EX-99.1 2 y02795exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
StealthGas Inc.
Unaudited Condensed Consolidated Financial Statements
Index to unaudited condensed consolidated financial statements
         
    Pages  
 
       
Unaudited Condensed Consolidated Balance Sheets — December 31, 2008 and September 30, 2009
    2  
 
       
Unaudited Condensed Consolidated Statements of Income for the three and nine month periods ended September 30, 2008 and 2009
    3  
 
       
Unaudited Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2008 and 2009
    4  
 
       
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the nine month periods ended September 30, 2008 and 2009
    5  
 
       
Notes to the Unaudited Condensed Consolidated Financial Statements
    6 - 21  

1


 

StealthGas Inc.
Unaudited Condensed Consolidated Balance Sheets
December 31, 2008 and September 30, 2009 (Expressed in United States Dollars, except share data)
                 
    December 31,   September 30,
    2008   2009
 
Assets
               
Current assets
               
Cash and cash equivalents
    41,848,059       30,858,728  
Trade and other receivables
    2,325,438       1,824,087  
Claims receivable
    607,306       13,824  
Inventories
    1,254,142       2,120,101  
Advances and prepayments
    812,654       532,969  
Restricted cash
    3,672,439       5,077,034  
Fair value of derivatives
    1,938,480       4,623  
 
Total current assets
    52,458,518       40,431,366  
 
 
               
Non current assets
               
Advances for vessels under construction and acquisitions
    23,009,597       29,086,967  
Vessels, net
    551,771,040       631,003,848  
Other receivables
    246,219       210,317  
Restricted cash
    600,000       1,550,000  
Deferred finance charges, net of accumulated amortization of $267,118 and $414,333
    550,226       1,522,311  
Fair value of derivatives
    5,711,523       7,924,204  
 
Total non current assets
    581,888,605       671,297,647  
 
Total assets
    634,347,123       711,729,013  
 
 
               
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Payable to related party
    2,407,377       3,578,190  
Trade accounts payable
    3,256,175       3,645,535  
Other accrued liabilities
    4,518,097       5,590,061  
Customer deposits
    1,436,369       4,955,108  
Deferred income
    4,776,359       1,378,047  
Current portion of long-term debt
    24,380,554       31,612,718  
 
Total current liabilities
    40,774,931       50,759,659  
 
 
               
Non current liabilities
               
Fair value of derivatives
    12,762,979       11,628,665  
Customer deposits
    3,467,017        
Fair value of below market acquired time charter
    181,552        
Long-term debt
    259,313,319       321,449,016  
 
Total non current liabilities
    275,724,867       333,077,681  
 
Total liabilities
    316,499,798       383,837,340  
 
 
               
Commitments and contingencies
           
 
 
               
Stockholders’ equity
               
Capital stock
               
5,000,000 preferred shares authorized and zero outstanding with a par value of $0.01 per share
               
100,000,000 common shares authorized, 22,310,110 and 22,310,110 shares issued and outstanding with a par value of $0.01 per share
    223,101       223,101  
Additional paid-in capital
    283,526,241       284,027,628  
Retained earnings
    34,910,189       44,565,784  
Accumulated other comprehensive (loss)
    (812,206 )     (924,840 )
 
Total stockholders’ equity
    317,847,325       327,891,673  
 
Total liabilities and stockholders’ equity
    634,347,123       711,729,013  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

StealthGas Inc.
Unaudited Condensed Consolidated Statements of Income
(Expressed in United States Dollars, except share data)
                                 
    Quarters Ended   Nine Month Periods Ended
    September 30,   September 30,
    2008   2009   2008   2009
 
 
                               
Revenues
                               
Voyage revenues
    28,895,043       28,383,945       84,389,367       84,665,459  
 
 
                               
Expenses
                               
Voyage expenses
    1,626,513       2,665,992       3,850,401       7,084,432  
Vessels’ operating expenses
    8,782,014       9,649,509       23,961,148       28,047,187  
Dry-docking costs
    43,401       518,522       510,832       784,901  
Management fees
    1,161,250       1,333,420       3,419,065       3,832,670  
General and administrative expenses
    1,672,909       957,807       5,133,658       2,784,858  
Depreciation
    5,976,036       7,104,351       17,128,670       19,828,575  
Charter termination fees
          (618,000 )           (618,000 )
Net (gain)/loss on sale of vessels
                (1,673,321 )     791,659  
 
Total expenses
    19,262,123       21,611,601       52,330,453       62,536,282  
 
 
                               
Income from operations
    9,632,920       6,772,344       32,058,914       22,129,177  
 
 
                               
Other income and (expenses)
                               
Interest and finance costs
    (2,361,087 )     (2,333,499 )     (7,581,916 )     (6,501,636 )
Change in fair value of derivatives
    (1,956,211 )     2,743,086       (2,497,747 )     (1,859,120 )
Interest income
    65,551       40,163       457,612       210,555  
Foreign exchange loss
    (12,316 )     (63,348 )     (198,788 )     (140,235 )
 
Other expenses, net
    (4,264,063 )     386,402       (9,820,839 )     (8,290,436 )
 
 
                               
Net income
    5,368,857       7,158,746       22,238,075       13,838,741  
 
 
                               
Earnings per share
                               
— Basic
    0.24       0.32       1.00       0.62  
 
                       
— Diluted
    0.24       0.32       1.00       0.62  
 
                       
 
                               
Weighted average number of shares
                               
— Basic
    22,114,105       22,210,108       22,114,105       22,206,440  
 
                       
— Diluted
    22,233,081       22,245,939       22,194,740       22,222,330  
 
                       
 
                               
Cash dividends declared
    0.1875             0.5625       0.1875  
 
                       
The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

StealthGas Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(Expressed in United States Dollars)
                 
    Nine Month Periods Ended
    September 30,
    2008   2009
 
 
Cash flows from operating activities
               
Net income for the period
    22,238,075       13,838,741  
 
               
Items included in net income not affecting cash flows:
               
Depreciation and amortization of deferred finance charges
    17,213,467       19,975,790  
Amortization of fair value of time charter
    (871,638 )     (181,552 )
Share based compensation
    1,614,511       501,387  
Change in fair value of derivatives
    1,440,120       (1,525,772 )
(Gain)/loss on sale of vessels
    (1,673,321 )     791,659  
 
               
Changes in operating assets and liabilities:
               
(Increase)/decrease in
               
Trade and other receivables
    160,545       537,253  
Claims receivable
    (3,523 )     (510,692 )
Inventories
    (526,754 )     (865,959 )
Advances and prepayments
    (87,430 )     279,685  
Increase/(decrease) in
               
Payable to related party
    (3,700,172 )     1,170,813  
Trade accounts payable
    236,766       389,360  
Other accrued liabilities
    1,199,437       1,071,964  
Deferred income
    (255,269 )     (3,398,312 )
 
