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 September 30, 2016

 

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 website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated Filer

Accelerated Filer   X

Non-accelerated Filer

Smaller reporting company

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

 

YES                     NO    X

 

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  X                   NO        

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, par value $0.01 per share, 48,106,827 shares outstanding as of November 9, 2016. 

 

   

TABLE OF CONTENTS
		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	F-1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015	F-2
	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2016 and 2015	F-3
	Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2016	F-4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015	F-5
	Notes to Condensed Consolidated Financial Statements	F-6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	12
Item 4.	Controls and Procedures	12
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	12
Item 1A.	Risk Factors	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.	Defaults upon Senior Securities	13
Item 4.	Mine Safety Disclosures	13
Item 5.	Other Information	13
Item 6.	Exhibits	13
Signatures		15

 

  

 

Part 1: FINANCIAL INFORMATION

Item 1: Financial Statements

EAGLE BULK SHIPPING INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015

(Unaudited)

                                                    

 

*Adjusted to give effect for the 1 for 20 reverse stock split that became effective as of the opening of trading on August 5, 2016, see Note 1.

 

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

 

 

EAGLE BULK SHIPPING INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015

(Unaudited) 

 

  

*Adjusted to give effect for the 1 for 20 reverse stock split that became effective as of the opening of trading on August 5, 2016, see Note 1.

 

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

 

  

EAGLE BULK SHIPPING INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Other Comprehensive Loss

For the Three and Nine Months Ended September 30, 2016 and 2015

 (Unaudited) 

 

  

 

 

 

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

 

 

EAGLE BULK SHIPPING INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders' Equity

For the Nine Months Ended September 30, 2016

(Unaudited) 

 

 

 

 

 

 

 

*Adjusted to give effect for the 1 for 20 reverse stock split that became effective as of the opening of trading on August 5, 2016, see Note 1.

 

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

 

 

 

EAGLE BULK SHIPPING INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015

(Unaudited) 

 

 

 

 

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

 

 

 

EAGLE BULK SHIPPING INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

  

 

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following is a discussion of the Company's financial condition and results of operation for the three and nine-month periods ended September 30, 2016 and 2015. 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, 2015, which were included in our Form 10-K, filed with the Securities and Exchange Commission on March 31, 2016.

 

This discussion contains forward-looking statements within the meaning of Section 27A of 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 new building 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; (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) the outcome of legal proceedings in which we are involved; and (xi) and other factors listed from time to time in our filings with the Securities and Exchange Commission. This discussion also includes statistical data regarding world dry bulk fleet, 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. We have not independently verified this data nor sought the consent of any organizations to refer to their reports in this Quarterly Report. 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. If we update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

 

 Overview

 

Eagle Bulk Shipping Inc. is a Marshall Islands corporation headquartered in Stamford, Connecticut. We own one of the largest fleets of Supramax dry bulk vessels in the world. Supramax dry bulk are vessels which are constructed with on-board cranes, ranging in size from approximately 50,000 to 65,000 dwt and considered a sub-category of the Handymax segment; typically defined as 40,000-65,000 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 September 30, 2016, we owned and operated a modern fleet of 39 Supramax and 1 Handymax dry bulk vessels. We charter-in a 37,000 dwt newbuilding Japanese vessel that was delivered in October 2014 for seven years with an option for one additional year. We also chartered-in a 63,000 dwt newbuilding vessel that was delivered in May 2016 for nine to fourteen months and a 61,000 dwt Japanese vessel that was delivered in July 2016 for eleven to thirteen months.

 

We are focused on maintaining a high quality fleet that is concentrated primarily in one vessel type – Supramax 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 class vessels make them attractive to cargo interests and vessel charterers. The 40 owned vessels in our operating fleet, with an aggregate carrying capacity of 2,199,413 dwt, have an average age of 8.6 years as of September 30, 2016. In addition to our owned vessels, as of September 30, 2016, as mentioned above, the Company chartered-in three vessels with an aggregate carrying capacity of 161,000 dwt.

 

 

We own each of our vessels through a separate wholly owned Republic of the Marshall Islands limited liability company.

 

On June 20, 2016, the Company announced the expansion of it’s global commercial presence with the establishment of a new office in Hamburg, Germany, and operate through a new subsidiary, Eagle Bulk Europe GmbH, which commenced operations in August of 2016.

 

On September 30, 2016, the Company, through a newly formed subsidiary, Eagle Bulk Shipco LLC (‘Eagle Shipco”), signed a memorandum of agreement to acquire a 2016 Nantong COSCO Kawasaki Heavy Industries Engineering Co Ltd (“NACKS”) built Ultramax 61,000 dwt vessel for $18.85 million. The Company is expected to take delivery of the vessel in the fourth quarter of 2016. Eagle Shipco, is not one of the guarantors under the First Lien Facility or the Second Lien Facility. 

 

 

 Preferred Stock Private Placement

 

On September 7, 2016, the Company and each of the Investors executed the Termination Agreement, terminating the Preferred Stock Purchase Agreement.

