Document



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
OR
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
________________
Commission File Number 001–33831
EAGLE BULK SHIPPING INC.
(Exact name of Registrant as specified in its charter)
Republic of the Marshall Islands
 
98–0453513
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
300 First Stamford Place, 5th floor
Stamford, Connecticut 06902
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (203) 276–8100
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     X     
NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES     X     
NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐
Accelerated filer☒
Emerging growth company ☐
Non-Accelerated filer☐
Smaller reporting company☐
 
(Do not check if a smaller reporting company)
If an emerging growth company, 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES          
NO     X     
Number of shares of registrant’s common stock outstanding as of August 6, 2018: 73,037,457
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes☒ No☐





TABLE OF CONTENTS

 
 
Page
PART I
FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II
OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.






CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the period ended June 30, 2018 (the "Quarterly Report on Form 10-Q") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the safe harbor provided for under these sections. These statements may include words such as “believe,” “estimate,” “project,” “intend,” “expect,” “plan,” “anticipate,” and similar expressions in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward-looking statements reflect management’s current expectations and observations with respect to future events and financial performance.
Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected, or implied by those forward-looking statements. The principal factors that affect our financial position, results of operations and cash flows include, charter market rates, which have declined significantly from historic highs, periods of charter hire, vessel operating expenses and voyage costs, which are incurred primarily in U.S. dollars, depreciation expenses, which are a function of the cost of our vessels, significant vessel improvement costs and our vessels' estimated useful lives, and financing costs related to our indebtedness. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors which could include the following: (i) changes in demand in the dry bulk market, including, without limitation, changes in production of, or demand for, commodities and bulk cargoes, generally or in particular regions; (ii) greater than anticipated levels of dry bulk vessel newbuilding orders or lower than anticipated rates of dry bulk vessel scrapping; (iii) changes in rules and regulations applicable to the dry bulk industry, including, without limitation, legislation adopted by international bodies or organizations such as the International Maritime Organization and the European Union or by individual countries; (iv) actions taken by regulatory authorities including without limitation the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”); (v) changes in trading patterns significantly impacting overall dry bulk tonnage requirements; (vi) changes in the typical seasonal variations in dry bulk charter rates; (vii) changes in the cost of other modes of bulk commodity transportation; (viii) changes in general domestic and international political conditions; (ix) changes in the condition of the Company’s vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking costs); (x) significant deteriorations in charter hire rates from current levels or the inability of the Company to achieve its cost-cutting measures; and (xi) the outcome of legal proceeding in which we are involved; and other factors listed from time to time in our filings with the Securities and Exchange Commission (the “SEC”). This discussion also includes statistical data regarding world dry bulk fleet and orderbook and fleet age. We generated some of this data internally, and some were obtained from independent industry publications and reports that we believe to be reliable sources. We have not independently verified this data nor sought the consent of any organizations to refer to their reports in this Quarterly Report on Form 10-Q. We disclaim any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. 




PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017
(Unaudited)
 
June 30, 2018
 
December 31, 2017
ASSETS:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
76,881,117

 
$
56,251,044

Accounts receivable
13,072,691

 
17,246,540

Prepaid expenses
2,797,648

 
3,010,766

Short-term investment

 
4,500,000

Inventories
11,911,398

 
14,113,079

Vessel held for sale
10,354,855

 
9,316,095

Other current assets
2,540,427

 
785,027

Total current assets
117,558,136

 
105,222,551

Noncurrent assets:
 
 
 
Vessels and vessel improvements, at cost, net of accumulated depreciation of $113,539,571 and $99,910,416, respectively
686,424,065

 
690,236,419

Advance for vessel purchase

 
2,201,773

Other fixed assets, net of accumulated amortization of $432,225 and $343,799, respectively
580,020

 
617,343

Restricted cash
74,917

 
74,917

Deferred drydock costs, net
11,584,365

 
9,749,751

Deferred financing costs - Super Senior Facility
285,342

 
190,000

Other assets
55,815

 
57,181

Total noncurrent assets
699,004,524

 
703,127,384

Total assets
$
816,562,660

 
$
808,349,935

LIABILITIES & STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
8,123,778

 
$
7,470,844

Accrued interest
1,733,278

 
1,790,315

Other accrued liabilities
7,602,898

 
11,810,366

Fair value of derivatives
461,993

 
73,170

Unearned charter hire revenue
4,901,453

 
5,678,673

Current portion of long-term debt
19,812,713

 
4,000,000

Total current liabilities
42,636,113

 
30,823,368

Noncurrent liabilities:
 
 
 
Norwegian Bond Debt, net of debt discount and debt issuance costs
186,381,482

 
189,950,329

New First Lien Facility, net of debt discount and debt issuance costs
52,353,586

 
63,758,185

Ultraco Debt Facility, net of debt discount and debt issuance costs
63,263,797

 
59,975,162

Other liabilities
216,924

 
177,846

Fair value below contract value of time charters acquired
2,159,062

 
2,500,012

Total noncurrent liabilities
304,374,851

 
316,361,534

Total liabilities
347,010,964

 
347,184,902

Commitments and contingencies


 


Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value, 25,000,000 shares authorized, none issued as of June 30, 2018 and December 31, 2017, respectively

 

Common stock, $0.01 par value, 700,000,000 shares authorized, 70,516,466 and 70,394,307 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
705,165

 
703,944

Additional paid-in capital
893,294,942

 
887,625,902

Accumulated deficit
(424,448,411
)
 
(427,164,813
)
Total stockholders’ equity
469,551,696

 
461,165,033

Total liabilities and stockholders’ equity
$
816,562,660

 
$
808,349,935


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

F-1



EAGLE BULK SHIPPING INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Revenues, net
$
74,938,700

 
$
53,631,224

 
$
154,309,309

 
$
99,486,281

 
 
 
 
 
 
 
 
Voyage expenses
17,204,964

 
13,379,664

 
39,719,556

 
26,733,011

Vessel expenses
20,577,116

 
19,308,802

 
41,655,773

 
37,264,321

Charter hire expenses
10,108,258

 
6,445,580

 
20,376,322

 
10,318,912

Depreciation and amortization
9,272,460

 
8,020,597

 
18,548,875

 
15,513,405

General and administrative expenses
8,895,505

 
8,589,979

 
18,809,469

 
16,368,800

Gain on sale of vessels
(105,073
)
 
(1,805,785
)
 
(105,073
)
 
(1,897,899
)
Total operating expenses
65,953,230

 
53,938,837

 
139,004,922

 
104,300,550

Operating income/(loss)
8,985,470

 
(307,613
)
 
15,304,387

 
(4,814,269
)
 
 
 
 
 
 
 
 
Interest expense
6,387,011

 
6,858,716

 
12,648,080

 
13,303,747

Interest income
(111,952
)
 
(185,641
)
 
(207,228
)
 
(375,439
)
Other income
(740,356
)
 
(1,092,222
)
 
(639,977
)
 
(785,663
)
Total other expense, net
5,534,703

 
5,580,853

 
11,800,875

 
12,142,645

Net income/(loss)
$
3,450,767

 
$
(5,888,466
)
 
$
3,503,512

 
$
(16,956,914
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
70,515,320

 
70,329,050

 
70,484,240

 
67,996,330

Diluted
72,086,980

 
70,329,050

 
71,560,775

 
67,996,330

 
 
 
 
 
 
 
 
Per share amounts:
 
 
 
 
 
 
 
Basic income/(loss)
$
0.05

 
$
(0.08
)
 
$
0.05

 
$
(0.25
)
Diluted income/(loss)
$
0.05

 
$
(0.08
)
 
$
0.05

 
$
(0.25
)

    
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


F-2



EAGLE BULK SHIPPING INC. AND SUBSIDIARIES

     Condensed Consolidated Statements of Comprehensive Income/(Loss)
        for the Three and Six Months Ended June 30, 2018 and 2017
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Net income/(loss)
$
3,450,767

 
$
(5,888,466
)
 
$
3,503,512

 
$
(16,956,914
)
 
 
 
 
 
 
 
 
Comprehensive income/(loss)
$
3,450,767

 
$
(5,888,466
)
 
$
3,503,512

 
$
(16,956,914
)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

F-3



EAGLE BULK SHIPPING INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity
For the Six Months Ended June 30, 2018 and 2017
(Unaudited)
 
Common
Stock
 
Common
Stock
Amount
 
Additional
Paid-in
Capital
 
Accumulated Deficit
 
Total Stockholders’
Equity
Balance at December 31, 2017
70,394,307

 
$
703,944

 
$
887,625,902

 
$
(427,164,813
)
 
$
461,165,033

 
 
 
 
 
 
 
 
 
 
Cumulative effect of accounting change (Note 2) *

 

 

 
(787,110
)
 
(787,110
)
Net income

 

 

 
3,503,512

 
3,503,512

Issuance of shares due to vesting of restricted shares and exercise of options
122,159

 
1,212

 
(1,212
)
 

 

Cash received due to exercise of stock options

 
9

 
4,856

 
 
 
4,865

Cash used to settle net share equity awards

 

 
(255,114
)
 

 
(255,114
)
Stock-based compensation

 

 
5,920,510

 

 
5,920,510

Balance at June 30, 2018
70,516,466

 
$
705,165

 
$
893,294,942

 
$
(424,448,411
)
 
$
469,551,696


* The opening accumulated deficit has been adjusted on January 1, 2018 in connection with adoption of Accounting Standards Update 2014-09 ("ASC 606"). Please refer to Note 2 "Recently Adopted Accounting Pronouncements" to the condensed consolidated financial statements.
 