Net cash provided by operating activities
    36,984,814       32,074,365  
 
 
               
Cash flows from investing activities
               
Insurance proceeds
          1,104,174  
Advances for vessels under construction and acquisitions
    (22,893,343 )     (6,077,370 )
Proceeds from sale of vessels, net
    26,883,889       6,229,973  
Acquisition of vessels
    (145,173,795 )     (106,083,015 )
Decrease/(increase) in restricted cash account
    4,464,202       (2,354,595 )
 
Net cash (used in) investing activities
    (136,719,047 )     (107,180,833 )
 
 
               
Cash flows from financing activities
               
Dividends paid
    (12,544,561 )     (4,183,146 )
Deferred finance charges
    (245,675 )     (1,119,300 )
Customer deposits
    (306,772 )     51,722  
Loan repayment
    (19,530,636 )     (18,782,139 )
Proceeds from long-term debt
    115,745,000       88,150,000  
 
Net cash provided by financing activities
    83,117,356       64,117,137  
 
 
               
Net (decrease) in cash and cash equivalents
    (16,616,877 )     (10,989,331 )
Cash and cash equivalents at beginning of year
    33,114,872       41,848,059  
 
Cash and cash equivalents at end of period
    16,497,995       30,858,728  
 
 
               
Supplemental Cash Flow Information:
               
Cash paid during the period for interest
    8,875,987       5,744,015  
 
               
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

StealthGas Inc.
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the nine month periods ended September 30, 2008 and 2009
(Expressed in United States Dollars)
                                                         
                                            Accumulated    
            Capital stock                           Other    
    Comprehensive   Number of           Additional   Retained   Comprehensive    
    Income   Shares   Amount   Paid-in Capital   Earnings   Income/(loss)   Total
 
Balance as of January 1, 2008
            22,284,105       222,841       281,612,867       21,650,412       (455,332 )     303,030,788  
 
                                                       
Issuance of restricted shares and and related stock based compensation
            26,005       260       1,614,251                   1,614,511  
Dividends paid ($0.5625 per share)
                              (12,544,561 )           (12,544,561 )
 
                                                       
Net income for the period
    22,238,075                         22,238,075             22,238,075  
 
                                                       
 
                                                       
Other comprehensive income
                                                       
— Cash flow hedges:
                                                       
Swap contract
    1,486,553                                       1,486,553       1,486,553  
Reclassification adjustment
    146,401                                       146,401       146,401  
 
                                                       
Comprehensive income
    23,871,029                                      
 
 
 
                                                       
Balance, September 30, 2008
            22,310,110       223,101       283,227,118       31,343,926       1,177,622       315,971,767  
 
 
                                                       
Balance as of January 1, 2009
            22,310,110       223,101       283,526,241       34,910,189       (812,206 )     317,847,325  
 
                                                       
Stock based compensation
                        501,387                   501,387  
Dividends paid ($0.1875 per share)
                              (4,183,146 )           (4,183,146 )
 
                                                       
Net income for the period
    13,838,741                         13,838,741             13,838,741  
 
                                                       
 
                                                       
Other comprehensive income
                                                       
— Cash flow hedges:
                                                       
Swap contract
    168,825                               168,825       168,825          
Reclassification adjustment
    (281,459 )                             (281,459 )     (281,459 )        
 
                                                       
Comprehensive income
    13,726,107                                      
 
 
 
                                                       
Balance, September 30, 2009
            22,310,110       223,101       284,027,628       44,565,784       (924,840 )     327,891,673  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
1. Interim Financial Statements
The unaudited condensed consolidated financial statements include the accounts of StealthGas Inc. and its wholly consolidated owned subsidiaries (collectively referred to as the “Company”) in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information. The unaudited condensed consolidated financial statements have been prepared in accordance with the accounting policies described in the Company’s 2008 Annual Report on Form 20-F and should be read in conjunction with the consolidated financial statements and notes thereto.
Certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain reoccurring adjustments necessary to present fairly the Company’s financial position as of September 30, 2009, and the results of its operations and its cash flows for the nine month periods ended September 30, 2008 and 2009.
2. Organization
StealthGas Inc. was formed under the laws of Marshall Islands on December 22, 2004 and, as of September 30, 2009 owned a fleet of forty liquefied petroleum gas (LPG) carriers and three medium range (M.R.) type product carriers providing worldwide marine transportation services under long, medium or short-term charters.
As of September 30, 2009, StealthGas Inc. included the ship-owing companies listed below:
LPG carriers
                     
            Acquisition /    
    Name of Company   Vessel Name   Disposition Date   cbm
     
1.
  VCM Trading Ltd.   Ming Long   October 12, 2004     3,515.55  
2.
  Gaz De Brazil Inc.   Gas Prodigy   October 15, 2004     3,014.59  
3.
  LPGONE Ltd.   Gas Tiny   October 29, 2004     1,319.96  
4.
  Geneve Butane Inc.   Gas Courchevel   November 24, 2004     4,102.00  
5.
  Matrix Gas Trading Ltd.   Gas Shanghai   December 7, 2004     3,525.92  
6.
  Pacific Gases Ltd.   Gas Emperor   February 2, 2005     5,009.07  
7.
  Semichlaus Exports Ltd.   Gas Ice   April 7, 2005     3,434.08  
8.
  Ventspils Gases Ltd.   Gas Arctic   April 7, 2005     3,434.08  
9.
  Industrial Materials Inc.   Birgit Kosan   April 11, 2005     5,013.33  
 
  Independent Trader Ltd.   Gas Oracle   April 26, 2005     3,014.59  
 
          (sold on January 28, 2008)        
10.
  Aracruz Trading Ltd.   Gas Amazon   May 19, 2005     6,562.41  
11.
  Continent Gas Inc.   Gas Chios   May 20, 2005     6,562.09  
12.
  Empire Spirit Ltd.   Sweet Dream   May 31, 2005     5,018.35  
13.
  Jungle Investment Limited   Gas Cathar   July 27, 2005     7,517.18  
14.
  Northern Yield Shipping Ltd.   Gas Legacy   October 27, 2005     3,500.00  
15.
  Triathlon Inc.   Gas Marathon   November 2, 2005     6,572.20  
16.
  Iceland Ltd.   Gas Crystal   November 11, 2005     3,211.04  
17.
  Soleil Trust Inc.   Gas Sincerity   November 14, 2005     4,128.98  
18.
  East Propane Inc.   Catterick   November 24, 2005     5,001.41  
19.
  Petchem Trading Inc.   Gas Spirit   December 16, 2005     4,112.18  
 