 

Pursuant to the Termination Agreement, the Company and each Investor exchanged mutual releases of any and all claims or actions against each other in connection with or resulting from the Preferred Stock Purchase Agreement and the transactions contemplated thereby. The Company also agreed to make an aggregate termination payment to the Investors of $125,254.80, with such aggregate amount allocated among the Investors in proportion to the percentage of the Preferred Shares each Investor had previously agreed to purchase. Two of the Investors, Paul Leand and Gary Vogel (the Company’s chief executive officer), are directors of the Company and the other Investors are current shareholders of the Company. The fees paid to the shareholders were recorded as other expense in the condensed consolidated statements of operations for the three-months ended and nine-months ended September 30, 2016.

 

Common Stock Private Placements

 

On July 1, 2016 and July 10, 2016, respectively, the Company entered into Common Stock Purchase Agreements (collectively, the “Common Stock Purchase Agreements”), with certain purchasers (the “Common Stock Purchasers”). The Common Stock Purchasers include certain of our existing shareholders, who held approximately 70% of our outstanding equity prior to entry into the Common Stock Purchase Agreements and prior to giving effect to the delivery of all of the shares of common stock issued in connection with the Second Lien Loan Agreement, as well as our Chairman and Chief Executive Officer. The Common Stock Purchase Agreements provided for the issuance and sale by the Company to the Common Stock Purchasers of an aggregate amount of $88 million of common stock, at an initial price per share of $0.15, which amount per share was increased to $3.00 per share based on the reverse stock split ratio of 1-for-20 that became effective as of the opening of trading on August 5, 2016, see Note 1.

 

On August 10, 2016, the Company closed the transactions contemplated by the Common Stock Purchase Agreements for aggregate proceeds of $86.0 million net of fees and legal expenses. After giving effect to the Company’s previously announced reverse stock split of its issued and outstanding shares of common stock, including the rounding down of fractional shares pursuant to such split, the private placement included the issuance of 29,333,318 shares of the Company’s common stock. The Company intends to use the proceeds of the private placement for the acquisition of dry bulk vessels and general corporate purposes.

 

 

 

Corporate Reorganization and Refinancing

 

On March 30, 2016, we entered into the Contribution Agreement with Eagle Shipping pursuant to which the Company transferred, assigned and contributed to Eagle Shipping, and Eagle Shipping received, accepted and assumed, all of the tangible and intangible assets of the Company (other than the membership interests in Eagle Shipping owned by the Company and certain deposit accounts held by the Company, which deposit account balances were transferred) and all of the liabilities of the Company, including all of the Company’s rights and obligations under the Exit Financing Facility. Immediately following the Contribution, Eagle Shipping became the direct parent company of each of the Company’s previously directly-owned subsidiaries. The Contribution was part of the transactions contemplated by the agreements also entered into on March 30, 2016 and described below, which transactions were consummated on March 30, 2016, after the fulfillment of certain conditions precedent.

 

 

First Lien Facility

  

On March 30, 2016, Eagle Shipping, as borrower, and certain of its subsidiaries that are guarantors under the Exit Financing Facility, as guarantors, entered into an Amended and Restated First Lien Loan Agreement (the “A&R First Lien Loan Agreement”) with the lenders thereunder (the “First Lien Lenders”) and ABN AMRO Capital USA LLC, as agent and security trustee for the lenders. The A&R First Lien Loan Agreement amended and restated the Exit Financing Facility in its entirety, providing 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 below under Note 6 “Commitments and Contingencies - Legal Proceedings”). The A&R First Lien Loan Agreement provides for a term loan outstanding as of March 30, 2016, in the amount of $201,468,750 as well as a $50,000,000 revolving credit facility, of which $10,000,000 was undrawn prior to the refinancing (the term loan, together with the revolving credit facility, the “First Lien Facility”). The First Lien Facility matures on October 15, 2019. An aggregate fee of $600,000 was paid to the Agent and First Lien Lenders in connection with the First Lien Facility.

 

As of September 30, 2016, our total availability in the revolving credit facility under the First Lien Facility was $30,000,000.

 

Eagle Shipping’s obligations under the First Lien Facility are secured by a first priority mortgage on each of the vessels currently in the Company’s fleet and such other vessels that it may from time to time include with the approval of the First Lien Lenders, a first assignment of its earnings account, its liquidity account and its vessel-owning subsidiaries’ earnings accounts, a first assignment of all charters with terms that may exceed 18 months, freights, earnings, insurances, requisition compensation and management agreements with respect to the vessels and a first priority 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 First Lien Facility contains financial covenants requiring Eagle Shipping, among other things, to ensure that the aggregate market value of the vessels in the Company’s fleet (plus the value of certain additional collateral) at all times on or after July 1, 2017 does not fall below 100% in the third and fourth quarters of 2017, 110% in 2018 and 120% in 2019 of the aggregate principal amount of debt outstanding (subject to certain adjustments) under the First Lien Facility and maintain minimum liquidity of not less than the greater of (i) $8,140,000 and (ii) $185,000 per vessel in the Company’s fleet. In addition, the First Lien Facility also imposes operating restrictions on Eagle Shipping including limiting Eagle Shipping’s ability to, among other things: pay dividends; incur additional indebtedness; create liens on assets; acquire and sell capital assets (including vessels); and merge or consolidate with, or transfer all or substantially all of Eagle Shipping’s assets to, another person. The 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 and non-compliance with security documents. Further, there would be a default if any event occurs or circumstances arise in light of which, in the First Lien Lenders’ judgment, there is significant risk that Eagle Shipping is or would become insolvent. Eagle Shipping is not permitted to pay dividends. Indebtedness under the First Lien Facility may also be accelerated if Eagle Shipping experiences a change of control.