Common
Stock
 
Common
Stock
Amount
 
Additional
Paid-in
Capital
 
Accumulated Deficit
 
Total Stockholders’
Equity
Balance at January 1, 2017
48,106,827

 
$
481,069

 
$
783,369,698

 
$
(383,368,128
)
 
$
400,482,639

 
 
 
 
 
 
 
 
 
 
Net loss

 

 

 
(16,956,914
)
 
(16,956,914
)
Issuance of shares for private placement, net of issuance costs
22,222,223

 
222,222

 
95,807,781

 

 
96,030,003

Stock-based compensation

 

 
4,648,751

 

 
4,648,751

Balance at June 30, 2017
70,329,050


$
703,291


$
883,826,230


$
(400,325,042
)

$
484,204,479



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

F-4



EAGLE BULK SHIPPING INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017
(Unaudited)
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
Cash flows from operating activities:
 
 
 
Net income/(loss)
$
3,503,512

 
$
(16,956,914
)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
 
 
 
Depreciation
16,049,334

 
13,538,266

Amortization of deferred drydocking costs
2,499,541

 
1,975,139

Amortization of debt issuance costs
970,352

 
2,901,948

Amortization of fair value below contract value of time charter acquired
(340,950
)
 
(375,833
)
Payment-in-kind interest on debt

 
4,977,219

Net unrealized gain on fair value of derivative instruments
(234,988
)
 
(736,609
)
Stock-based compensation expense
5,920,510

 
4,648,751

Drydocking expenditures
(4,632,000
)
 
(341,350
)
Gain on sale of vessels
(105,073
)
 
(1,897,899
)
Fees paid on time charter termination

 
(1,500,000
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
4,173,849

 
(6,172,147
)
Other current and non-current assets
(333,715
)
 
(1,125,809
)
Prepaid expenses
213,117

 
28,848

Inventories
2,201,681

 
(1,693,827
)
Accounts payable
652,934

 
705,907

Accrued interest
(57,037
)
 
(15,217
)
Other accrued and other non-current liabilities
(3,332,732
)
 
(3,593,657
)
Unearned revenue
(2,360,838
)
 
369,955

Net cash provided by/(used in) operating activities
24,787,497

 
(5,263,229
)
 
 
 
 
Cash flows from investing activities:
 
 
 
Purchase of vessels and vessel improvements
(20,301,806
)
 
(121,331,815
)
Advance paid for purchase of vessel

 
(20,863,466
)
Proceeds from redemption of Short-term investment
4,500,000

 

Proceeds from sale of vessels
9,719,013

 
10,586,500

Purchase of other fixed assets
(50,933
)
 
(204,348
)
Net cash used in investing activities
(6,133,726
)
 
(131,813,129
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Repayment of term loan under First Lien Facility

 
(5,293,250
)
Repayment of revolver loan under New First Lien Facility
(5,000,000
)
 

Proceeds from Ultraco Debt Facility
8,600,000

 
40,000,000

Proceeds from the common stock private placement, net of issuance costs

 
96,030,003

Cash received from exercise of stock options
4,865

 

Cash used to settle net share equity awards
(255,114
)
 

Financing costs paid to the lender - Ultraco Debt Facility

 
(918,000
)
Other financing costs
(1,373,449
)
 
(575,000
)
Net cash provided by financing activities
1,976,302

 
129,243,753

 
 
 
 

F-5



Net increase/(decrease) in cash and cash equivalents and restricted cash
20,630,073

 
(7,832,605
)
Cash and cash equivalents and restricted cash at beginning of period
56,325,961

 
76,591,027

 Cash and cash equivalents and restricted cash at end of period
$
76,956,034

 
$
68,758,422

SUPPLEMENTAL CASH FLOW INFORMATION
 
 
 
Cash paid during the year for interest
$
11,734,765

 
$
5,338,742


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

F-6



EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation and General Information
The accompanying condensed consolidated financial statements include the accounts of Eagle Bulk Shipping Inc. and its wholly-owned subsidiaries (collectively, the “Company,” “we,” “our” or similar terms). The Company is engaged in the ocean transportation of dry bulk cargoes worldwide through the ownership, charter and operation of dry bulk vessels. The Company’s fleet is comprised of Supramax and Ultramax dry bulk carriers which are considered to be Handymax class of vessels and the Company operates its business in one business segment.
As of June 30, 2018, the Company owned and operated a modern fleet of 47 oceangoing vessels, including 35 Supramax and 12 Ultramax vessels with a combined carrying capacity of 2,693,430 deadweight tonnage ("dwt") and an average age of approximately 8.6 years. Additionally, the Company charters-in a 61,400 dwt, 2013 built Ultramax vessel for a remaining period of approximately three years. In addition, the Company charters-in third-party vessels on a short to medium term basis.
For the three and six months ended June 30, 2018 and 2017, the Company’s charterers did not individually account for more than 10% of the Company’s gross charter revenue during those periods.
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), and the rules and regulations of the SEC which apply to interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes normally included in consolidated financial statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2017 Annual Report on Form 10-K, filed with the SEC on March 12, 2018.
The accompanying condensed consolidated financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its condensed consolidated financial position and results of operations for the interim periods presented.
The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year.
We adopted the Financial Accounting Standards Board's ("FASB") Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09" or "ASC 606") as of January 1, 2018 utilizing the modified retrospective method of transition. ASC 606 impacted the timing of recognition of revenues from certain ongoing spot voyage charters as well as timing of recognition of certain voyage related expenses. Under ASC 606, revenue is recognized beginning from the commencement of loading until the completion of discharge at the discharge port instead of recognizing revenue from the discharge of the previous voyage so long as an agreed non-cancellable charter between the Company and the charterer is in existence, the charter rate is fixed and determinable, and collectability is reasonably assured.
With the adoption of ASC 606, we recognize as an asset any costs incurred prior to commencement of loading because these costs are incurred to fulfill a contract and are directly related to a contract or an anticipated contract that we can specifically identify. These costs are amortized over the term of the contract on a straight-line basis as the performance obligations are met.
We recorded an adjustment of approximately $0.8 million to increase our opening accumulated deficit and increase our unearned revenue and other current assets on our Condensed Consolidated Balance Sheet on January 1, 2018. Please refer to Note 2 "Recently Adopted Accounting Pronouncements" for further information.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are residual value of vessels, the useful lives of vessels, the value of stock-based compensation and the fair value of derivatives. Actual results could differ from those estimates.


F-7



Note 2. Recently Adopted Accounting Pronouncements
Revenue Recognition
Our shipping revenues are principally generated from time charters and voyage charters. In a time charter contract, the vessel is hired by the charterer for a specified period of time in exchange for consideration which is based on a daily hire rate. The charterer has the full discretion over the ports visited, shipping routes and vessel speed. The contract/charter party generally provides typical warranties regarding the speed and performance of the vessel. The charter party generally has some owner protective restrictions such that the vessel is sent only to safe ports by the charterer, subject always to compliance with applicable sanction laws, and carry only lawful or non hazardous cargo. In a time charter contract, the Company is responsible for all the costs incurred for running the vessel such as crew costs, vessel insurance, repairs and maintenance and lubes. The charterer bears the voyage related costs such as bunker expenses, port charges, canal tolls during the hire period. The performance obligations in a time charter contract are satisfied over the term of the contract beginning when the vessel is delivered to the charterer until it is redelivered back to the Company. The charterer generally pays the charter hire in advance of the upcoming contract period. The time charter contracts are considered operating leases and therefore do not fall under the scope of ASC 606 because (i) the vessel is an identifiable asset (ii) the Company does not have substantive substitution rights and (iii) the charterer has the right to control the use of the vessel during the term of the contract and derives the economic benefits from such use.
Voyage charters
In a voyage charter contract, the charterer hires the vessel to transport a specific agreed-upon cargo for a single voyage which may contain multiple load ports and discharge ports. The consideration in such a contract is determined on the basis of a freight rate per metric ton of cargo carried or occasionally on a lump sum basis. The charter party generally has a minimum amount of cargo. The charterer is liable for any short loading of cargo or "dead" freight. The voyage contract generally has standard payment terms of 95% freight paid within three days after completion of loading. The voyage charter party generally has a "demurrage" or "despatch" clause. As per this clause, the charterer reimburses the Company for any potential delays exceeding the allowed laytime as per the charter party clause at the ports visited which is recorded as demurrage revenue. Conversely, the charterer is given credit if the loading/discharging activities happen within the allowed laytime known as despatch resulting in a reduction in revenue. In a voyage charter contract, the performance obligations begin to be satisfied once the vessel begins loading the cargo. The Company determined that its voyage charter contracts consist of a single performance obligation of transporting the cargo within a specified time period. Therefore, the performance obligation is met evenly as the voyage progresses. and the revenue is recognized on a straight line basis over the voyage days from the commencement of the loading of cargo to completion of discharge.
The voyage contracts are considered service contracts which fall under the provisions of ASC 606 because the Company as the shipowner retains the control over the operations of the vessel such as directing the routes taken or the vessel speed. The voyage contracts generally have variable consideration in the form of demurrage or despatch. The amount of revenue earned as demurrage or despatch paid by the Company for the three and six months ended June 30, 2018 is not material.
The following table shows the revenues earned from time charters and voyage charters for the three and six months ended June 30, 2018:
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
 
 
 