  Malibu Gas Inc.   Feisty Gas*   December 16, 2005     4,111.24  
20.
  Balkan Holding Inc.   Gas Czar   February 14, 2006     3,509.65  
21.
  Transgalaxy Inc.   Gas Fortune   February 24, 2006     3,512.78  

6


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
2. Organization — Continued
                     
            Acquisition /    
    Name of Company   Vessel Name   Disposition Date   cbm
     
22.
  International Gases Inc   Gas Zael*   April 03, 2006     4,111.24  
23.
  Balkan Profit Ltd   Gas Eternity   March 09, 2006     3,528.21  
24.
  Oxfordgas Inc.   Lyne   May 19, 2006     5,013.90  
25.
  Energetic Peninsula Limited   Sir Ivor   May 26, 2006     5,000.00  
 
  Ocean Blue Limited   Gas Nemesis   June 15, 2006     5,016.05  
 
          (sold on January 29, 2008)        
26.
  Baroness Holdings Inc.   Batangas   June 30, 2006     3,244.04  
27.
  Evolution Crude Inc.   Gas Flawless   February 1, 2007     6,300.00  
28.
  Aura Gas Inc.   Sea Bird   May 18, 2007     3,518.00  
 
  European Energy Inc.   Gas Renovatio   May 29, 2007     3,312.50  
 
          (sold on March 19, 2008)        
29.
  Fighter Gas Inc.   Gas Icon   June 27, 2007     5,000.00  
30.
  Luckyboy Inc.   Chiltern   June 28, 2007     3,312.00  
31.
  Italia Trades Inc.   Gas Evoluzione   July 23, 2007     3,517.00  
32.
  Studio City Inc.   Gas Kalogeros   July 27, 2007     5,000.00  
33.
  Gastech Inc.   Gas Sikousis   August 03, 2007     3,500.00  
 
  Espace Inc.   Gas Sophie   October 15, 2007     3,500.00  
 
          (sold on June 10, 2009)        
34.
  Cannes View Inc.   Gas Haralambos   October 30, 2007     7,000.00  
35.
  Ecstasea Inc.   Gas Premiership   March 19, 2008     7,200.00  
36.
  Spacegas Inc.   Gas Defiance   August 1, 2008     5,000.00  
37.
  Financial Power Inc.   Gas Shuriken   November 3, 2008     5,000.00  
38.
  Tankpunk Inc.   Gas Natalie   January 22, 2009     3,213.92  
39.
  Sound Effex Inc.   Gas Astrid   April 16, 2009     3,500.00  
40.
  Revolution Inc.   Gas Exelero   June 30, 2009     3,500.00  
 
                   
                     
    Name of Company   Vessel Name   To be delivered on   cbm
     
 
  Pelorus Inc.   Hull K 421   July 2011     5,000.00  
 
  Rising Sun Inc.   Hull K 422   February 2011     5,000.00  
 
  Carinthia Inc.   Hull K 423   March 2011     5,000.00  
 
  Tatoosh Beauty Inc.   Hull K 424   May 2012     7,500.00  
 
  Octopus Gas Inc.   Hull K 425   November 2011     7,500.00  
M.R. type product carriers
                     
    Name of Company   Vessel Name   Acquisition Date   dwt
     
41.
  Clean Power Inc.   Navig8 Fidelity   January 9, 2008     46,754.29  
42.
  MR Roi Inc.   Navig8 Faith   February 27, 2008     46,754.29  
43.
  King of Hearts Inc.   Alpine Endurance   July 14, 2009     47,000.00  
                     
    Name of Company   Vessel Name   To be delivered on   dwt
     
 
  Castell Castle Inc.   Stealth Argentina   December 2009     50,500.00  
 
*   On April 3, 2006, the “Feisty Gas” was delivered to International Gases Inc., subsidiary of StealthGas Inc., and renamed to “Gas Zael”.
The Company’s vessels are managed by Stealth Maritime Corporation S.A. — Liberia (the “Manager”), a related party. The Manager is a company incorporated in Liberia and registered in Greece on May 17, 1999 under the provisions of law 89/1967, 378/1968 and article 25 of law 27/75 as amended by the article 4 of law 2234/94. (See Note 5).

7


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
3. Significant Accounting Policies
A discussion of the Company’s significant accounting policies can be found in the Annual Report on Form 20-F for the fiscal year ended December 31, 2008. There have been no material changes to these policies in the nine month period ended September 30, 2009.
4. Recent Accounting Pronouncements
In March 2008, new guidance was issued with the intent to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods within those fiscal years, beginning after November 15, 2008, with early application allowed. The new guidance allows but does not require comparative disclosures for earlier periods at initial adoption. The Company adopted the new guidance and included the required disclosures (Note 14).
On June 16, 2008, new guidance clarified that all unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The new guidance is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company adopted the new guidance in 2009 and presents earnings per share pursuant to the two-class method (Note 16).
In April 2009, new guidance was issued for interim disclosures about fair value of financial instruments, which amends previous guidance for disclosures about fair value of financial instruments to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The guidance also require those disclosures in summarized financial information at interim reporting periods. The new guidance is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted the new guidance in the second quarter of 2009 and included the required disclosures (Note 14).
In May 2009, new guidance was issued relating to management’s assessment of subsequent events. This new guidance is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, the new guidance sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The new guidance is effective for fiscal years and interim periods ended after June 15, 2009 and will be applied prospectively. The Company adopted the new guidance in the second quarter of 2009 and included the required disclosures (Note 20).