 

 

Upon entering into the First Lien Facility, Eagle Shipping made a principal payment with respect to the term loan of $11,718,750. For the fiscal quarters ending June 30, 2017 and June 30, 2018 and the fiscal years ending December 31, 2017 and 2018 (each, a “Semi-Annual Determination Date”), Eagle Shipping is obligated to repay the First Lien Facility in an amount equal to 75% of Eagle Shipping’s excess cash flow for the two fiscal quarters ended as of such Semi-Annual Determination Date, subject to a cap of such mandatory prepayments of $15,625,000 in any fiscal year. Thereafter, Eagle Shipping will make payments of $3,906,250 on January 15, 2019, April 15, 2019, and July 15, 2019, and a final balloon payment equal to the remaining amount outstanding under the First Lien Facility on October 15, 2019.

 

 

The Company has prepaid $5,651,000 of the term loan as of September 30, 2016 pursuant to the terms of the First Lien Facility relating to the mandatory prepayment upon sale of vessels. The repayment schedule mentioned above has been changed to reflect the prepayment made through September 30, 2016, such that the Company is required to make the payments of $3,786,346 on January 15, 2019, April 15, 2019, and July 15, 2019, and a final balloon payment equal to the remaining amount outstanding under the First Lien Facility on October 15, 2019. As a result of the mandatory prepayments made through September 30, 2016, the Company is not required to comply with the minimum security covenant until October 2017 pursuant to the terms of the A&R First Lien Loan Agreement.

 

Second Lien Facility

 

On March 30, 2016, Eagle Shipping, as borrower, and certain of its subsidiaries, as guarantors, entered into a Second Lien Loan Agreement (the “Second Lien Loan Agreement”) 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 Lenders include certain of the Company’s existing shareholders as well as other investors. The Second Lien Loan Agreement provides for a term loan in the amount of $60,000,000 (the “Second Lien Facility”), and matures on January 14, 2020 (91 days after the original stated maturity of the First Lien Facility). The term loan under the Second Lien Facility bears interest at a rate of LIBOR plus 14.00% per annum (with a 1.0% LIBOR floor) or the Base Rate (as defined in the Second Lien Loan Agreement) plus 13.00% per annum, paid in kind quarterly in arrears. The Company used the proceeds from the Second Lien Facility to pay down amounts outstanding in respect of the revolving credit facility under the Exit Financing Facility, pay three quarters of amortization payments under the Exit Financing Facility, pay transaction fees in connection with the entry into the A&R First Lien Loan Agreement and the Second Lien Loan Agreement, and add cash to the balance sheet, which cash would be deposited in an account subject to the security interest and control of the First Lien Lenders and the Second Lien Lenders.

 

   

Eagle Shipping’s obligations under the Second Lien Facility are secured by a second priority lien on the same collateral securing Eagle Shipping’s obligations under the First Lien Facility, subject to the terms of the Intercreditor Agreement (as defined below). Eagle Shipping may grant additional security to the Second Lien Lenders from time to time in the future, subject to the terms of the Intercreditor Agreement.

 

The Second Lien Facility contains financial covenants substantially similar to those in the First Lien Facility, subject to standard cushions, requiring Eagle Shipping, among other things, to ensure that the aggregate market value of the vessels in the Company’s fleet (plus the value of certain additional collateral) at all times on or after July 1, 2017 does not fall below 100% in the third and fourth quarters of 2017, 110% in 2018 and 120% in 2019 of the aggregate principal amount of debt outstanding (subject to certain adjustments) under the Second Lien Facility (provided that Eagle Shipping will not be required to comply with such covenant until the First Lien Facility has been paid in full) and to maintain a minimum liquidity of not less than the greater of (i) $6,512,000 and (ii) $148,000 per vessel in Eagle Shipping’s fleet. In addition, the Second Lien Facility also imposes operating restrictions on Eagle Shipping including limiting Eagle Shipping’s ability to, among other things: pay dividends; incur additional indebtedness; create liens on assets; acquire and sell capital assets (including vessels); and merge or consolidate with, or transfer all or substantially all of Eagle Shipping’s assets to, another person. Eagle Shipping may not prepay the Second Lien Facility while amounts or commitments under the First Lien Facility remain outstanding.

 

The Second 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 and non-compliance with security documents. Further, there would be a default if any event occurs or circumstances arise in light of which, in the Second Lien Lenders’ judgment, there is significant risk that Eagle Shipping is or would become insolvent. Eagle Shipping is not permitted to pay dividends. Indebtedness under the Second Lien Facility may also be accelerated if Eagle Shipping experiences a change of control.