 
Time charters
$
37,355,472

 
$
66,678,691

Voyage charters
37,583,228

 
87,630,618

 
$
74,938,700

 
$
154,309,309


F-8



Contract costs
In a voyage charter contract, the Company bears all voyage related costs such as fuel costs, port charges and canal tolls. These costs are considered contract fulfillment costs because the costs are direct costs related to the performance of the contract and are expected to be recovered. The costs incurred during the period prior to commencement of loading the cargo, primarily bunkers, are deferred as they represent setup costs and recorded as a current asset and are amortized on a straight-line basis as the related performance obligations are satisfied.
In May 2014, the FASB issued ASU 2014-09, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. Under ASC 606, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations of the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfied a performance obligation. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized.
We adopted the provisions of ASC 606 on January 1, 2018 using the modified retrospective approach. As such, the comparative information has not been restated and continues to be reported under the accounting standards in effect for periods prior to January 1, 2018. Under the modified retrospective approach, the Company recognized the cumulative effect of adopting this standard as an adjustment amounting to $0.8 million to increase the opening balance of Accumulated Deficit as of January 1, 2018. The Company recognized $0.8 million of deferred costs which represents the costs such as bunker expenses and charter hire expenses on chartered-in vessels, incurred prior to commencement of loading are recorded in other current assets and $1.6 million of unearned charter hire revenue which represents the Company's obligation to satisfy performance obligations under the contract for which the Company has received consideration from the customer.
The adoption of ASC 606 impacted the timing of recognition of revenue for certain ongoing spot voyage charter contracts, related voyage expenses and charter hire expenses. Under ASU 2014-09, revenue is recognized from when the vessel commences loading through the completion of discharge at the discharge port instead of recognizing revenue from the discharge of the previous voyage provided an agreed non-cancellable charter between the Company and the charterer is in existence, the charter rate is fixed and determinable, and collectability is reasonably assured. Any expenses incurred during the ballast portion of the voyage (time spent by the vessel traveling from discharge port of the previous voyage to the load port of the subsequent voyage) such as bunker expenses, canal tolls and charter hire expenses for chartered-in vessels are deferred and are recognized on a straight-line basis over the charter period as the Company satisfies the performance obligations under the contract.
Further, the adoption of ASC 606 impacted the accounts receivable and unearned revenue on our Condensed Consolidated Balance Sheet as of June 30, 2018. Under ASC 606, receivables represent an entity's unconditional right to consideration, billed or unbilled. The Company determined that the performance obligations on its spot voyage charters do not begin to be satisfied unless the vessel arrives at the load port and commences loading the cargo. This impacted the amount of accounts receivable and unearned revenue recorded in our Condensed Consolidated Balance Sheet.
The following table presents the impact of the adoption of ASC 606 on our Condensed Consolidated Balance Sheet at June 30, 2018:
 
As of June 30, 2018
 
As Reported
 
Balances without Adoption of ASC 606
 
Effect of Change
Assets
 
 
 
 
 
Accounts receivable
$
13,072,691

 
$
13,982,571

 
$
(909,880
)
Other current assets
2,540,427

 
2,178,304

 
362,123

Liabilities
 
 
 
 
 
Unearned charter hire revenue
4,901,453

 
4,709,434

 
192,019



F-9



The following table presents the impact of the adoption of ASC 606 on our Condensed Consolidated Statement of Operations:
    
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
 
As Reported
 
Balances without Adoption of ASC 606
 
Effect of Change
 
As Reported
 
Balances without Adoption of ASC 606
 
Effect of Change
Revenue,net
$
74,938,700

 
$
75,293,766

 
$
(355,066
)
 
$
154,309,309

 
$
153,827,542

 
$
481,767

 
 
 
 
 
 
 
 
 
 
 
 
Voyage expenses
17,204,964

 
17,236,431

 
31,467

 
39,719,556

 
39,505,136

 
(214,420
)
Charter hire expenses
10,108,258

 
10,128,774

 
20,516

 
20,376,322

 
20,161,169

 
(215,153
)
 
 
 
 
 
 
 
 
 
 
 
 
Net income
3,450,767

 
3,753,850

 
(303,083
)
 
3,503,512

 
3,451,318

 
52,194

 
 
 
 
 
 
 
 
 
 
 
 
Basic income per share
$
0.05

 
$
0.05

 
$
0.00

 
$
0.05

 
$
0.05

 
$
0.00

Diluted income per share
$
0.05

 
$
0.05

 
$
0.00

 
$
0.05

 
$
0.05

 
$
0.00

The cumulative effect of changes made to our opening Consolidated Balance Sheet on January 1, 2018 for the adoption of ASC 606:
 
December 31, 2017

 
Effect of Adoption of ASC 606
 
January 1, 2018
Assets
 
 
 
 
 
Other current assets (1)
$
785,027

 
$
796,508

 
$
1,581,535

Liabilities
 
 
 
 
 
Unearned charter hire revenue (2)
5,678,673

 
1,583,618

 
7,262,291

Stockholders' equity
 
 
 
 
 
Accumulated deficit
(427,164,813
)
 
(787,110
)
 
(427,951,923
)
(1) Under ASC 606, the contract fulfillment costs are deferred as a current asset and amortized as the related performance obligations are satisfied. The adjustment to other current assets includes bunker expenses of $0.6 million incurred to arrive at the load port for the voyages in progress as of January 1, 2018 and $0.2 million of charter hire expenses on third party chartered-in vessels which were chartered-in to fulfill the performance obligations under the voyage contract.

(2) Under ASC 606, unearned charter hire revenue represents the consideration received for undelivered performance obligations. The Company recorded $1.5 million as the unearned revenue on voyages in progress as of January 1, 2018. The Company recognized this revenue in the first quarter of 2018 as the performance obligations are met.

The adoption of ASC 606 had no impact on net cash provided by operating activities, investing activities and financing activities for the three and six months ended June 30, 2018.

In November 2016, the FASB issued ASU 2016-18. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts described as restricted cash and restricted cash equivalents. Therefore, the restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We adopted this accounting standard as of January 1, 2018 and retrospectively applied to the six months ended June 30, 2017, and $74,917 of restricted cash has been aggregated with cash and cash equivalents in both the beginning-of-period and end-of-period line items at the bottom of the statements of cash flows for each period presented.


F-10




Note 3. Vessels
Vessel and Vessel Improvements
As of June 30, 2018, the Company’s owned operating fleet consisted of 47 dry bulk vessels.
On December 19, 2017, the Company, through its subsidiary Eagle Bulk Ultraco LLC, signed a memorandum of agreement to acquire a 2015 built Ultramax vessel for $21.3 million. The Company took delivery of the vessel, the New London Eagle on January 9, 2018.
On August 30, 2017, the Company signed a memorandum of agreement to sell the vessel Avocet for $9.6 million after brokerage commissions and associated selling expenses. The vessel was delivered to the buyers in the second quarter of 2018. The Company recorded a gain of $0.1 million in its condensed statement of operations for the three and six months ended June 30, 2018.
On March 23, 2018, the Company signed a memorandum of agreement to sell the vessel Thrush for $10.9 million after brokerage commissions and associated selling expenses. The vessel is expected to be delivered to the buyers in the third quarter of 2018. The Company expects to recognize a gain of $0.4 million. As of June 30, 2018, the Company reported the carrying amount of the vessel as a current asset in its condensed consolidated balance sheet.
On July 20, 2018, the Company, through its subsidiary Eagle Bulk Holdco LLC, signed a memorandum of agreement to acquire a 2014 built Ultramax vessel for $21.3 million. The Company is expected to take delivery of the vessel, Hamburg Eagle in the fourth quarter of 2018.
Vessel and vessel improvements consist of the following:
Vessels and Vessel Improvements, at December 31, 2017
$
690,236,419

Advance paid for purchase of New London Eagle at December 31, 2017
2,201,773

Purchase of Vessels and Vessel Improvements
20,301,806

Transfer to Vessels held for sale
(10,354,855
)
Vessel depreciation expense
(15,961,078
)
Vessels and Vessel Improvements, at June 30, 2018
$
686,424,065

Note 4. Debt
 
June 30, 2018
 
December 31, 2017
Norwegian Bond Debt
$
200,000,000

 
$
200,000,000

Debt discount and debt issuance costs - Norwegian Bond Debt
(5,618,518
)
 
(6,049,671
)
Less:Current portion of Norwegian Bond Debt
(8,000,000
)
 
(4,000,000
)
Norwegian Bond Debt, net of debt discount and debt issuance costs
186,381,482

 
189,950,329

New First Lien Facility *
60,000,000

 
65,000,000

Debt discount and debt issuance costs - New First Lien Facility
(1,196,414
)
 
(1,241,815
)
Less:Current portion of New First Lien Facility
(6,450,000
)
 

New First Lien Facility, net of debt issuance costs and debt discount
52,353,586

 
63,758,185

Ultraco Debt Facility
69,800,000

 
61,200,000

Debt discount and debt issuance costs - Ultraco Debt Facility
(1,173,490
)
 
(1,224,838
)
Less:Current portion of Ultraco Debt Facility
(5,362,713
)
 

Ultraco Debt Facility, net of debt issuance costs and debt discount
63,263,797

 
59,975,162

Total long-term debt
$
301,998,865

 
$
313,683,676

* Includes loan balances on term loan and revolver loan facility under the New First Lien Facility as of December 31, 2017. The revolver loan of $5.0 million under the New First Lien Facility was repaid in the first quarter of 2018.

F-11




Norwegian Bond Debt
 
On November 28, 2017, Eagle Bulk Shipco LLC, a wholly-owned subsidiary of the Company ("Shipco" or "Issuer") issued $200,000,000 in aggregate principal amount of 8.250% Senior Secured Bonds ( the "Bonds" or the "Norwegian Bond Debt"), pursuant to those certain bond terms (the "Bond Terms"), dated as of November 22, 2017, by and between the Issuer and Nordic Trustee AS, as the Bond Trustee. After giving effect to an original issue discount of approximately 1% and deducting offering expenses of $3.1 million, the net proceeds from the issuance of the Bonds were approximately $195.0 million. These net proceeds from the Bonds, together with the proceeds from the New First Lien Facility and cash on hand, were used to repay all amounts outstanding including accrued interest under various debt facilities outstanding at that time and to pay expenses associated with the refinancing transactions. Shipco incurred $1.3 million in other financing costs in connection with the transaction.

The Norwegian Bond Debt is guaranteed by the limited liability companies that are subsidiaries of the Issuer and the legal and beneficial owners of 28 security vessels (the "Shipco Vessels") in the Company’s fleet, and are secured by mortgages over such security vessels, a pledge granted by the Company over all of the shares of the Issuer, a pledge granted by the Issuer over all the shares in the Vessel Owners, certain charter contract assignments, certain assignments of earnings, a pledge over certain accounts, an assignment of insurances covering security vessels, and assignments of intra-group debt between the Company and the Issuer or its subsidiaries.

Pursuant to the Bond Terms, interest on the Bonds will accrue at a rate of 8.250% per annum on the nominal amount of each of the Bonds from November 28, 2017, payable semi-annually on May 29 and November 29 of each year (each, an “Interest Payment Date”), commencing May 29, 2018. The Bonds will mature on November 28, 2022. On each Interest Payment Date from and including November 29, 2018, the Issuer must repay an amount of $4,000,000, plus accrued interest thereon. Any outstanding Bonds must be repaid in full on the Maturity Date at a price equal to 100% of the nominal amount, plus accrued interest thereon.