8


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
4. Recent Accounting Pronouncements — Continued
In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, which became the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The Codification’s content will carry the same level of authority, effectively superseding previous guidance. In other words, the GAAP hierarchy will be modified to include only two levels of GAAP: authoritative and non-authoritative. The new guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted the new guidance in the third quarter of 2009 and updated references to U.S. GAAP in these condensed consolidated financial statements to reflect the guidance in the Codification.
In June 2009, new guidance was issued with regards to the consolidation of variable interest entities (“VIE”). This guidance responds to concerns about the application of certain key provisions of the FASB Interpretation, including those regarding the transparency of the involvement with VIEs. The new guidance revises the approach to determining the primary beneficiary of a VIE to be more qualitative in nature and requires companies to more frequently reassess whether they must consolidate a VIE. Specifically, the new guidance requires a qualitative approach to identifying a controlling financial interest in a VIE and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. In addition, the standard requires additional disclosures about the involvement with a VIE and any significant changes in risk exposure due to that involvement. The guidance is effective as of the beginning of the first fiscal year that begins after November 15, 2009 and early adoption is prohibited. The Company is evaluating the impact of this guidance on the Company’s consolidated financial statements.
5. Transactions with Related Party
The Manager provides the vessels with a wide range of shipping services such as chartering, technical support and maintenance, insurance, consulting, financial and accounting services, for a fixed daily fee of $440 per vessel operating under a voyage or time charter or $125 per vessel operating under a bareboat charter and a brokerage commission of 1.25% on freight, hire and demurrage per vessel, effective after an amendment on January 1, 2007 of the Management Agreement. For the nine month periods ended September 30, 2008 and 2009, total brokerage commissions of 1.25% amounted to $1,035,927 and $1,062,906, respectively, ($351,883 and $360,378 for the quarters ended September 30, 2008 and 2009, respectively) and were included in voyage expenses. For the nine month periods ended September 30, 2008 and 2009, the management fees were $3,419,065 and $3,832,670, respectively ($1,161,250 and $1,333,420 for the quarters ended September 30, 2008 and 2009, respectively).
The Manager also acts as a sales and purchase broker of the Company in exchange for a commission fee equal to 1% of the gross sale or purchase price of vessels or companies. For the nine month periods ended September 30, 2008 and 2009, commission fees of $1,340,000 and $575,000, respectively, ($0 and $575,000 for the quarters ended September 30, 2008 and 2009, respectively) were incurred and capitalized to the cost of the vessels. As of September 30, 2008 and 2009 the amounts of $272,750 and $65,000, respectively, were recognized as expenses relating the sale of vessels and are included in the consolidated statements of income under the caption “Net (gain)/loss on sale of vessels”.
The Manager has subcontracted the technical management some of the vessels to two unaffiliated ship-management companies, EMS Ship Management (“EMS”) and Swan Shipping Corporation (Manila). These companies provide technical management to the Company’s vessels for a fixed annual fee per vessel.
In addition to management services, the Company reimburses the Manager for compensation of our Chief Executive Officer, our Chief Financial Officer, our Internal Auditor and our Deputy Chairman and Executive Director for the amounts of $2,286,911 and $913,755 for the nine month periods ended September 30, 2008 and 2009, respectively, ($726,265 and $314,840 for the quarters ended September 30, 2008 and 2009, respectively) and are included in the consolidated statement of income under the caption “General and administrative expenses”.

9


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
5. Transactions with Related Party — Continued
The current account balance with the Manager at December 31, 2008 and at September 30, 2009 was a liability of $2,407,377 and $3,578,190, respectively. The liability represents revenues collected less payments made by the Manager on behalf of the ship-owning companies.
The Company occupies office space that is owned by an affiliated company of the Vafias Group with which it has a new two-year cancelable agreement for the provided office facilities. Rental expense for the nine month periods ended September 30, 2008 and 2009 amounted to $36,932 and $33,580, respectively ($11,661 and $11,694 for the quarters ended September 30, 2008 and 2009, respectively).
6. Inventories
The amounts shown in the accompanying consolidated balance sheets are analyzed as follows:
                 
    December 31, 2008     September 30, 2009  
 
Bunkers
    384,481       1,057,061  
Lubricants
    869,661       1,063,040  
 
Total
    1,254,142       2,120,101  
 
7. Advances for Vessels Under Construction and Acquisitions
During the nine month period ended September 30, 2009, the movement of the account, advances for vessels under construction and acquisitions, was as follows:
         
Balance, December 31, 2008
    23,009,597  
Advances for vessels under construction
  11,375,989
Capitalized interest
    451,381  
Vessel delivered
    (5,750,000 )
 
Balance, September 30, 2009
    29,086,967  
 
The amounts shown in the accompanying consolidated balance sheets as of December 31, 2008 and September 30, 2009 amounting to $23,009,597 and $29,086,967, respectively, represent advance payments to a ship-builder for five LPG carriers under construction and to sellers for two new re-sale M.R. product tankers.
On February 27, 2009, the Company paid the second 10% installment of Yen 1,200,800,000 ($11,375,989) to the shipbuilding yard Mitsubishi Corporation of Japan for the construction of five LPG carriers.
On July 14, 2009, the Company took delivery of the M.R. product tanker “Alpine Endurance”.
As of September 30, 2009, the five LPG carriers under construction and the one re-sale M.R. product tanker have a total purchase price of $187,019,160.

10


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
8. Vessels, net
                         
            Accumulated    
    Vessel cost   Depreciation   Net Book Value
 
Balance, December 31, 2008
    608,801,435       (57,030,395 )     551,771,040  
Acquisitions
    106,083,015             106,083,015  
Disposal
    (7,021,632 )           (7,021,632 )
Depreciation for the period
          (19,828,575 )     (19,828,575 )
 
Balance, September 30, 2009
    707,862,818       (76,858,970 )     631,003,848  
 
The Company acquired the vessels “Gas Natalie”, “Gas Astrid”, “Gas Exelero” and “Alpine Endurance” on January 22, 2009, April 16, 2009, June 30, 2009 and July 14, 2009, respectively, at an aggregate price of $106,083,015.
On May 19, 2009 the Company concluded a memorandum of agreement for the disposal of the vessel “Gas Sophie” to an unaffiliated third party for $6,500,000. The vessel was delivered to her new owners on June 10, 2009 and the Company realized an aggregate loss from the sale of vessel of $791,659 which is included in the Company’s condensed consolidated statement of income.
9. Fair value of acquired time charter
The fair value of the time charters acquired at below / (above) fair market charter rates on the date of vessels’ acquisition is summarized below. These amounts are amortized on a straight-line basis to the end of the charter period. For the nine month periods ended September 30, 2008 and 2009, the amounts of $871,638 and $181,552, respectively ($134,227 and $0 for the quarters ended September 30, 2008 and 2009, respectively), are included in voyage revenues.
                                         
                    Total        
            Fair   accumulated   Amortization    
            value of   amortization   for the   Unamortized
            acquired   as at   period ended   balance as at
    End of Time   time   December   September   September
Vessel   Charter   Charter   31, 2008   30, 2009   30, 2009
Fair value of acquired time charter — Liability                                
Sir Ivor
  April 2009     479,000       (426,876 )     (52,124 )      
Lyne
  April 2009     483,000       (430,786 )     (52,214 )      
Sea Bird II
  May 2009     409,000       (331,786 )     (77,214 )      
 
                                       
Total
            1,371,000       (1,189,448 )     (181,552 )      
 
                                       
10. Deferred Finance Charges
Gross deferred finance charges amounting to $817,344 and $1,936,644 as at December 31, 2008 and September 30, 2009, respectively, represent fees paid to the lenders for obtaining the related loans, net of amortization. For the nine month periods ended September 30, 2008 and 2009, the amortization of deferred financing charges amounted to $84,797 and $147,215, respectively ($31,429 and $91,341 for the quarters ended September 30, 2008 and 2009, respectively) and is included in Interest and finance costs in the accompanying condensed consolidated statements of income.
11. Deferred Income
The amounts shown in the accompanying consolidated balance sheets amounted to $4,776,359 and $1,378,047 represent time charter revenues received in advance as of December 31, 2008 and as of September 30, 2009, respectively.