 

In connection with the entry into the Second Lien Loan Agreement, on March 30, 2016, the Company agreed to issue 16,889,828 shares of common stock to the Second Lien Lenders pro rata based on their participation in the Second Lien Facility, which Second Lien Lenders received shares equivalent to approximately 90% of the outstanding common stock of the Company after such issuance. The issuance of the shares of common stock was made pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act.

 

In a first step, the Company issued and delivered 371,276 shares of common stock, representing approximately 19.4% of the Company’s pre-transaction outstanding shares of common stock, to the Second Lien Lenders. In a second step, approved by the Company’s shareholders at a special meeting held on August 2, 2016, the Company issued and delivered an additional 16,420,098 shares of common stock, to the Second Lien Lenders and an additional 98,454 shares of common stock, to the Chairman and Chief Executive Officer, both of whom participated as Second Lien Lenders. 

 

The Company has proportionately allocated the proceeds from the Second Lien Loan Agreement based on the relative fair values of the Second Lien Facility and the common stock issued to the Second Lien Lenders. The difference between the $60 million principal value of the Second Lien Facility and its relative fair value, amounting to approximately $17 million, has been recorded as a discount to the recorded value of the Second Lien Facility and as an addition to Paid-in capital. This discount is being amortized using the effective interest method over the term of the Second Lien Facility as a component of interest expense.

 

Intercreditor Agreement

 

Concurrently with Eagle Shipping’s entry into the A&R First Lien Loan Agreement and the Second Lien Loan Agreement, and in connection with the granting of security interest in the collateral under those agreements, Eagle Shipping entered into an Intercreditor Agreement, dated as of March 30, 2016 (the “Intercreditor Agreement”) among Eagle Shipping, the First Lien Agent and the Second Lien Agent. The Intercreditor Agreement governs the relative rights and priorities of the secured parties in respect of liens on the assets of Eagle Shipping and its subsidiaries securing the First Lien Facility and the Second Lien Facility.

   

Corporate Information

 

We maintain our principal executive offices at 300 First Stamford Place, 5^th 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.

 

  

Strategy

 

Our financial performance is based on the following key elements of our business strategy:

 

(1)

concentration in one vessel category: the Supramax class of Handymax dry bulk vessels, which we believe offer size, operational and geographical advantages over Panamax and Capesize vessels;

 

(2)

Eagle’s chartering strategy has historically been to time charter the Vessels on short- to medium-term charter, often with vessel operators. However, under its new management team, the Company is in the midst of a transition to an active operating model where it is entering into a higher percentage of voyage charters and developing 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, Eagle consistently monitors the dry bulk shipping market and, based on market conditions, will consider taking advantage of long-term time charters at higher rates when appropriate;

 

(3)

maintain high quality vessels and improve standards of operation through improved environmental procedures, crew training and maintenance and repair procedures; and

 

(4)

maintain a balance between purchasing vessels as market conditions and opportunities arise and maintaining prudent financial ratios (e.g. leverage ratio).

       

 

 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 September 30, 2016:  

 

Vessel		Year Built			Dwt		Charter Expiration			Daily Charter Hire Rate
Avocet		2010			53,462		Dec 2016		$	6,000
Bittern		2009			57,809		Oct 2016		$	9,750
Canary		2009			57,809		Oct 2016		$	8,500
Cardinal		2004			55,362		Oct 2016		$	8,600
Condor		2001			50,296		Nov 2016		$	3,800
Crane		2010			57,809		Oct 2016		$	8,000
Crested Eagle		2009			55,989		Oct 2016			Voyage
Crowned Eagle		2008			55,940		Oct 2016			Voyage
Egret Bulker		2010			57,809		Dec 2016		$	3,000	(1)
Gannet Bulker		2010			57,809		Oct 2016		$	Voyage
Golden Eagle		2010			55,989		Oct 2016		$	7,800
Goldeneye		2002			52,421		Nov 2016			Voyage
Grebe Bulker		2010			57,809		Dec 2016		$	3,000	(2)

 

 

Hawk I		2001			50,296		Oct 2016		$	5,000
Ibis Bulker		2010			57,775		Nov 2016			Voyage
Imperial Eagle		2010			55,989		Oct 2016			Voyage
Jaeger		2004			52,248		Nov 2016			Voyage
Jay		2010			57,802		Nov 2016		$	4,400
Kestrel I		2004			50,326		Oct 2016		$	8,500
Kingfisher		2010			57,776		Oct 2016		$	7,750
Martin		2010			57,809		Oct 2016			Voyage
Merlin		2001			50,296		Oct 2016		$	7,000
Nighthawk		2011			57,809		Nov 2016		$	9,990
Oriole		2011			57,809		Oct 2016		$	13,000
Osprey I		2002			50,206		Oct 2016		$	7,350
Owl		2011			57,809		Oct 2016		$	9,000
Petrel Bulker		2011			57,809		Nov 2016		$	2,700
Puffin Bulker		2011			57,809		Dec 2016		$	2,850	(3)
Redwing		2007			53,411		Oct 2016		$	7,200
Roadrunner Bulker		2011			57,809		Oct 2016		$	6,250	(4)
Sandpiper Bulker		2011			57,809		Oct 2016			Drydock	(5)
Shrike		2003			53,343		Nov 2016			Voyage
Skua		2003			53,350		Dec 2016		$	3,100	(6)
Sparrow		2000			48,225		Dec 2016			Voyage
Stellar Eagle		2009			55,989		Oct 2016		$	6,000
Tern		2003			50,200		Oct 2016		$	7,500
Thrasher		2010			53,360		Nov 2016		$	7,000
Thrush		2011			53,297		Oct 2016		$	6,850
Woodstar		2008			53,390					Drydock	(7)
Wren		2008			53,349		Oct 2016		$	8,300