The Issuer may redeem some or all of the outstanding Bonds at any time on or after the Interest Payment Date in May 2020 (the “First Call Date”), at the following redemption prices (expressed as a percentage of the nominal amount), plus accrued interest on the redeemed amount, on any business day from and including:

    
 
 
 
 
Period
 
Redemption Price
First Call Date to, but not including, the Interest Payment Date in November 2020
 
104.125%
Interest Payment Date in November 2020 to but not including, the Interest Payment Date in May 2021
 
103.3%
Interest Payment Date in May 2021 to, but not including, the Interest Payment Date in November 2021
 
102.475%
Interest Payment Date in November 2021 to, but not including, the Interest Payment Date in May 2022
 
101.65%
Interest Payment Date in May 2022 to, but not including, the Maturity Date
 
100%


Prior to the First Call Date, the Issuer may redeem some or all of the outstanding Bonds at a price equal to 100% of the nominal amount of the Bonds plus a “make-whole” premium and accrued and unpaid interest to the redemption date.
    
If the Company experiences a change of control, each holder of the Bonds will have the right to require that the Issuer purchase all or some of the Bonds held by such holder at a price equal to 101% of the nominal amount, plus accrued interest.

The Bond Terms contain certain financial covenants that the Issuer’s leverage ratio defined as the ratio of outstanding bond amount and any drawn amounts under the Super Senior Facility less consolidated cash balance to the aggregate book value of the Shipco Vessels must not exceed 75% and its and its subsidiaries’ free liquidity must at all times be at least $12,500,000. Shipco is in compliance with its financial covenants as of June 30, 2018.



F-12



The Bond Terms also contain certain events of default customary for transactions of this type, including, but not limited to, those relating to: a failure to pay principal or interest; a breach of covenants, representation or warranty; a cross default to other indebtedness; the occurrence of certain bankruptcy and insolvency events; and the impossibility or unlawfulness of performance of the finance documents.

The Bond Terms also contain certain exceptions and qualifications, among other things, limit the Company’s and the Issuer’s ability and the ability of the Issuer’s subsidiaries to do the following: make distributions; carry out any merger, other business combination, demerger or corporate reorganization; make substantial changes to the general nature of their respective businesses; incur certain indebtedness; incur liens; make loans or guarantees; make certain investments; transact with affiliates; enter into sale and leaseback transactions; engage in certain chartering-in of vessels; dispose of shares of Vessel Owners; or acquire the Bonds.

The Bonds were listed for trading on the Oslo Stock Exchange on May 15, 2018.

New First Lien Facility
 
On December 8, 2017, Eagle Shipping LLC, a wholly-owned subsidiary of the Company ("Eagle Shipping") entered into the New First Lien Facility, which provides for (i) a term loan facility in an aggregate principal amount of up to $60,000,000 (the “Term Loan”) and (ii) a revolving credit facility in an aggregate principal amount of up to $5,000,000 (the “Revolving Loan”). Outstanding borrowings under the New First Lien Facility bear interest at LIBOR plus 3.50% per annum. Eagle Shipping paid $1.0 million to the lenders and incurred $0.4 million of other financing costs in connection with the transaction.

The New First Lien Facility matures on the earlier of (i) five years from the initial borrowing date under the Credit Agreement and (ii) December 8, 2022. With respect to the Term Loan, Eagle Shipping is required to make quarterly repayments of principal of $2.15 million beginning January 15, 2019, with a final balloon payment to be made at maturity. With respect to the Revolving Loan, Eagle Shipping must repay the aggregate principal amount of all borrowings outstanding on the maturity date. Accrued interest on amounts outstanding under the Term Loan and the Revolving Loan must be paid on the last day of each applicable interest period. Interest periods are for three months, six months or any other period agreed between Eagle Shipping and the Lenders. Finally, Eagle Shipping must prepay certain specified amounts outstanding under the New First Lien Facility if an Eagle Shipping Vessel (as defined below) is sold or becomes a total loss or if there is a change of control with respect to the Company, Eagle Shipping or any Guarantor.

Eagle Shipping’s obligations under the New First Lien Facility are secured by, among other items, a first priority mortgage on the nine vessels in Eagle Shipping’s fleet as identified in the Credit Agreement and such other vessels that it may from time to time include with the approval of the Lenders (the “Eagle Shipping Vessels”), an assignment of certain accounts, an assignment of certain charters with terms that may exceed 12 months, an assignment of insurances, an assignment of certain master agreements, and a pledge of the membership interests of each of Eagle Shipping’s vessel-owning subsidiaries. In the future, Eagle Shipping may grant additional security to the Lenders from time to time.
 
The New First Lien Facility contains financial covenants requiring Eagle Shipping to maintain minimum liquidity of $500,000 in respect of each Eagle Shipping Vessel and to maintain a consolidated interest coverage ratio beginning for the fiscal quarter ending on June 30, 2019, of not less than a range varying from 1.50 to 1.00 to 2.50 to 1.00. In addition, the New First Lien Facility also imposes operating restrictions on Eagle Shipping and the Guarantors, including limiting Eagle Shipping’s and the Guarantors’ ability to, among other things: pay dividends; incur additional indebtedness; create liens on assets; sell assets; dissolve or liquidate; merge or consolidate with another person; make investments; engage in transactions with affiliates; and allow certain changes of control to occur. Eagle Shipping is in compliance with its financial covenants as of June 30, 2018.
 
The New First Lien Facility also includes customary events of default, including those relating to: a failure to pay principal or interest; a breach of covenant, representation or warranty; a cross-default to other indebtedness; the occurrence of certain bankruptcy and insolvency events; the occurrence of certain ERISA events; a judgment default; the cessation of business; the impossibility or unlawfulness of performance of the loan documents; the ineffectiveness of any material provision of any loan document; the occurrence of a material adverse effect; and the occurrence of certain swap terminations.

During the first quarter of 2018, Eagle Shipping repaid $5.0 million of the Revolving Loan.

As of June 30, 2018, the availability under the Revolving Loan is $5.0 million.




F-13





Super Senior Facility
 
On December 8, 2017, Shipco entered into the Super Senior Revolving Facility Agreement (the "Super Senior Facility"), by and among Shipco as borrower, and ABN AMRO Capital USA LLC, as original lender, mandated lead arranger and agent, which provides for a revolving credit facility in an aggregate amount of up to $15,000,000. The proceeds of the Super Senior Facility, which are currently undrawn, are expected, pursuant to the terms of the Super Senior Facility, to be used (i) to acquire additional vessels or vessel owners and (ii) for general corporate and working capital purposes of Shipco and its subsidiaries. The Super Senior Facility matures on August 28, 2022. Shipco incurred $285,342 as other financing costs in connection with the transaction.

As of June 30, 2018, the availability under the Super Senior Facility is $15,000,000.

The outstanding borrowings under the Super Senior Facility will bear interest at LIBOR plus 2.00% per annum and commitment fees of 40% of the applicable margin on the undrawn portion of the facility. For each loan that is requested under the Super Senior Facility, Shipco must repay such loan along with accrued interest on the last day of each interest period relating to the loan. Interest periods are for three months, six months or any other period agreed between Shipco and the Super Senior Facility Agent. Additionally, subject to the other terms of the Super Senior Facility, amounts repaid on the last day of each interest period may be re-borrowed.

Shipco’s obligations under the Super Senior Facility are guaranteed by the limited liability companies that are subsidiaries of Shipco and the legal and beneficial owners of 28 vessels in the Company’s fleet (the “Eagle Shipco Vessel Owners”), and will be secured by mortgages over such vessels, a pledge granted by the Company over all of the shares of Shipco, a pledge granted by Shipco over all the shares in the Eagle Shipco Vessel Owners, certain charter contract assignments, certain assignments of earnings, a pledge over certain accounts, an assignment of insurances covering security vessels, and assignments of intra-group debt between the Company and Shipco or its subsidiaries. The Super Senior Facility ranks super senior to the Bonds with respect to any proceeds from any enforcement action relating to security or guarantees for both the Super Senior Facility and the Bonds.

The Super Senior Facility contains certain covenants that, subject to certain exceptions and qualifications, among other things, limit Shipco’s and its subsidiaries’ ability to do the following: make distributions; carry out any merger, other business combination, or corporate reorganization; make substantial changes to the general nature of their respective businesses; incur certain indebtedness; incur liens; make loans or guarantees; make certain investments; transact other than on arm’s-length terms; enter into sale and leaseback transactions; engage in certain chartering-in of vessels; or dispose of shares of Eagle Shipco Vessel Owners. Additionally, Shipco’s leverage ratio must not exceed 75% and its subsidiaries’ free liquidity must at all times be at least $12,500,000. Also, the total commitments under the Super Senior Facility will be cancelled if (i) at any time the aggregate market value of the security vessels for the Super Senior Facility is less than 300% of the total commitments under the Super Senior Facility or (ii) if Shipco or any of its subsidiaries redeems or otherwise repays the Bonds so that less than $100,000,000 is outstanding under the Bond Terms. Shipco is in compliance with its financial covenants as of June 30, 2018.

The Super Senior Facility also contains certain events of default customary for transactions of this type, including, but not limited to, those relating to: a failure to pay principal or interest; a breach of covenants, representation or warranty; a cross default to other indebtedness; the occurrence of certain bankruptcy and insolvency events; the cessation of business; the impossibility or unlawfulness of performance of the finance documents for the Super Senior Facility; and the occurrence of a material adverse effect.