11


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
12. Customer Deposits
These amounts represent deposits received from charterers as guarantees and comprised as follows:
(a) On September 26, 2006 an amount of $1,320,000 was received from the bareboat charterer of LPG carrier “Ming Long” which is equal to one-year hire. This amount plus any interest earned ($118,478 up to September 30, 2009) will be returned to the charterer at the end of the three years bareboat charter.
(b) On January 30, 2007 an amount of $367,500 was received from the bareboat charterer of LPG carrier “Gas Eternity” which is equal to three-months hire. This amount followed by a subsequent receipt of an nine-months hire on April 12, 2007 amounted to $1,102,500 plus any interest earned ($147,935 up to September 30, 2009) will be returned to the charterer at the end of the three years bareboat charter.
(c) On June 8, 2007 an amount of $449,978 was received from the bareboat charterer of LPG carrier “Gas Monarch” which is equal to three-months hire. This amount followed by a subsequent receipt of an nine-months hire on October 23, 2007 amounted to $1,349,978 plus any interest earned ($98,739 up to September 30, 2009) will be returned to the charterer at the end of the three years bareboat charter.
13. Long-term Debt
                                 
    December 31,   Movements   September 30,
    2008   Additions   Repayments   2009
     
Fortis Bank
    56,635,280             (4,478,270 )     52,157,010  
DnB Nor Bank
    80,139,579             (8,310,328 )     71,829,251  
Scotia Bank
    45,867,014             (1,877,750 )     43,989,264  
Deutche Bank
    38,375,000             (1,875,000 )     36,500,000  
National Bank of Greece
    33,240,000             (969,500 )     32,270,500  
Emporiki Bank
    29,437,000             (858,583 )     28,578,417  
DVB Bank
          32,200,000       (412,708 )     31,787,292  
NIBC
          26,700,000             26,700,000  
EFG Eurobank
          29,250,000             29,250,000  
     
Total
    283,693,873       88,150,000       (18,782,139 )     353,061,734  
     
On January 30, 2009, the Company entered into a $43,000,000 facility agreement with DnB NOR Bank to partially finance the acquisition of one under construction M.R. type product carrier named “Stealth Argentina” (formerly “Hull No 061”) to be constructed in Korea for delivery in the fourth quarter of 2009. The senior secured term loan facility will be the lesser of the amount of $43,000,000 and the 75% of the vessel’s charter free market value at the time of delivery. The term loan will be drawn down in one tranche upon the delivery of the vessel, which is expected in December 2009, and will be repayable, with the first installment commencing six months after the drawdown in eight consecutive semi-annual installments of $1,700,000 each and eight consecutive semi-annual installments of $1,300,000 each plus a balloon payment of $19,000,000 payable together with the last installment. The term loan’s interest rate is LIBOR plus 2.0%. In addition to a first priority mortgage over the vessel, the term loan is secured by the assignment of the vessels’ insurances, earnings, operating and retention accounts and the guarantee of the ship owning subsidiary.
On February 18, 2009, the Company entered into an up to $33,880,000 facility agreement with DVB Bank SE Nordic Branch to partially finance the acquisition of a second-hand and two under construction LPG carriers, named “Chiltern”, “Gas Astrid” (formerly Hull “K411”) and “Gas Exelero” (formerly Hull “K412”), respectively, by three of the Company’s wholly owned subsidiaries. The senior secured term loan facility will be the lesser of the amount of $33,880,000 and the 70% of the vessels’ charter free market value at the time of delivery. The term loan will be drawn down in two tranches upon the delivery of each vessel.

12


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
13. Long-term Debt — Continued
The first tranche amounted to $19,250,000 was drawn down on April 16, 2009 and the second tranche of $12,950,000 was drawn down on July 1, 2009. The total facility of $32,200,00 will be repayable, with the first installment commencing three months after the drawdown, in twenty consecutive quarterly installments of $628,541 each plus a balloon payment of $19,629,180 payable together with the last installment. The term loan’s interest rate is LIBOR plus 2.85%. In addition to a first priority mortgage over the vessels, the term loan is secured by the assignment of the vessels’ insurances, earnings, operating and retention accounts and the guarantee of the ship owning subsidiary.
On February 19, 2009, the Company entered into a $37,500,000 facility agreement with EFG Eurobank Ergasias S.A. to partially finance the acquisition of the under construction M.R. type product carrier named “Alpine Endurance” (formerly “Hull No. 2139”). Following a revaluation of the vessel on April 13, 2009, the senior secured term loan facility will be the lesser of the amount of $31,500,000 and the 75% of the vessel’s charter free market value at the time of delivery. The term loan, amounted to $29,250,000, was drawn down in one tranche upon the delivery of the vessel, which was delivered on July 14, 2009, and will be repayable, with the first installment commencing three months after the drawdown, in ten consecutive quarterly installments of $650,000 each and thirty consecutive quarterly installments of $420,000 each plus a balloon payment of $12,400,000 payable together with the last installment. The term loan’s interest rate is LIBOR plus 2.50%. In addition to first priority mortgage over the vessel, the term loan is secured by the assignment of this vessel’s insurances, earnings, operating and retention accounts and the guarantee of the ship owning subsidiary.
On May 25, 2009, the Company entered into a $26,700,000 facility agreement with NIBC, secured by the Gas Haralambos, Gas Spirit and the Gas Natalie, three vessels already owned by three of the Company’s wholly-owned subsidiaries. The senior secured term loan facility will be the lesser of the amount of $26,700,000 or 65% of the vessels’ market value at the time of drawdown and was drawn down in three tranches on July 2, 2009 in connection with the part funding of deposits required for vessels under construction as ordered by the Company. The term loan is repayable in five semi-annual installments of $1,637,634 each and five semi-annual installments of $1,077,634 each plus a balloon payment of $13,123,660 payable together with the last installment. The term loan’s interest rate is LIBOR plus 3.00%. In addition to first priority mortgages over the Gas Haralambos, Gas Spirit and the Gas Natalie, the term loan is secured by the assignment of these vessels’ insurances, earnings and operating and retention accounts and the guarantee of the ship owning subsidiaries.
On October 7, 2009, the Company reached an agreement with Deutsche Bank in regard to the facility that finances the “Navig8 Faith”. In consideration of an increase in the interest margin from 0.70% to 2.00% over LIBOR for the remaining term of the facility the Bank has agreed that the minimum asset valuation clause will be reduced from 125% to 105% for the period up to September 30, 2010.
The annual principal payments to be made, for the nine loans, after September 30, 2009 are as follows:
         