 

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	(1)	The vessel is contracted to continue the existing time charter at a daily charter rate of $6,900 after November 25, 2016
	(2)	The vessel is contracted to continue the existing time charter at a daily charter rate of $7,000 after December 6, 2016
	(3)	The Vessel is contracted to continue the existing time charter at a daily charter rate of $6,750 after November 1, 2016.
	(4)	The vessel is contracted to continue the existing time charter at a daily charter rate of $8,250 after September 30, 2016.
	(5)	The vessel is contracted on a short term time charter upon completion of drydock.
	(6)	The vessel is contracted to continue the existing time charter at a daily charter rate of $6,800 after November 28, 2016.
	(7)	The vessel is contracted on a short term voyage charter upon completion of drydock.

 

 

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 wholly owned subsidiaries, Eagle Shipping International (USA) LLC, a Republic of the Marshall Islands limited liability company that maintains its principal executive offices in Stamford, CT, Eagle Bulk Pte. Ltd, a Singapore company and Eagle Bulk Europe Gmbh, a German company. We currently have a total of seventy one shore-based personnel, including our senior management team and our office staff, who either directly or through these subsidiaries, provides the following services:

 

•     commercial operations and technical supervision;

•     safety monitoring;

•     vessel acquisition; and

•     financial, accounting and information technology services.

 

Technical Management

 

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.

   

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 is based upon our interim unaudited condensed consolidated financial statements, they do not include all of the information on critical accounting policies normally included in unaudited condensed consolidated financial statements. Accordingly, these critical accounting policies should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Reports on Form 10-K. 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, 2015, filed with the SEC on March 31, 2016.

 

Use of Estimates

  

  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 stock-based compensation, the useful lives of fixed assets and intangibles, the period of drydock amortization, the allowances for bad debt, and the fair value of warrants.

 

Results of Operations for the three and nine month periods ended September 30, 2016 and 2015:

 

We believe that the measures for analyzing future trends in our results of operations consist of the following:

 

		Three Months Ended								Nine Months Ended
		September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
Ownership Days			3,760				4,048				11,688				12,138
Chartered in Days			394				92				745				273
Available Days			4,094				4,080				12,292				12,049
Operating Days			4,048				3,996				12,142				11,750
Fleet Utilization			98.9	%			98.0	%			98.8	%			97.5	%

 

 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. Ownership days for the nine-month period ended September 30, 2016 were 11,688 compared to 12,138 in the corresponding period in the prior year due to the sale of the vessels Peregrine, Falcon, Harrier and Kittiwake in 2016 compared to the sale of the vessel Kite during the second quarter of 2015.

 

•               Chartered-in days: We define chartered-in under operating lease days as the aggregate number of days in a period during which we chartered-in vessels.

 

•               Available days: We define available days as the number of our ownership days less the aggregate number of days that our vessels are off-hire due to vessel familiarization upon acquisition, scheduled repairs or repairs under guarantee, vessel upgrades or special surveys and the aggregate amount of time that we spend positioning our vessels. 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 nine-month period ended September 30, 2016, the Company completed drydocking of eight vessels and one vessel was still in drydocking as of September 30, 2016. During the nine-month period ended September 30, 2015, the Company completed drydocking seventeen vessels.

 

•              Operating days: We define operating days as the number of our 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.

 

 

 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 5.00% 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 revenues during the quarter ended September 30, 2016 and 2015, were $35,788,181 and $29,127,482, respectively. The increase in revenue is attributable to increased number of freight voyages as well as available days due to chartered in vessels.

 

Net revenues during the nine-month periods ended September 30, 2016 and 2015, were $82,656,903 and $78,116,020, respectively. The increase in revenue is attributable to increased number of freight voyages as well as available days due to chartered in vessels offset by a decline in the charter hire rates in the current year compared to the same period in the prior year.