Ultraco Debt Facility
 
On June 28, 2017, Eagle Bulk Ultraco LLC, a wholly-owned subsidiary of the Company ("Ultraco"), entered into a credit agreement (the “Ultraco Debt Facility”), by and among Ultraco, as borrower, certain wholly-owned vessel-owning subsidiaries of Ultraco, as guarantors (the “Ultraco Guarantors”), the lenders thereunder (the “Ultraco Lenders”), the swap banks party thereto, ABN AMRO Capital USA LLC, as facility agent and security trustee for the Ultraco Lenders, ABN AMRO Capital USA LLC, DVB Bank SE and Skandinaviska Enskilda Banken AB (publ), as mandated lead arrangers, and ABN AMRO Capital USA LLC, as arranger and bookrunner. The Ultraco Debt Facility provides for a multi-draw senior secured term loan facility in an aggregate principal amount of up to the lesser of (i) $61,200,000 and (ii) 40% of the lesser of (1) the purchase price of the nine Ultramax vessels ("Greenship Vessels") to be acquired by Ultraco and the Ultraco Guarantors pursuant to a previously disclosed framework agreement, dated as of February 28, 2017, with Greenship Bulk Manager Pte. Ltd., as Trustee-Manager of Greenship Bulk Trust, and (2) the fair market value of the Greenship Vessels. The proceeds of the Ultraco Debt Facility were used for the purpose of financing, refinancing or reimbursing a part of the acquisition cost of the Greenship Vessels. The outstanding borrowings under the Ultraco Debt Facility bear interest at LIBOR plus 2.95% per annum. The Ultraco Debt Facility also provides for the payment of certain other

F-14



fees and expenses by Ultraco. Ultraco incurred $0.9 million to the lenders and $0.5 million as deferred financing costs in connection with the transaction.

On December 29, 2017, Ultraco entered into a First Amendment (the “First Amendment”) to the Ultraco Debt Facility to increase the commitments for the purpose of financing the acquisition of an additional vessel by New London Eagle LLC, a wholly owned subsidiary of Ultraco and additional guarantor under the Ultraco Debt Facility. The increase in the commitments was $8.6 million. Ultraco took delivery of the vessel in January 2018 and drew down $8.6 million. The Company paid $0.1 million as financing costs to the lender in connection with the transaction. The Company paid a deposit of $2.2 million for the purchase of the vessel as of December 31, 2017.

As of June 30, 2018, Ultraco has drawn $69.8 million of the credit facility relating to the acquisition of the 10 Ultramax vessels.
 
The Ultraco Debt Facility matures on the earlier of (i) five years after the delivery of the last remaining Greenship Vessel to occur and (ii) October 31, 2022. There are no fixed repayments until January 2019 (the "First Repayment Date"). Ultraco is required to make quarterly repayments of principal in an amount of $1,787,571 beginning in the first quarter of 2019 with a final balloon payment to be made at maturity. The Ultraco Debt Facility allows for increased commitments, subject to the satisfaction of certain conditions and the obtaining of certain approvals, in an aggregate principal amount as of June 30, 2018, of up to the lesser of (i) $30,200,000 and (ii) 40% of the aggregate fair market value of any additional vessels to be financed with such incremental commitment.
 
Ultraco’s obligations under the Ultraco Debt Facility are secured by, among other items, a first priority mortgage on each of the ten Ultramax vessels ("Ultraco Vessels") and such other vessels that it may from time to time include with the approval of the Ultraco Lenders, an assignment of earnings of the Ultraco Vessels, an assignment of all charters with terms that may exceed 12 months, an assignment of insurances, an assignment of certain master agreements, and a pledge of the membership interests of each of Ultraco’s vessel-owning subsidiaries. In the future, Ultraco may grant additional security to the Ultraco Lenders from time to time.

 The Ultraco Debt Facility contains financial covenants requiring Ultraco, among other things: (1) to ensure that the aggregate market value of the Ultraco Vessels (plus the value of certain additional collateral) is at all times not less than 150% of the aggregate principal amount of debt outstanding (subject to certain adjustments); (2) to maintain cash or cash equivalents not less than (a) a liquidity reserve of $600,000 in respect of each Ultraco Vessel and (b) a debt service reserve of $600,000 in respect of each Ultraco Vessel, a portion of which may be utilized to satisfy the obligations under the Ultraco Debt Facility upon satisfaction of certain conditions; however, taking into account the requirements of 2(a) and 2(b), the cash or cash equivalents cannot be less than the greater of (i) $7.5 million or (ii) 12% of the consolidated total debt of Ultraco and its subsidiaries; (3) to maintain at all times a ratio of consolidated tangible net worth to consolidated total assets of not less than 0.35 to 1.00; (4) to maintain a consolidated interest coverage ratio beginning after the second anniversary of June 28, 2017, of not less than a range varying from 2.00 to 1.00 to 2.50 to 1.00; and (5) to maintain a ballast water treatment systems reserve of $4,550,000, which may be released upon the satisfaction of certain conditions. In addition, the Ultraco Debt Facility also imposes operating restrictions on Ultraco and the Ultraco Guarantors, including limiting Ultraco’s and the Ultraco Guarantors’ ability to, among other things: pay dividends; incur additional indebtedness; create liens on assets; sell assets; dissolve or liquidate; merge or consolidate with another person; make investments; engage in transactions with affiliates; and allow certain changes of control to occur.

As a result of the receipt of extensions from the United States Coast Guard (the "USCG") regarding compliance with a USCG approved ballast water treatment systems ("BWMS"), the funds held in the ballast water treatment system reserve account were released for Ultraco's use in the third quarter of 2017.
 
The Ultraco Debt Facility also includes customary events of default, including those relating to: a failure to pay principal or interest; a breach of covenant, representation or warranty; a cross-default to other indebtedness; the occurrence of certain bankruptcy and insolvency events; the occurrence of certain ERISA events; a judgment default; the cessation of business; the impossibility or unlawfulness of performance of the loan documents; the ineffectiveness of any material provision of any loan document; the occurrence of a material adverse effect; and the occurrence of certain swap terminations.

Interest Rates

For the three and six months ended June 30, 2018, the interest rate on the Norwegian Bond Debt was 8.25%. The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for these periods was 8.79%.

For the three months ended June 30, 2018, the interest rate on the New First Lien Facility was 5.55% including a margin

F-15



over LIBOR applicable under the terms of the New First Lien Facility and commitment fees of 40% of the margin on the undrawn portion of the revolver credit facility of the New First Lien Facility. The weighted average effective interest rate including the amortization of debt discount for this period was 6.18%.

For the six months ended June 30, 2018, interest rates on the New First Lien Facility ranged from 4.91% to 5.55% including a margin over LIBOR applicable under the terms of the New First Lien Facility and commitment fees of 40% of the margin on the undrawn portion of the revolver credit facility of the New First Lien Facility. The weighted average effective interest rate including the amortization of debt discount for this period was 5.82%.

For the three months ended June 30, 2018, the interest rate on the Ultraco Debt Facility was 5.25% including a margin over LIBOR and commitment fees of 40% of the margin on the undrawn portion of the facility. The weighted average effective interest rate for this period was 5.83%.

For the six months ended June 30, 2018, interest rates on the Ultraco Debt Facility ranged from 4.64% to 5.25% including a margin over LIBOR and commitment fees of 40% of the margin on the undrawn portion of the facility. The weighted average effective interest rate for this period was 5.56%.
 For the three months ended June 30, 2017, interest rates on the First Lien Facility ranged from 4.98% to 5.15% including a margin over LIBOR applicable under the terms of the First Lien Facility and commitment fees of 40% of the margin on the undrawn portion of the facility. The weighted average effective interest rate including the amortization of debt discount for this period was 5.58%.

 For the six-month period ended June 30, 2017, interest rates on our outstanding debt under the First Lien Facility ranged from 4.77% to 5.15%, including a margin over LIBOR and commitment fees of 40% of the margin on the undrawn portion of the facility. The weighted average effective interest rate was 5.41%.

 For the three and six-month periods ended June 30, 2017, the interest rate on the Ultraco Debt Facility was 4.08% including a margin over LIBOR applicable under the terms of the Ultraco Debt Facility which was entered into on June 28, 2017.
 
 For the three and six-month periods ended June 30, 2017, the payment-in-kind interest rate on our Second Lien Facility was 15% including a margin over LIBOR. The weighted average effective interest rate on our Second Lien Facility including the amortization of debt discount for these periods was 17.05%.


Interest Expense consisted of:
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
June 30, 2017
 
June 30, 2018
June 30, 2017
First Lien Facility
$

$
2,745,748

 
$

$
5,410,923

Norwegian Bond Debt
4,079,166


 
8,204,167


New First Lien Facility
859,229


 
1,676,193


Amortization of Debt issuance costs
480,257

1,456,986

 
970,352

2,901,948

Payment in kind interest on Second Lien Facility

2,642,327

 

4,977,219

Ultraco Debt Facility
938,026

13,655

 
1,737,701

13,657

Super Senior Facility - commitment fees
30,333


 
59,667


Total Interest Expense
$
6,387,011

$
6,858,716

 
$
12,648,080

$
13,303,747

Interest paid amounted to $11,734,765 and $5,338,742 for the six months ended June 30, 2018 and 2017, respectively.


F-16



First Lien Facility

On March 30, 2016, Eagle Shipping as borrower, and certain of its subsidiaries that were guarantors of the Company’s obligations under the Company’s senior secured credit facility (the “Exit Financing Facility”), as guarantors, entered into the First Lien Facility (defined below) with the lenders thereunder and ABN AMRO Capital USA LLC, as agent and security trustee for the lenders. The First Lien Facility amended and restated the Exit Financing Facility in its entirety, provided for Eagle Shipping to be the borrower in the place of the Company, and further provided for a waiver of any and all events of default occurring as a result of the voluntary OFAC Disclosure (as defined in “Note 6. Commitments and Contingencies - Legal Proceedings” to the condensed consolidated financial statements). The First Lien Facility provided for a term loan in the amount of $201,468,750 after giving effect to the entry into the First Lien Facility and the Second Lien Facility as well as a $50,000,000 revolving credit facility (the "First Lien Facility"). The outstanding borrowings under the First Lien Facility bore interest at LIBOR plus 4.0% per annum.