September 30,   Amount
 
2010
    31,612,718  
2011
    31,612,718  
2012
    30,632,718  
2013
    29,652,718  
2014
    61,992,850  
Thereafter
    167,558,012  
 
 
       
Total
    353,061,734  
 

13


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
13. Long-term Debt — Continued
The loan agreements contain financial covenants requiring the Company to ensure that the aggregate market value of each mortgaged vessel at all times exceed between 100% to 130% of the amount outstanding under these facilities, the leverage of the Company defined as Total Debt net of Cash should not exceed 80% of total market value adjusted assets, the Interest Coverage Ratio of the Company defined as EBITDA to interest expense over the preceding six months to be at all times greater than to 2.5:1, and that at least 15% of the Company is to always be owned by members of the Vafias family.
The loans agreements also require the Company to make deposits in retention accounts with certain banks that can only be used to pay the current loan installments. Minimum cash balance requirements are in addition to cash held in retention accounts. These cash deposits amounted to $4,272,439 and $6,627,034 as of December 31, 2008 and September 30, 2009, respectively, and are shown as “Restricted cash” under “Current assets” and “Non current assets” in the condensed consolidated balance sheets. The Company is also restricted, under the loan agreements, from paying cash dividends in amounts that exceed 50% of its free cash flow over the preceeding twelve months.
Total bank loan interest expense for the nine month periods ended September 30, 2008 and 2009 amounted to $7,264,665 and $6,232,499, respectively ($2,223,203 and $2,108,335 for the quarters ended September 30, 2008 and 2009, respectively), and is included in Interest and finance costs in the accompanying condensed consolidated statements of income.
At September 30, 2009, the amount outstanding of $353,061,734 bore an average interest rate (including the margin) of 2.85%.
14. Derivatives and Fair Value Disclosures
On July 16, 2009, the Company entered into an amortizing interest rate swap agreement for a notional amount of $53,330,131 in regard to “DnB” facility. The agreement was effective starting September 9, 2009 and expires on March 9, 2016; under this agreement the Company receives each quarter interest on the notional amount based on the three month LIBOR rate and pays interest based on a fixed interest rate of 4.73%. This agreement replaces the two un-amortizing interest rate swap agreements of $25,000,000 each, dated May 22, 2006 and June 22, 2007, which were due to expire on September 9, 2011 and September 11, 2012, respectively, and which bore fixed interest rates of 5.42% and 5.58%, respectively.
On July 16, 2009, the Company as a condition of its facility with NIBC Bank, entered into an amortizing interest rate swap agreement for a notional amount of $23,900,000. The agreement was effective starting July 20, 2009 and expires on July 20, 2014; under this agreement the Company receives each quarter interest on the notional amount based on the three month LIBOR rate and pays interest based on a fixed interest rate of 2.77%.
The Company uses interest rate swaps for the management of interest rate risk exposure. The interest rate swaps effectively convert a portion of the Company’s debt from a floating to a fixed rate and are designated and qualify as cash flow hedges. The Company is a party to six floating-to-fixed interest rate swaps with various major financial institutions covering notional amounts aggregating approximately $180,017,141 at September 30, 2009 pursuant to which it pays fixed rates ranging from 2.77% to 4.73% and receives floating rates based on the London interbank offered rate (“LIBOR”) (approximately 1.55% at September 30, 2009). These agreements contain no leverage features and have maturity dates ranging from February 2013 to March 2016.
The Company enters into foreign currency forward contracts in order to manage risks associated with fluctuations in foreign currencies. On August 5, 2008 the Company entered into a series of foreign currency forward contracts to hedge part of its exposure to fluctuations of its anticipated cash payments in Japanese Yen relating to certain vessels under construction described in note 7. Under the contracts the Company will convert U.S. dollars to approximately JPY5.4 billion of cash outflows at various dates from 2009 to 2011.

14


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
14. Derivatives and Fair Value Disclosures — Continued
Five of the Company’s swap agreements did not meet hedge accounting criteria. All derivatives are recorded in the consolidated balance sheet at fair value at each period end with the resulting unrealized gains (losses) during the period reflected in “Change of fair value of derivatives” on its consolidated condensed statement of income. The following tables present information on the location and amounts of derivatives fair values reflected in the consolidated condensed balance sheet and with respect to gains and losses on derivative positions reflected in the consolidated condensed statement of income or in the consolidated condensed balance sheet, as a component of accumulated other comprehensive loss.
Tabular disclosure of financial instruments is as follows:
                         
            September 30, 2009  
            Asset     Liability  
    Balance Sheet Location     Derivatives     Derivatives  
 
Derivatives designated as hedging instruments                    
Interest Rate Swap Agreements
  Non current liabilities — Fair value of derivatives           489,378  
Total derivatives designated as hedging instruments
                  489,378  
 
 
                       
Derivatives not designated as hedging instruments
                       
Foreign Currency Contract
  Current assets — Fair value of derivatives     4,623        
Foreign Currency Contract
  Non current assets — Fair value of derivatives     7,924,204        
Interest Rate Swap Agreements
  Non current liabilities - Fair value of derivatives           11,139,287  
 
Total derivatives not designated as hedging instruments
            7,928,827       11,139,287  
 
 
                       
Total derivatives
            7,928,827       11,628,665  
 
The effect of derivative instrument on the consolidated condensed balance sheet as of September 30, 2009 is as follows:
                 
    Nine Month Period
    ended September 30,
    2009
    Amount of Gain / (Loss)
    Recognized in OCL on
    Derivative (Effective
Derivatives designated as hedging instruments    Portion)
 
Interest Rate Swap Agreement
            (112,634 )
 
The effect of derivative instruments on the consolidated condensed statement of income for the quarter and nine month period ended September 30, 2009 are as follows:

15


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
14. Derivatives and Fair Value Disclosures — Continued
                         
                    Nine  
                    Month  
            Quarter     Period  
            ended     ended  
          September     September  
            30, 2009     30, 2009  
Derivatives designated as hedging instruments                    
    Location of Gain / (Loss)     Amount of Gain / (Loss)  
    Reclassified from     Reclassified from  
    Accumulated OCL into Income     Accumulated OCL into  
    (Effective     Income (Effective  
    Portion)     Portion)  
 
Interest Rate Swap Agreement
  Change in fair value of derivatives     (478,847 )     (790,255 )
 
    Location of     Amount of Gain / (Loss)  
    Gain / (Loss)     Recognized in Income on  
    Recognized in Income on Derivative     Derivative (Ineffective  
    (Ineffective Portion)     Portion)  
 
Interest Rate Swap Agreement
  Change in fair value of derivatives     (157,754 )     281,459  
 
 
                       
Derivatives not designated as hedging instruments
  Location of Gain / (Loss) Recognized                
 