 

 Voyage Expenses

 

 To the extent that we employ our vessels on voyage charters, we incur expenses that include bunkers, port charges, canal tolls, cargo handling operations and brokerage commissions, as these expenses are borne by the vessel owner on voyage charters. Bunkers, port charges, and canal toll expenses primarily increase in periods during which vessels are employed on voyage charters because these expenses are for the account of the owner. Voyage expenses for the three-month period ended September 30, 2016 were $11,207,959, compared to $5,202,219 in the comparable quarter in 2015. Voyage expenses for the nine-month period ended September 30, 2016 were $27,902,155, compared to $13,540,698 in the comparable period in 2015. Voyage expenses have primarily increased due to an increase in bunker prices as well as an increased number of freight voyages performed in the current period compared to the same period in the prior year.

 

 Vessel Expenses

 

Vessel expenses for the three-month period ended September 30, 2016 were $17,707,959, compared to $22,492,616 in the comparable quarter in 2015. The decrease is attributable primarily to the lower number of owned vessels and savings achieved due to in-house management of the vessels. The Company had 40 owned vessels at the end of third quarter of 2016 compared to 44 owned vessels at the end of the comparable quarter in 2015.

 

Vessel expenses for the nine-month period ended September 30, 2016 were $56,783,181, compared to $63,124,053 in the comparable period in 2015. The decrease is attributable primarily due to a lower number of owned vessels and savings achieved due to in-house management of the vessels.

 

 Vessel expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores and related inventory, tonnage taxes, pre-operating costs associated with the delivery of acquired vessels including providing the newly acquired vessels with initial provisions and stores and other miscellaneous expenses.

 

 Other factors beyond our control, some of which may affect the shipping industry in general, may cause vessel operating expenses to increase, including, for example, developments relating to market prices for crew, insurance and petroleum-based lubricants and supplies.  

  

 Depreciation and Amortization 

 

For the three-month periods ended September 30, 2016 and 2015, total depreciation and amortization expense was $9,854,228 and $11,284,454, respectively. Total depreciation and amortization expense for the three-month period ended September 30, 2016 includes $8,912,311 of vessel and other fixed assets depreciation, and $941,917 relating to the amortization of deferred drydocking costs. Comparable amounts for the three-month period ended September 30, 2015 were $10,260,200 of vessel and other fixed assets depreciation and $1,024,254 of amortization of deferred drydocking costs.

 

For the nine-month periods ended September 30, 2016 and 2015, total depreciation and amortization expense was $28,905,058 and $32,739,674, respectively. Total depreciation and amortization expense for the nine-month period ended September 30, 2016 includes $26,573,461 of vessel and other fixed assets depreciation, and $2,331,597 relating to the amortization of deferred drydocking costs. Comparable amounts for the nine-month period ended September 30, 2015 were $30,783,330 of vessel and other fixed assets depreciation and $1,956,344 of amortization of deferred drydocking costs. 

 

 

The cost of all vessels is depreciated on a straight-line basis over the expected useful life of each vessel. Depreciation is based on the cost of the vessel less its estimated residual value. We estimate the useful life of our vessels to be 25 years from the date of initial delivery from the shipyard to the original owner. Furthermore, we estimate the residual values of our vessels to be $300 per lightweight ton. Drydocking relates to our regularly scheduled maintenance program necessary to preserve the quality of our vessels as well as to comply with international shipping standards and environmental laws and regulations. Management anticipates that vessels are to be drydocked every two and a half years for vessels older than 15 years and every five years for vessels younger than 15 years, accordingly, these expenses are deferred and amortized over that period. 

 

Amortization of debt discount and debt issuance costs is included in interest expense. These financing costs relate to costs associated with the First Lien and Second Lien Loan Facilities and Exit Financing Facility. The Company paid $3,067,647 in connection with the First and Second Lien Loan facilities and $6,575,000 for the Exit Financing Facility, which is recorded as debt issuance costs that amortize over the term of the related Loan. The Company also issued 16,889,828 shares in connection with the Second Lien Loan Facility and the fair value of which was determined to be approximately $18 million, was recorded as component of debt issuance costs. For the three-month periods ended September 30, 2016 and 2015, the amortization of debt discount and debt issuance costs was $2,292,545 and $527,748, respectively. For the nine-month periods ended September 30, 2016 and 2015, the amortization of debt discount and debt issuance costs was $3,092,193 and $1,784,062, respectively. The Company adopted the new accounting standard issued by FASB ASU 2015-03 on presentation of deferred financing costs on January 1, 2016 and accordingly, we have reclassified previously reported deferred financing costs of $435,816 as of December 31, 2015 as a reduction of the long-term debt balance retrospectively.

 

 

General and Administrative Expenses

 

Our general and administrative expenses include onshore vessel administration related expenses such as legal and professional expenses and administrative and other expenses including payroll and expenses relating to our executive officers and office staff, office rent and expenses, directors’ fees, and directors and officers insurance. General and administrative expenses also include non-cash compensation expenses and external technical management fees.

 

General and administrative expenses for the three-month periods ended September 30, 2016 and 2015, were $5,223,782 and $5,907,387, respectively. These general and administrative expenses include a non-cash compensation reversal of $734,996 and non-cash compensation expense of $790,803, respectively.The decrease is mainly due to the reversal of approximately $1.4 million of non-cash compensation expense relating to the forfeited stock awards granted to the former Chief Financial Officer, savings on third party management fees and an increase in payroll expenses.