Eagle Shipping prepaid $5,651,000 of the term loan during the year ended December 31, 2016 and $13,021,000 of the term loan for the year ended December 31, 2017 pursuant to the terms of the First Lien Facility relating to mandatory prepayments upon sales of vessels. Additionally, Eagle Shipping also repaid $5,000,000 of the revolving credit facility in the third quarter of 2017. On December 8, 2017, Eagle Shipping repaid the outstanding balance of the term loan of $171,078,000 and the outstanding balance of the revolver loan of $20,000,000 and discharged the debt under the First Lien Facility in full.
 Second Lien Facility

On March 30, 2016, Eagle Shipping, as borrower, and certain of its subsidiaries that were guarantors of the Company’s obligations under the Exit Financing Facility, as guarantors, entered into a Second Lien Facility with certain lenders (the “Second Lien Lenders”) and Wilmington Savings Fund Society, FSB as agent for the Second Lien Lenders (the “Second Lien Agent”). The Second Lien Facility provided for a term loan in the amount of $60,000,000 (the “Second Lien Facility”), and scheduled to mature on January 14, 2020. The term loan under the Second Lien Facility bore interest at a rate of LIBOR plus 14.00% per annum with a 1.0% LIBOR floor paid in kind quarterly in arrears. The payment-in-kind interest represents a non-cash operating and financing activity on the consolidated statements of cash flows for the three-month period ended March 31, 2017.
On December 8, 2017, in connection with the refinancing defined above, Eagle Shipping repaid the outstanding debt and accumulated payment-in-kind interest aggregating $77.4 million, and discharged the debt under the Second Lien Facility in full.

Scheduled Debt Maturities
The following table presents the scheduled maturities of principal amounts of our debt obligations, excluding the impact of any future vessel sales, for the next five years.
 
Norwegian Bond Debt
New First Lien Facility
Ultraco Debt Facility
Total
Six months ended December 31, 2018
$
4,000,000

$

$

$
4,000,000

2019
8,000,000

10,750,000

8,937,855

27,687,855

2020
8,000,000

8,600,000

7,150,285

23,750,285

2021
8,000,000

8,600,000

7,150,285

23,750,285

2022
172,000,000

32,050,000

46,561,575

250,611,575

 
$
200,000,000

$
60,000,000

$
69,800,000

$
329,800,000


Note 5. Derivative Instruments and Fair Value Measurements
Forward freight agreements and bunker swaps
The Company trades in forward freight agreements (“FFAs”) and bunker swaps, with the objective of utilizing these markets as economic hedging instruments that reduce the risk of specific vessels to changes in the freight market. The Company’s FFAs and bunker swaps have not qualified for hedge accounting treatment. As such, unrealized and realized gains and losses are recognized

F-17



as a component of other expense in the Condensed Consolidated Statement of Operations and Other current assets and Fair value of derivatives in the Consolidated Balance Sheets. Derivatives are considered to be Level 2 instruments in the fair value hierarchy.
 
The effect of non-designated derivative instruments on the condensed consolidated statements of operations is as follows:
 
 
 
Amount of (gain)/loss
Derivatives not designated as hedging instruments
Location of (gain)/loss recognized
 
For the
Three Months Ended
 
For the
For the Six Months Ended
 
 
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
FFAs
Other income
 
$
36,625

 
$
(1,049,363
)
 
$
82,432

 
$
(788,715
)
Bunker Swaps
Other income
 
(776,981
)
 
(42,859
)
 
(722,409
)
 
3,052

Total
 
$
(740,356
)
 
$
(1,092,222
)
 
$
(639,977
)
 
$
(785,663
)

Derivatives not designated as hedging instruments
Balance Sheet location
 
Fair Value of Derivatives
 
 
 
June 30, 2018
 
December 31, 2017
FFAs
Fair value of derivatives
 
$
461,993

 
$
73,170

FFAs
Other current assets
 
117,360

 

Bunker Swaps
Other current assets
 
635,258

 
128,845

Cash Collateral Disclosures
The Company does not offset fair value amounts recognized for derivatives by the right to reclaim cash collateral or the obligation to return cash collateral. The amount of collateral to be posted is defined in the terms of respective master agreement executed with counterparties or exchanges and is required when agreed upon threshold limits are exceeded. As of June 30, 2018 and December 31, 2017, the Company posted cash collateral related to derivative instruments under its collateral security arrangements of $891,344 and $178,836, respectively, which is recorded within other current assets in the condensed consolidated balance sheets.
Fair Value Measurements
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash, cash equivalents and restricted cash—the carrying amounts reported in the condensed consolidated balance sheets for interest-bearing deposits approximate their fair value due to the short-term nature thereof.
Debt—the carrying amounts of borrowings under the Norwegian Bond Debt, the New First Lien Facility and the Ultraco Debt Facility (prior to application of the discount and debt issuance costs) including the Revolving Loan approximate their fair value, due to the variable interest rate nature thereof.
The Company defines fair value, establishes a framework for measuring fair value and provides disclosures about fair value measurements. The fair value hierarchy for disclosure of fair value measurements is as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities. Our Level 1 non-derivatives include cash, money-market accounts, certain short-term investments and restricted cash accounts.

F-18



Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable. Our Level 2 non-derivatives include our short-term investments and debt balances under the Norwegian Bond Debt, the New First Lien Facility and the Ultraco Debt Facility.
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
 
 
 
Fair Value
 
Carrying Value
 
Level 1
 
Level 2
June 30, 2018
 
 
 
 
 
Assets
 
 
 
 
 
Cash and cash equivalents (1)
$
76,956,034

 
$
76,956,034

 
$

Liabilities
 
 
 
 
 
Norwegian Bond Debt *
194,381,482

 

 
205,250,000

New First Lien Facility **
58,803,586

 

 
60,000,000

Ultraco Debt Facility **
68,626,510

 

 
69,800,000

* The fair value of the Bonds is based on the last trade on May 24, 2018 on Bloomberg.com.
** The fair value of the New First Lien Facility and the Ultraco Debt Facility is based on the required repayment to the lenders if the debt was discharged in full on June 30, 2018.

 
 
 
Fair Value
 
Carrying Value
 
Level 1
 
Level 2
December 31, 2017
 
 
 
 
 
Assets
 
 
 
 
 
Cash and cash equivalents  (1)
$
56,325,961

 
$
56,325,961

 
$

Short-term investment
4,500,000

 
 
 
4,500,000

Liabilities
 
 
 
 
 
Norwegian Bond Debt (2)
193,950,329

 

 
200,990,000

New First Lien Facility
63,758,185

 

 
65,000,000

Ultraco Debt Facility
59,975,162

 

 
61,200,000

(1) Includes non-current restricted cash aggregating $74,917 at June 30, 2018 and December 31, 2017.
(2) The fair value of the Bonds is based on the last trade on December 21, 2017.

Note 6. Commitments and Contingencies
Legal Proceedings
The Company is involved in legal proceedings and may become involved in other legal matters arising in the ordinary course of its business. The Company evaluates these legal matters on a case-by-case basis to make a determination as to the impact, if any, on its business, liquidity, results of operations, financial condition or cash flows.
In November 2015, the Company filed a voluntary self-disclosure report with OFAC regarding certain apparent violations of U.S. sanctions regulations in the provision of shipping services for third party charterers with respect to the transportation of cargo to or from Myanmar (formerly Burma) (the “OFAC Disclosure”). At the time of such apparent violations, the Company had a different senior operational management team. Notwithstanding the fact that the apparent violations took place under a different senior operational management team and although the Company’s new Board of Directors and management have implemented robust remedial measures and significantly enhanced its compliance safeguards, there can be no assurance that OFAC will not conclude that these past actions warrant the imposition of civil penalties and/or referral for further investigation by the U.S. Department of

F-19



Justice. The report was provided to OFAC for the agency’s review, consideration and determination regarding what action, if any, may be taken in resolution of this matter. The Company will continue to cooperate with the agency regarding this matter and cannot estimate when such review will be concluded. While the ultimate impact of these matters cannot be determined, there can be no assurance that the impact will not be material to the Company’s financial condition or results of operations.
Other Commitments
On July 28, 2011, the Company entered into an agreement to charter in a 37,000 dwt newbuilding Japanese vessel that was delivered in October 2014 for seven years with an option for an additional one year. The hire rate for the first to seventh year is $13,500 per day and $13,750 per day for the eighth year option. On May 10, 2017, the Company signed an agreement to cancel this existing time charter contract. The Company agreed to pay a lump sum termination fee of $1.5 million relating to the cancellation. At the same time, the Company entered into an agreement with the same lessor, effective April 28, 2017 to charter in a 61,400 dwt, 2013 built Japanese vessel for approximately three years (having the same redelivery dates as the aforementioned cancelled charter) with options for two additional years. The hire rate for the first three years is $12,800 per day and the hire rate for the first optional year is $13,800 per day and $14,300 per day for the second optional year.
On May 4, 2018, the Company entered into an agreement to charter-in a 61,425 dwt 2013 built Ultramax vessel for three years with an option for an additional two years. The hire rate for the first three years is $12,700 per day and $13,750 per day for the 1st year option and $14,750 per day for the second year option. The Company expects to take delivery of the vessel in the third quarter of 2018.
On July 20, 2018, the Company, through its subsidiary Eagle Bulk Holdco LLC, signed a memorandum of agreement to acquire a 2014 built Ultramax vessel for $21.3 million. The Company is expected to take delivery of the vessel, to be named Hamburg Eagle, in the fourth quarter of 2018.

