December 31, 2018 to $5.7 million in the year ended December 31, 2019 mainly due to our fleet contraction.
DRY DOCKING COSTS—Dry docking costs were $1.1 million for the year ended December 31, 2019 compared to $3.6 million for the year ended December 31, 2018, a decrease of $2.5 million, or 69.4%. Drydocking costs for the year ended December 31, 2019 related to the drydocking of two small LPG vessels and the docking survey of one small LPG vessel. For the year ended December 31, 2018, seven vessels were drydocked.
MANAGEMENT FEES—Management fees were $5.7 million for the year ended December 31, 2019 compared to $7.0 million for the year ended December 31, 2018, a decrease of $1.3 million or 18.6%. The decrease was due to the lower average number of vessels in the fleet. The daily management fees per vessel did not change during these periods and remained at $440 per day for vessels under time and spot charter and at $125 per day for vessels under bareboat charter.
GENERAL AND ADMINISTRATIVE EXPENSES—General and administrative expenses for the year ended December 31, 2019 were $3.7 million compared to $3.0 million for the year ended December 31, 2018, an increase of $0.7 million or 23.3%, mainly due to higher stock based compensation charges incurred within the year. Included in the general and administrative expenses for the years ended December 31, 2019 and December 31, 2018 are $1.1 million and $1.2 million respectively paid to our manager for the services of the Company’s executive officers pursuant to our management agreement. Stock based compensation expense for vested and
non-vested
shares granted as equity awards, which is also part of the general and administrative expenses, increased to $0.6 million during the year ended December 31, 2019 from $0.3 million during the year ended December 31, 2018.
 
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DEPRECIATION—Depreciation expenses for the 42.6 average number of vessels in our fleet for the year ended December 31, 2019 were $37.7 million compared to $41.3 million for the 50.8 average number of vessels in our fleet for the year ended December 31, 2018 a decrease of $3.6 million or 8.7%. This decrease in depreciation expenses was due to the net reduction of the average number of vessels in our owned fleet.
IMPAIRMENT LOSS—During the year ended December 31, 2019 the Company recognized an impairment loss of $1.0 million for two of its oldest LPG vessels. During the year ended December 31, 2018 the Company recognized an impairment loss of $11.4 million for eleven of its vessels, six of which were classified as held for sale as of December 31, 2018. With regards to the remaining five vessels for which we incurred impairment charges, one was delivered to her new owners in the second quarter of 2018, three were delivered to their new owners in the third quarter of 2018 while the remaining one was delivered to her new owners in the fourth quarter of 2018.
NET (GAIN)/ LOSS ON SALE OF VESSELS—During the year 2019 we delivered to their new owners, the
Gas Sincerity
, the
Gas Texiana
and we agreed and concluded the sale of the
Gas Ethereal
from all of which we incurred a net loss on the sale of these vessels of $0.5 million. During the year ended December 31, 2018 we agreed to the sale of seven vessels. Five of these vessels the
Gas Enchanted
, the
Gas Evoluzione
, the
Gas Legacy
, the
Gas Sikousis
, and the
Gas Marathon
were delivered to their new owners within 2018 and for these vessels we incurred a net loss on the sale of these vessels of $0.8 million. The remaining two vessels agreed to be sold within the year 2018, the
Gas Sincerity
and the
Gas Texiana
were as stated above, delivered to their new owners within the first quarter of 2019.
OTHER OPERATING COSTS/(INCOME)—During the year ended December 31, 2019 our other operating income was nil. During the year ended December 31, 2018 we received $0.6 million of legal claims. This income was partially offset by a $0.1 million charge related to the delay of the delivery of our new 22,000 cbm semi-refrigerated vessels.
INTEREST AND FINANCE COSTS—Interest and finance costs were $21.0 million for the year ended December 31, 2019 compared to $23.3 million for the year ended December 31, 2018, a decrease of $2.3 million, or 9.9%. The decrease in interest and finance cost was mostly attributed to the decrease of our leverage.
INTEREST INCOME—Interest income was $0.8 million for the year ended December 31, 2019 compared to $0.6 million for the year ended December 31, 2018, an increase of $0.2 million related mostly to a higher amount of time deposits and higher deposit rates offered compared to rates offered in the same period of last year.
EQUITY GAIN IN JOINT VENTURES—was $0.49 million in the year ended December 31, 2019 compared to nil in the year ended December 31, 2018, which related to the financial performance of our joint venture established in the first quarter of 2019, pursuant to which we sold a 49.9% equity interest in the subsidiaries owning four of our vessels, the
Gas
Haralambos
, the
Gas Defiance
, the
Gas Shuriken
and the
Eco Lucidity
, and acquired a 2007-built, 38,000 cbm LPG carrier, the