 

General and administrative expenses for the nine-month periods ended September 30, 2016 and 2015, were $15,429,844 and $18,186,555, respectively. These general and administrative expenses include a non-cash compensation component of $933,550 and $2,998,382, respectively. The decrease in general and administrative expenses for the nine-month period ended September 30, 2016 compared to the comparable period in 2015, is primarily attributable to a decrease in professional fees and non-cash compensation expense as a result of the reversal of approximately $1.4 million relating to the forfeited stock awards granted to the former Chief Financial Officer.

 

Effects of Inflation

 

 We do not believe that inflation has had or is likely, in the foreseeable future, to have a significant impact on vessel operating expenses, drydocking expenses or general and administrative expenses.

   

Liquidity and Capital Resources

 

Net cash used in operating activities during the nine-month period ended September 30, 2016 was $40,092,760, compared with net cash used by operating activities of $29,809,434 during the corresponding nine-month period ended September 30, 2015. The increase in cash used in operating activities is primarily due to lower charter rates on time charter renewals.

 

Net cash provided by investing activities during the nine-month period ended September 30, 2016 was $12,411,444, compared with net cash provided by investing activities of $9,621,753, during the corresponding nine-month period ended September 30, 2015. The increase in cash provided by investing activities is mainly attributable to the sale of four vessels in 2016 compared to one vessel in the comparable period in 2015 offset by the sale of KLC investments in 2015.

 

 Net cash provided by financing activities during the nine-month period ended September 30, 2016 was $101,353,950, compared with $5,495,744 during the corresponding nine-month period ended September 30, 2015. The increase in cash from financing activities is due to net proceeds from the private common stock placements closed on August 10, 2016 of $85,700,535, $60,000,000 received from our Second Lien Loan facility and $10,158,500 from the revolver under the First Lien Facility offset by repayment of $21,276,000 of our term loan and $30,158,500 of our revolver each under the First Lien Facility. The Company also paid $3,067,647 in deferred financing costs.

 

 As of September 30, 2016, our cash balance was $98,568,795, compared to a cash balance of $24,896,161 at December 31, 2015. Also recorded in Restricted cash is an amount of $74,917, which collateralizes letters of credit relating to our office lease.

 

  

At September 30, 2016, the Company’s debt consisted of $204,099,000 in term loans, net of $5,184,565 debt discount and debt issuance costs under the First Lien Facility and $60,000,000 under the Second Lien Facility net of $16,719,722 debt discount and debt issuance costs. In addition, we have $30 million in undrawn revolver availability under the First Lien Facility.

 

Our principal sources of funds are operating cash flows, long-term bank borrowings and borrowings under our revolving credit facility (see “–Overview—First Lien Facility” and “–Overview—Second Lien Facility”). Our principal use of funds is capital expenditures to establish and grow our fleet, maintain the quality of our vessels, comply with international shipping standards and environmental laws and regulations, fund working capital requirements and repayments of interest on our outstanding loan facilities. See “–Overview—First Lien Facility” and “–Overview—Second Lien Facility” for additional information concerning our loan facilities.

 

 

We believe that our current financial resources, together with the undrawn revolving credit facility and cash generated from operations will be sufficient to meet our ongoing business needs and other obligations over the next twelve months. Our ability to generate sufficient cash depends on many factors beyond our control including, among other things, continuing to improve the profitability of its operations and future cash flows which contemplates an improvement in charter rates.

 

 

Capital Expenditures

 

Our capital expenditures relate to the purchase of vessels and capital improvements to our vessels, which are expected to enhance the revenue earning capabilities and safety of these vessels.

 

On September 30, 2016, the Company, through a newly formed subsidiary, Eagle Bulk Shipco LLC (‘Eagle Shipco”), signed a memorandum of agreement to acquire a 2016 Nantong COSCO Kawasaki Heavy Industries Engineering Co Ltd (“ NACKS”) built Ultramax 61,000 dwt for $18.85 million. The Company is expected to take delivery of the vessel in the fourth quarter of 2016. Eagle Shipco, is not one of the guarantors under the First Lien Facility or the Second Lien Facility.

 

In addition to acquisitions that we may undertake in future periods, the other major capital expenditures include funding the Company's program of regularly scheduled drydocking necessary to comply with international shipping standards and environmental laws and regulations. Although the Company has some flexibility regarding the timing of its drydocking, the costs are relatively predictable. The Company anticipates that vessels are to be drydocked every five years for vessels younger than 15 years and every two and a half years for vessels older than 15 years, accordingly, these expenses are deferred and amortized over that period. Funding of these requirements is anticipated to be met with cash from operations. We anticipate that this process of recertification will require us to reposition these vessels from a discharge port to shipyard facilities, which will reduce our available days and operating days during that period.

 

Drydocking costs incurred are deferred and amortized to expense on a straight-line basis over the period through the date of the next scheduled drydocking for those vessels. Eight vessels completed drydocking in the nine months ended September 30, 2016, with one vessel still in drydocking as of September 30,2016 and we incurred $3,715,179 in drydocking related costs. Seventeen vessels completed drydocking in the nine months ended September 30, 2015 and we incurred $9,680,582 in drydocking related costs.