Note 7. Income/(loss) Per Common Share
The computation of basic net income/(loss) per share is based on the weighted average number of common shares outstanding for the three and six months ended June 30, 2018 and 2017. Diluted net income/(loss) per share gives effect to stock awards, stock options and restricted stock units using the treasury stock method, unless the impact is anti-dilutive. Diluted net income per share as of June 30, 2018 does not include 1,452 stock awards, 352,000 stock options and 152,266 warrants, as their effect was anti-dilutive. Diluted net loss per share for the three months ended June 30, 2017 does not include 1,843,211 stock awards, 1,865,865 stock options and 152,266 warrants, as their effect was anti-dilutive.
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Net income/(loss)
$
3,450,767

 
$
(5,888,466
)
 
$
3,503,512

 
$
(16,956,914
)
Weighted Average Shares - Basic
70,515,320

 
70,329,050

 
70,484,240

 
67,996,330

Dilutive effect of stock options and restricted stock units
1,571,660

 

 
1,076,535

 

Weighted Average Shares - Diluted
72,086,980

 
70,329,050

 
71,560,775

 
67,996,330

Basic income/(loss) per share
$
0.05

 
$
(0.08
)
 
$
0.05

 
$
(0.25
)
Diluted income/(loss) per share
$
0.05

 
$
(0.08
)
 
$
0.05

 
$
(0.25
)

Note 8. Stock Incentive Plans
On December 15, 2016, the Company’s shareholders approved the 2016 Equity Compensation Plan (the “2016 Plan”) and the Company registered 5,348,613 shares of common stock, which may be issued under the 2016 Plan. The 2016 Plan replaced the post-emergence Management Incentive Program (the “2014 Plan”) and no other awards will be granted under the 2014 Plan. Outstanding awards under the 2014 Plan will continue to be governed by the terms of the 2014 Plan until exercised, expired, otherwise terminated, or canceled. As of December 31, 2016, 24,644 shares of common stock were subject to outstanding awards under the

F-20



2014 Plan. Under the terms of the 2016 Plan, awards for up to a maximum of 3,000,000 shares may be granted under the 2016 Plan to any one employee of the Company and its subsidiaries during any one calendar year, and awards in the form of options and stock appreciation rights for up to a maximum of 3,000,000 shares may be granted under the 2016 Plan. The total number of shares of common stock with respect to which awards may be granted under the 2016 Plan to any non-employee director during any one calendar year shall not exceed 500,000, subject to adjustment as provided in the 2016 Plan. Any director, officer, employee or consultant of the Company or any of its subsidiaries (including any prospective officer or employee) is eligible to be designated to participate in the 2016 Plan.
On January 4, 2018, the Company granted 948,500 restricted shares as a company wide grant to all employees. The fair value of the grant based on the closing share price on January 4, 2018 was $4.5 million. The shares will vest in equal installments over a three year term. Amortization of this charge utilizing the graded method of vesting, which is included in General and administrative expenses, for the three months ended March 31, 2018, was $0.6 million. Additionally, the Company granted 30,000 common shares to its board of directors. The fair value of the grant based on the closing share price on January 10, 2018 was $0.1 million. The shares vested immediately.

As of June 30, 2018 and December 31, 2017, stock awards covering a total of 2,519,805 and 1,716,928 of the Company’s common shares, respectively, are outstanding under the 2014 Plan and 2016 Plan. The vesting terms range between one to three years from the grant date. The Company is amortizing to stock-based compensation expense included in general and administrative expenses the fair value of non-vested stock awards at the grant date.
As of June 30, 2018 and December 31, 2017, options covering 2,290,211 and 2,301,046 of the Company’s common shares, respectively, are outstanding with exercise prices ranging from $4.28 to $505.00 per share. The options vest and become exercisable in four equal installments beginning on the grant date. All options expire within seven years from the effective date.
Stock-based compensation expense for all stock awards and options included in General and administrative expenses:
 
For the
For the Three Months Ended
 
For the
For the Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
Stock awards /Stock Option Plans
$
2,409,599

 
$
2,478,051

 
$
5,920,510

 
$
4,648,751

The future compensation to be recognized for all the grants issued for the six month period ending December 31, 2018, and the years ending December 31, 2019 and 2020 will be $$3,337,906, $$2,585,709 and $$648,078, respectively.
Note 9. Subsequent Events

On July 20, 2018, the Company, through its subsidiary Eagle Bulk Holdco LLC, signed a memorandum of agreement to acquire a 2014 built Ultramax vessel for $21.3 million. The Company is expected to take delivery of the vessel, to be named Hamburg Eagle, in the fourth quarter of 2018.


F-21



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of the Company’s financial condition and results of operations for the three and six months ended June 30, 2018 and 2017. This section should be read in conjunction with the condensed consolidated financial statements included elsewhere in this report and the notes to those financial statements and the audited consolidated financial statements and the notes to those financial statements for the fiscal year ended December 31, 2017, which were included in our Form 10-K, filed with the SEC on March 12, 2018. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Cautionary Statement Regarding Forward-Looking Statements.”
Overview
We are Eagle Bulk Shipping Inc., a Marshall Islands corporation incorporated on March 23, 2005 and headquartered in Stamford, Connecticut. We own one of the largest fleets of Supramax/Ultramax dry bulk vessels in the world. Supramax dry bulk vessels range in size from approximately 50,000 to 59,000 dwt and Ultramax dry bulk vessels range in size from 60,000 to 65,000 dwt. Supramax and Ultramax vessels are equipped with cranes and grabs, which are used to load and discharge cargo. They are considered a sub-category of the Handymax segment typically defined as 40,000 to 65,000 dwt. We transport a broad range of major and minor bulk cargoes, including but not limited to coal, grain, ore, petcoke, cement and fertilizer, along worldwide shipping routes. As of June 30, 2018, we owned and operated a modern fleet of 47 Supramax/Ultramax dry bulk vessels. We chartered-in a 61,400 dwt, 2013 built Japanese vessel for approximately three years with options for two additional years. In addition, the Company charters-in third-party vessels on a short to medium term basis.
We are focused on maintaining a high quality fleet that is concentrated primarily in Supramax/Ultramax dry bulk carriers. These vessels have the cargo loading and unloading flexibility of on-board cranes while offering cargo carrying capacities approaching that of Panamax dry bulk vessels, which range in size from 72,000 to 83,000 dwt and rely on port facilities to load and offload their cargoes. We believe that the cargo handling flexibility and cargo carrying capacity of the Supramax/Ultramax class vessels make them attractive to cargo interests and vessel charterers. The Company’s owned operating fleet consisted of 47 dry bulk vessels, with an aggregate carrying capacity of 2,693,430 dwt with an average age of approximately 8.6 years as of June 30, 2018.
We carry out the commercial and strategic management of our fleet through our indirectly wholly-owned subsidiary, Eagle Bulk Management LLC, a Marshall Islands limited liability company, which maintains its principal executive offices in Stamford, Connecticut. We own each of our vessels through a separate wholly-owned Marshall Islands limited liability company.
Corporate Information
We maintain our principal executive offices at 300 First Stamford Place, 5th Floor, Stamford, Connecticut 06902. Our telephone number at that address is (203) 276-8100. Our website address is www.eagleships.com. Information contained on or accessible through our website does not constitute part of this Quarterly Report on Form 10-Q.
Strategy
Our financial performance is based on the following key elements of our business strategy:
(1)
concentration in one vessel category: Supramax/Ultramax dry bulk vessels, which we believe offer certain size, operational and geographical advantages relative to other classes of dry bulk vessels, such as Handy, Panamax and Capesize vessels,
(2)
an active owner-operator model where we seek to operate our own fleet and develop contractual relationships directly with cargo interests. These relationships and the related cargo contracts have the dual benefit of providing greater operational efficiencies and act as a balance to the Company’s naturally long position to the market. Notwithstanding the focus on voyage chartering, we consistently monitor the dry bulk shipping market and, based on market conditions, will consider taking advantage of long-term time charters at higher rates when appropriate, and 
(3)
maintain high quality vessels and improve standards of operation through improved standards and procedures, crew training and repair and maintenance procedures.

1



We believe that this structure provides significant visibility to our future financial results and allows us to take advantage of the relatively stable cash flows and high utilization rates that are associated with medium-term time charters, while at the same time providing us with the revenue upside potential from the short-term time charters or voyage charters. We regularly monitor the dry bulk shipping market and based on market conditions we may consider taking advantage of long-term charter rates.




We have employed all of our vessels in our operating fleet on time and voyage charters. The following table represents certain information about our revenue earning charters with respect to our operating fleet as of June 30, 2018:
Vessel
 
Year
Built
 
Dwt
 
Charter
Expiration
 
Daily Charter
Hire Rate
 
 
 
 
 
 
 
 
 
 
 
Bittern
 
2009
 
57,809

 
Oct 2018
 
$
13,250

 
 
 
 
 
 
 
 
 
 
 
Canary
 
2009
 
57,809

 
Jul 2018
 
$
17,500

 
 
 
 
 
 
 
 
 
 
 
Cardinal
 
2004
 
55,362

 
Jul 2018
 
$
12,250

 
 
 
 
 
 
 
 
 
 
 
Condor
 
2001
 
50,296

 
Jul 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Crane
 
2010
 
57,809

 
Sep 2018
 
$
12,000

 
 
 
 
 
 
 
 
 
 
 
Crested Eagle
 
2009
 
55,989

 
Jul 2018
 
$
11,750

 
 
 
 
 
 
 
 
 
 
 
Crowned Eagle
 
2008
 
55,940

 
Aug 2018
 
$
12,250

 
 
 
 
 
 
 
 
 
 
 
Egret Bulker
 
2010
 
57,809

 
Jul 2018
 
$
15,000

 
 
 
 
 
 
 
 
 
 
 
Fairfield Eagle
 
2013
 
63,301

 
Drydock
 
 
(1)

 
 
 
 
 
 
 
 
 
 
Gannet Bulker
 
2010
 
57,809

 
Jul 2018
 
$
11,250

 
 
 
 
 
 
 
 
 
 
 
Greenwich Eagle
 
2013
 
63,301

 
Aug 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Golden Eagle
 
2010
 
55,989

 
Jul 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Goldeneye
 
2002
 
52,421

 
Jul 2018
 
$
4,650

(2)

 
 
 
 
 
 
 
 
 
 
Grebe Bulker
 
2010
 
57,809

 
Aug 2018
 
$
12,500

 
 
 
 
 
 
 
 
 
 
 
Groton Eagle
 
2013
 
63,200

 
Drydock
 
$

 
 
 
 
 
 
 
 
 
 
 
Hawk I
 
2001
 
50,296

 
Jul 2018
 
$
9,300

 

2



 
 
 
 
 
 
 
 
 
 
Ibis Bulker
 
2010
 
57,775

 
Jul 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Imperial Eagle
 
2010
 
55,989

 
Jul 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Jaeger
 
2004
 
52,248

 
Jul 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Jay
 
2010
 
57,802

 
Jul 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Kestrel I
 
2004
 
50,326

 
Dec 2018
 
$
10,250

 
 