Interest Rate Swap — Fair Value
  Change in fair value of derivatives     (1,115,586 )     965,488  
Interest Rate Swap — Realized loss
  Change in fair value of derivatives     (1,313,499 )     (2,594,636 )
Foreign Currency Contract — Fair Value
  Change in fair value of derivatives     5,808,772       278,824  
 
Total loss on derivatives not designated as hedging instruments
            3,379,687       (1,350,324 )
 
 
                       
Total loss on derivatives
            2,743,086       (1,859,120 )
 
Fair Value of Financial Instruments: The carrying values of cash, accounts receivable and accounts payable are reasonable estimates of their fair value due to the short term nature of these financial instruments. The fair value of long term bank loans bearing interest at variable interest rates approximates the recorded values. Additionally, the Company considers the creditworthiness when determining the fair value of the credit facilities. The carrying value approximates the fair market value of the floating rate loans. The Company’s interest rate swap agreements are based on LIBOR swap rates. LIBOR swap rates are observable at commonly quoted intervals for the full terms of the swap and therefore are considered Level 2 items. The fair values of the interest rate swaps determined through Level 2 of the fair value hierarchy are derived principally from or corroborated by observable market data. Inputs include quoted prices for similar assets, liabilities (risk adjusted) and market-corroborated inputs, such as market comparables, interest rates, yield curves and other items that allow value to be determined. The fair value of the interest rate swaps is determined using a discounted cash flow method based on market-base LIBOR swap yield curves. The fair value of the Company’s interest rate swaps and foreign currency contracts was the estimated amount the Company would pay or receive to terminate the swap agreements and contracts at the reporting date, taking into account current interest rates and the prevailing USD/JPY exchange rate, respectively, and the current creditworthiness of the Company and its counter parties.

16


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
14. Derivatives and Fair Value Disclosures — Continued
Fair Value Disclosures: The Company has categorized our assets and liabilities recorded at fair value based upon the fair value hierarchy specified by the relevant guidance. The levels of fair value hierarchy are as follows:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following table presents the fair values for assets and liabilities measured on a recurring basis categorized into a Level based upon the lowest level of significant input to the valuations as of September 30, 2009:
                                 
            Fair Value Measurements Using  
            Quoted Prices in             Significant  
    Fair Value as     Active Markets for     Significant Other     Unobservable  
    of September     Identical Assets     Observable Inputs     Inputs  
Description   30, 2009     (Level 1)     (Level 2)     (Level 3)  
 
Assets/(Liabilities):
                               
Foreign Currency Contract
    7,928,827             4,623       7,924,204  
Interest Rate Swap Agreements
    (11,628,665 )           (11,628,665 )      
 
Total
    (3,699,838 )           (11,624,042 )     7,924,204  
 
The company determined the fair value of the derivative contracts using standard valuation models that are based on market-based observable inputs including forward and spot exchange rates and interest rate curves. Level 2 derivative assets include interest rate swaps and foreign currency forward contracts.
The fair value of the foreign currency forward contracts with various potential levels of profit participating in the Deutsche Bank “Harvest Fund” were determined by using Black-Scholes option valuation model. The inputs into the valuation model included USD/JPY currency forward rates, contract expiration dates, strike price, risk free interest rate and harvest volatility. This asset is included in Level 3 because some of the inputs into the valuation model represent significant unobservable inputs.
The following table presents additional information about assets measured at fair value on a recurring basis and for which we utilized Level 3 inputs to determine fair value:
                 
    Fair Value Measurements Using  
    Significant Unobservable Inputs  
    (Level 3)  
    Foreign Currency Contract  
     
Balance, January 1, 2009
            6,514,523  
Total unrealized gains Included in earnings
            1,409,681  
 
Balance, September 30, 2009
            7,924,204  
 
 
               
The amount of total gains for the period included in earnings attributable to the change in unrealized gains relating to assets still held at the reporting date
            1,409,681  
 

17


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
15. Equity Compensation Plan
The Company’s board of directors has adopted an Equity Compensation Plan (“the Plan”), under which the Company’s employees, directors or other persons or entities providing significant services to the Company or its subsidiaries are eligible to receive stock-based awards including restricted stock, restricted stock units, unrestricted stock, bonus stock, performance stock and stock appreciation rights. The Plan is administered by the Compensation Committee of the Company’s board of directors and the aggregate number of shares of common stock reserved under this plan cannot exceed 10% of the number of shares of Company’s common stock issued and outstanding at the time any award is granted. The Company’s board of directors may terminate the Plan at any time.
As of September 30, 2009 a total of 250,005 restricted shares had been granted under the Plan since the first grant in the third quarter of 2007.
Management has selected the accelerated method allowed by the relevant guidance with respect to recognizing stock based compensation expense for restricted share awards with graded vesting because it believes that this method better matchs expense with benefits received. In addition, non-vested awards granted to non-employees are measured at their then-current fair value as of the financial reporting dates until non-employees complete the service.
The stock based compensation expense for the restricted vested and non-vested shares for the nine month periods ended September 30, 2008 and 2009 amounted to $1,614,511 and $501,387, respectively, ($559,973 and $170,117 for the quarters ended September 30, 2008 and 2009, respectively), and is included in the condensed consolidated statement of income under the caption “General and administrative expenses”.
A summary of the status of the Company’s vested and non-vested restricted shares for the nine month period ended September 30, 2009, is presented below:
                 
            Weighted average grant
            date fair value per non-
    Number of restricted shares   vested share
     
Non-vested, January 1, 2009
    113,005       15.69  
Granted
           
Vested
    (13,003 )     13.52  
Forfeited
           
     
Non-vested, September 30, 2009
    100,002       15.97  
     
As of September 30, 2009, there was $320,043 of total unrecognized compensation cost related to non-vested restricted shares granted under this Plan. That cost is expected to be recognized over an average period of 0.9 years. The total fair value of shares vested during the nine month period ended September 30, 2009 was $175,853.
15. Earnings per share
Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share give effect to all potentially dilutive securities. Our non-vested restricted shares were potentially dilutive securities during the nine month period ended September 30, 2009. All of the Company’s shares (including non-vested common stock issued under the Plan) participate equally in dividend distributions and in undistributed earnings. Non-vested common stock does not have a contractual obligation to share in the losses.