 

 The following table represents certain information about the estimated costs for anticipated vessel drydockings in the next four quarters, along with the anticipated off-hire days: 

 

Quarter Ending		Off-hire Days(1)				Projected Costs(2)
December 31, 2016			-				-
March 31, 2017			-				-
June 30, 2017			-				-
September 30, 2017			66			$	1.9 million
(1)Actual duration of drydocking will vary based on the condition of the vessel, yard schedules and other factors. (2)Actual costs will vary based on various factors, including where the drydockings are actually performed.

 

Off-balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Other Contingencies

 

We refer you to Note 6, “Commitments and Contingencies - Legal Proceedings” to our Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report for a discussion of our contingencies related to claim litigation. If an unfavorable ruling were to occur in these matters, there exists the possibility of a material adverse impact on our business, liquidity, results of operations, financial position and cash flows in the period in which the ruling occurs. The potential impact from legal proceedings on our business, liquidity, results of operations, financial position and cash flows, could change in the future

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

There have been no material changes from the market risk disclosure set forth in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 31, 2016.

 

Item 4. Controls and Procedures

 

Effectiveness of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

As of September 30, 2016, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at a reasonable assurance level as of September 30, 2016.

 

Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Inherent Limitations on Effectiveness of Controls

 

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

 

The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. 

 

 

PART II: OTHER INFORMATION

  

Item 1 -

Legal Proceedings

 

From time to time, we are involved in various disputes and litigation matters that arise in the ordinary course of our business, principally personal injury and property casualty claims. Those claims, even if lacking merit, could result in the expenditure by us of significant financial and managerial resources. Information about legal proceedings is set forth in Note 6 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report and is incorporated by reference herein. 

 

  

Item 1A –

Risk Factors

 

There have been no material changes from the “Risk Factors” previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 31, 2016. 

 

Item 2 –

Unregistered Sales of Equity Securities and Use of Proceeds

 

During the period covered by this report, the Company sold securities without registration under the Securities Act, as previously disclosed on a Current Report on Form 8-K.

 

Item 3 -

Defaults Upon Senior Securities

 

None. 

 

Item 4 –

Mine Safety Disclosures

 

Not applicable.

 

Item 5 -

Other Information

  

None.

 

 

 

Item 6 –

Exhibits

  

 

EXHIBIT INDEX

 

 

 

 

 

3.1		Articles of Amendment to Second Amended and Restated Articles of Incorporation of Eagle Bulk Shipping Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 2, 2016)
3.2		Third Amended and Restated Articles of Incorporation of Eagle Bulk Shipping Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 4, 2016)
10.1		Stock Purchase Agreement, dated as of July 1, 2016, by and among Eagle Bulk Shipping Inc. and the Investors party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 5, 2016)
10.2		Stock Purchase Agreement, dated as of July 10, 2016, by and among Eagle Bulk Shipping Inc. and the Investors party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 11, 2016)
10.3		First Amendment to the Preferred Stock Purchase Agreement, dated as of July 19, 2016, by and between Eagle Bulk Shipping Inc. and the Purchasers party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 20, 2016)
10.4		Termination Agreement, dated September 7, 2016, by and among Eagle Bulk Shipping Inc. and the Investors party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 7, 2016)
10.5+		Separation Agreement and General Release, dated September 29, 2016, among Eagle Bulk Shipping Inc., Eagle Shipping (USA) International LLC and Adir Katzav

 

 

10.6+		Employment agreement dated September 3, 2016, among Eagle Bulk Shipping Inc., Eagle Shipping (USA) International LLC and Frank De Costanzo
31.1		Rule 13a-14(d) / 15d-14(a)_Certification of Principal Executive Officer.
31.2		Rule 13a-14(d) / 15d-14(a) Certification of Principal Financial Officer.
32.1		Section 1350 Certification of Principal Executive Officer.
32.2		Section 1350 Certification of Principal Financial Officer.
101.		The following materials from Eagle Bulk Shipping Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2016 and December 31, 2015, (ii) Condensed Consolidated Statements of Operations (unaudited) for the nine months ended September 30, 2016 and 2015, (iii) Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the nine months ended September 30, 2016 and 2015, (iv) Condensed Consolidated Statements of Stockholders' Equity (unaudited) for the nine months ended September 30, 2016 and 2015, (v) Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2016 and 2015, and (vi) Notes to Condensed Consolidated Financial Statements (unaudited).

 

+ Indicates management contract or compensatory plan or arrangement.

 

  

SIGNATURES 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

EAGLE BULK SHIPPING INC.

 

By: /s/ Gary Vogel

--------------------------------------------------------------------------------

Gary Vogel

Chief Executive Officer

(Principal executive officer of the registrant)

Date: November 9, 2016

 

By: /s/ Frank De Costanzo

--------------------------------------------------------------------------------

Frank De Costanzo

Chief Financial Officer

(Principal financial officer of the registrant)

Date: November 9, 2016

  

 

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