 
 
 
 
 
 
 
 
 
Kingfisher
 
2010
 
57,776

 
Jul 2018
 
$
20,900

 
 
 
 
 
 
 
 
 
 
 
Madison Eagle
 
2013
 
63,303

 
Jul 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Martin
 
2010
 
57,809

 
Jul 2018
 
$
12,750

 
 
 
 
 
 
 
 
 
 
 
Merlin
 
2001
 
50,296

 
Jul 2018
 
$
9,500

 
 
 
 
 
 
 
 
 
 
 
Mystic Eagle
 
2013
 
63,301

 
Aug 2018
 
$
14,650

 
 
 
 
 
 
 
 
 
 
 
New London Eagle
 
2015
 
63,140

 
Jul 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Nighthawk
 
2011
 
57,809

 
Jul 2018
 
$
11,400

 
 
 
 
 
 
 
 
 
 
 
Oriole
 
2011
 
57,809

 
Jul 2018
 
$
16,750

 
 
 
 
 
 
 
 
 
 
 
Osprey I
 
2002
 
50,206

 
Jul 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Owl
 
2011
 
57,809

 
Jul 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Petrel Bulker
 
2011
 
57,809

 
Jul 2018
 
$
14,000

 
 
 
 
 
 
 
 
 
 
 
Puffin Bulker
 
2011
 
57,809

 
Jul 2018
 
$
8,750

 
 
 
 
 
 
 
 
 
 
 
Roadrunner Bulker
 
2011
 
57,809

 
Jul 2018
 
$
11,000

 
 
 
 
 
 
 
 
 
 
 
Rowayton Eagle
 
2013
 
63,301

 
Jul 2018
 
$
15,000

 
 
 
 
 
 
 
 
 
 
 
Sandpiper Bulker
 
2011
 
57,809

 
Oct 2018
 
$
13,500

 
 
 
 
 
 
 
 
 
 
 
Singapore Eagle
 
2017
 
61,530

 
Aug 2018
 
$
7,800

(3)

 
 
 
 
 
 
 
 
 
 
Shrike
 
2003
 
53,343

 
Sep 2018
 
$
14,250

 
 
 
 
 
 
 
 
 
 
 
Skua
 
2003
 
53,350

 
Aug 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Southport Eagle
 
2013
 
63,301

 
Aug 2018
 
$
15,000

 

3



 
 
 
 
 
 
 
 
 
 
Stamford Eagle
 
2016
 
61,530

 
Aug 2018
 
$
3,750

(4)

 
 
 
 
 
 
 
 
 
 
Stellar Eagle
 
2009
 
55,989

 
Jul 2018
 
Voyage

 
 
 
 
 
 
 
 
 
 
 
Stonington Eagle
 
2012
 
63,301

 
Oct 2019
 
$
11,650

 
 
 
 
 
 
 
 
 
 
 
Tern
 
2003
 
50,200

 
Jul 2018
 
$
10,500

 
 
 
 
 
 
 
 
 
 
 
Thrasher
 
2010
 
53,360

 
Aug 2018
 
$
9,500

 
 
 
 
 
 
 
 
 
 
 
Thrush
 
2011
 
53,297

 
Aug 2018
 
Voyage

(5
)
 
 
 
 
 
 
 
 
 
 
Westport Eagle
 
2015
 
63,344

 
Jul 2018
 
Voyage

 
(1)
The vessel is in drydock as of June 30, 2018 and was contracted to perform a time charter after the completion of drydock.

(2)
The vessel is contracted to continue the existing time charter at an increased charter rate of $11,750 after July 6, 2018.
(3)
The vessel is contracted to continue the existing time charter at an increased charter rate of $13,000 after August 8, 2018.
(4)
The vessel is contracted to continue the existing time charter at an increased charter rate of $12,500 after August 13, 2018 and $13,750 after August 23, 2018.
(5)
On March 23, 2018, the Company signed a memorandum of agreement to sell the vessel Thrush for $10.9 million after brokerage commissions and associated selling expenses. The vessel is expected to be delivered to the buyers in the third quarter of 2018.

Fleet Management
The management of our fleet includes the following functions:
Strategic management. We locate and obtain financing and insurance for, the purchase and sale of vessels.
Commercial management. We obtain employment for our vessels and manage our relationships with charterers.
Technical management. We have established an in-house technical management function to perform day-to-day operations and maintenance of our vessels.
Commercial and Strategic Management
We carry out the commercial and strategic management of our fleet through our indirectly wholly-owned subsidiary, Eagle Bulk Management LLC, a Marshall Islands limited liability company, which maintains its principal executive offices in Stamford, Connecticut. We have offices in Singapore and Hamburg, Germany, through which we provide round the clock management services to our owned and chartered-in fleet. We currently have 88 shore based personnel, including our senior management team and our office staff, who either directly or through these subsidiaries, provide the following services:
commercial operations and technical supervision;
safety monitoring;
vessel acquisition; and
financial, accounting and information technology services.
Technical management includes managing day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, supervising the maintenance and general efficiency of vessels, arranging our hire of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support.



4



Value of Assets and Cash Requirements
The replacement costs of comparable new vessels may be above or below the book value of our fleet. The market value of our fleet may be below book value when market conditions are weak and exceed book value when markets conditions are strong. Customary with industry practice, we may consider asset redeployment, which at times may include the sale of vessels at less than their book value. The Company’s results of operations and cash flow may be significantly affected by future charter markets.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon our interim unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP and the rules and regulations of the SEC which apply to interim financial statements. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues, expenses and warrants 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 and conditions.
Critical accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. As the discussion and analysis of our financial condition and results of operations are based upon our interim unaudited condensed consolidated financial statements, they do not include all of the information on critical accounting policies normally included in consolidated financial statements. Accordingly, a detailed description of these critical accounting policies should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 12, 2018. There have been no material changes from the “Critical Accounting Policies” previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 12, 2018 except for the new accounting pronouncements adopted as of January 1, 2018. Please refer to Note 2 "Recently Adopted Accounting Pronouncements" to the condensed consolidated financial statements for further discussion.
Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are residual value of vessels, the useful lives of vessels, the value of stock-based compensation and the fair value of derivatives. Actual results could differ from those estimates.
Results of Operations for the three and six months ended June 30, 2018 and 2017:
Fleet Data
We believe that the measures for analyzing future trends in our results of operations consist of the following:
 
Three Months
Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Ownership Days
4,294

 
3,878

 
8,606

 
7,564

Chartered in Days
867

 
744

 
1,811

 
1,258

Available Days
5,020

 
4,515

 
10,182

 
8,649

Operating Days
4,992

 
4,498

 
10,105

 
8,603

Fleet Utilization (%)
99.4
%
 
99.6
%
 
99.2
%
 
99.5
%
In order to understand our discussion of our results of operations, it is important to understand the meaning of the following terms used in our analysis and the factors that influence our results of operations.
Ownership days: We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.

5



Chartered-in under operating lease days: We define chartered-in under operating lease days as the aggregate number of days in a period during which we chartered-in vessels. Periodically, the Company charters in vessels on a single trip basis.
Available days: We define available days as the number of our ownership days and chartered-in days less the aggregate number of days that our vessels are off-hire due to vessel familiarization upon acquisition, repairs, vessel upgrades or special surveys. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues. During the six months ended June 30, 2018, the Company completed drydock for six vessels and two vessels was still in drydock as of June 30, 2018. During the six months ended June 30, 2017, the Company drydocked one vessel.
Operating days: We define operating days as the number of available days in a period less the aggregate number of days that our vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.
Fleet utilization: We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning. Our fleet continues to perform at high utilization rates.
Time Charter and Voyage Revenue
Shipping revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by a company and the trades in which those vessels operate. In the dry bulk sector of the shipping industry, rates for the transportation of dry bulk cargoes such as ores, grains, steel, fertilizers, and similar commodities, are determined by market forces such as the supply and demand for such commodities, the distance that cargoes must be transported, and the number of vessels expected to be available at the time such cargoes need to be transported. The demand for shipments is significantly affected by the state of the global economy and in discrete geographical areas. The number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service, principally because of scrapping. 
The mix of charters between spot or voyage charters and mid-term time charters also affects revenues. Because the mix between voyage charters and time charters significantly affects shipping revenues and voyage expenses, vessel revenues are benchmarked based on net charter hire income. Net charter hire income comprises revenue from vessels operating on time charters, and voyage revenue less voyage expenses from vessels operating on voyage charters in the spot market and charter hire expenses. Net charter hire serves as a measure of analyzing fluctuations between financial periods and as a method of equating revenue generated from a voyage charter to time charter revenue.

The following table represents Net charter hire income for the three and six months ended June 30, 2018 and 2017.

 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Revenues, net
 
$
74,938,700

 
$
53,631,224

 
$
154,309,309

 
$
99,486,281

Less:voyage expenses
 
17,204,964

 
13,379,664

 
39,719,556

 
26,733,011

Less: charter hire expenses
 
10,108,258

 
6,445,580

 
20,376,322

 
10,318,912

Net charter hire income
 
$
47,625,478

 
$
33,805,980

 
$
94,213,431

 
$
62,434,358

 
 
 
 
 
 
 
 
 
% Net charter hire from
 
 
 
 
 
 
 
 
Time charters
 
62
%
 
66
%
 
57
%
 
63
%
Voyage charters
 
38
%
 
34
%
 
43
%
 
36
%
Commercial pool
 
%
 
%
 
%
 
1
%


6



Revenues
Our revenues are derived from time and voyage charters. As is common in the shipping industry, we pay commissions ranging from 1.25% to 5.50% of the total daily charter hire rate of each charter to unaffiliated ship brokers associated with the charterers, depending on the number of brokers involved with arranging the charter.
Net time and voyage charter revenues for the three months ended June 30, 2018, were $74,938,700 compared with $53,631,224 recorded in the comparable quarter in 2017. The increase in revenue was primarily attributable to the improving dry bulk market resulting in higher charter rates as well as an increase in available days due to an increase