18


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
16. Earnings per share — Continued
On January 1, 2009 the Company adopted new guidance which clarified that unvested share-based payment awards that contain rights to receive non forfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus, should be included in the two-class method of computing earnings per share (EPS). This standard was applied retroactively to all periods presented and reduced basic EPS by $0 and $0.01 for the quarter and nine month period ended September 30, 2008, respectively.
Dividends declared during the period for non-vested common stock as well as undistributed earnings allocated to non-vested stock are deducted from net income for the purpose of the computation of basic earnings per share in accordance with two-class method as required by the new guidance. The denominator of the basic earnings per common share excludes any non-vested shares as such are not considered outstanding until the time-based vesting restriction has elapsed.
For purposes of calculating diluted earnings per share, dividends declared during the period for non-vested common stock and undistributed earnings allocated to non-vested stock are not deducted from net income as reported since such calculation assumes non-vested common stock is fully vested from the grant date.
The Company calculates the number of shares outstanding for the calculation of basic and diluted earnings per share as follows:
                                 
    Quarters ended   Nine Month Periods ended
    September 30,   September 30,
    2008   2009   2008   2009
     
 
                               
Numerator
                               
Net income
    5,368,857       7,158,746       22,238,075       13,838,741  
 
                               
Less: Dividends declared and undistributed earnings allocated to non-vested shares
    (47,168 )     (32,088 )     (121,913 )     (63,618 )
     
Net income attributable to common shareholders, basic
    5,321,689       7,126,658       22,116,162       13,775,123  
     
 
                               
Denominator
                               
Basic Weighted average shares — outstanding
    22,114,105       22,210,108       22,114,105       22,206,440  
Effect on dilutive securities:
                               
Non-vested restricted shares
    118,976       35,831       80,635       15,890  
     
Diluted Weighted average shares — outstanding
    22,233,081       22,245,939       22,194,740       22,222,330  
     
 
                               
Basic and diluted earnings per share
    0.24       0.32       1.00       0.62  
     
17. Dividends Paid
On February 19, 2009 the Company’s Board of Directors declared a cash dividend for 22,310,110 common shares outstanding of $0.1875 per common share, payable on March 9, 2009 to stockholders of record on March 2, 2009. The total amount of $4,183,146 was paid on March 06, 2009.

19


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
18. Voyage Expenses and Vessel Operating Expenses
The amounts in the accompanying condensed consolidated statements of income are analyzed as follows:
                                 
    Quarters ended   Nine Month Periods ended
    September 30,   September 30,
Voyage Expenses   2008   2009   2008   2009
     
Port expenses
    163,985       529,549       350,237       1,238,655  
Bunkers
    621,903       1,342,532       1,166,263       3,300,982  
Commissions charged by third parties
    393,445       426,829       1,194,190       1,313,793  
Commissions charged by related party
    351,883       360,378       1,035,927       1,062,906  
Other voyage expenses
    95,297       6,704       103,784       168,096  
 
Total
    1,626,513       2,665,992       3,850,401       7,084,432  
 
                                 
    Quarters ended   Nine Month Periods ended
    September 30,   September 30,
Vessels’ Operating Expenses   2008   2009   2008   2009
     
Crew wages and related costs
    5,099,834       6,150,583       13,824,092       17,336,177  
Insurance
    405,239       472,821       1,132,133       1,268,390  
Repairs and maintenance
    1,153,537       981,472       3,339,925       3,564,856  
Spares and consumable stores
    1,372,206       1,321,869       3,694,444       4,114,573  
Miscellaneous expenses
    751,198       722,764       1,970,554       1,763,191  
 
Total
    8,782,014       9,649,509       23,961,148       28,047,187  
 
19. Commitments and Contingencies
    From time to time the Company expects to be subject to legal proceedings and claims in the ordinary course of its business, principally personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. The Company is not aware of any current legal proceedings or claims.
 
    In January 2005, the Company entered into a three-year cancelable operating lease for its office facilities that terminated in January 2008. In January 2008, the Company entered into a new two-year cancelable operating lease for its office facilities that terminates in January 2010. Rental expense for the nine month periods ended September 30, 2008 and 2009 amounted to $36,932 and $33,580, respectively ($11,661 and $11,694 for the quarters ended September 30, 2008 and 2009, respectively). In October 2005, the Company entered into a three-year cancelable operating lease for an armored car that terminated in October 2008. In October 2008 the Company entered into a new three-year cancelable operating lease for an armored car that terminates in October 2011. Rental expense for the nine month periods ended September 30, 2008 and 2009 amounted to $38,977 and $35,224, respectively ($12,767 and $12,305 for the quarters ended September 30, 2008 and 2009, respectively) and is recorded in the consolidated statement of income under the caption “General and administrative expenses”.
 
      Future rental commitments were payable as follows:
                         
September 30,   Office Lease   Car Rent   Total
 
2010
    11,694       49,990       61,684  
2011
          49,990       49,990  
2012
          4,166       4,166  
     
 
    11,694       104,146       115,840  
     

20


 

StealthGas Inc.
Notes to the condensed consolidated financial statements (unaudited)
(Expressed in United States Dollars)
19. Commitments and Contingencies — Continued
    During the year ended December 31, 2008 the Company entered into memoranda of agreement with third parties to acquire two re-sale M.R. product tankers. As of September 30, 2009, since the acquisition of the one M.R. product tanker, the Company has short-term outstanding commitments for the unpaid balance of the purchase price for one vessel of $51,750,000, net of $5,750,000 already advanced to the sellers in 2008.
 
    As described in Note 7, as of September 30, 2009 the Company has long-term outstanding commitments for installment payments for five vessels under construction, as follows:
         
Year ended   Shipbuilding Contracts
 
2010
    7,152,405  
2011
    59,405,079  
2012
    40,465,687  
 
Total
    107,023,171  
 
      As of September 30, 2009, the Company’s long term obligations due under the shipbuilding contracts with Mitsubishi Corporation of Japan totaled to JPY9,606,400,000 were converted to US Dollars based upon the foreign currency forward contracts entered into by the Company and the prevailing USD/JPY exchange rate as at September 30, 2009. The total obligation under these contracts was $107,023,171.
 
      Based upon the above the average prevailing USD/JPY exchange rate used for the calculation of the total obligation was 89.76 JPY to $1.
20. Subsequent Events
The Company has evaluated subsequent events through December 24, 2009, the date the financial statements are issued.
  (a)   On October 22, 2009, the Company concluded a memorandum of agreement for the disposal of the vessel “Gas Fortune” to an unaffiliated third party for $5,600,000. The vessel was delivered to her new owners on December 9, 2009 and the Company realized a loss from the sale of the above vessel of $2,500,760 which will be included in the Company’s consolidated statement of income in the fourth quarter of 2009.
 
  (b)   On November 10, 2009, the Company concluded a memorandum of agreement for the disposal of the vessel “Gas Natalie” to an unaffiliated third party for $6,800,000. The vessel is classified as vessel held for sale in the fourth quarter of 2009 and is scheduled to be delivered to her new owners on January 20, 2010. The Company will record an impairment charge of $3,660,390 to write down the carrying amount of the vessel to fair market value less costs to sell and will be included in the Company’s consolidated statement of income in the fourth quarter of 2009.

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