Note

Significant Accounting Policies:

(a)

Principles of Consolidation and Fresh Start Accounting:

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of Eagle Bulk Shipping Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions were eliminated upon consolidation. We have made a reclassification adjustment to conform the prior period amounts to the current period presentation in the Consolidated Statements of Operations. This change in classification had no effect on the previously reported total operating expenses. For the year ended

December

31,

2015,

and for the period between

October

16,

2014

and

December

31,

2014

(Successor), we have reclassified the technical management costs of

$6.1

million and

$1.2

million respectively from vessel expenses to general and administrative expenses. For the period between

January

2014

and

October

15,

2014

(Predecessor),

$4.7

million of technical management costs included in Vessel expenses were reclassified to General and administrative expenses. This reclassification was done to align the Company’s presentation to that of many of its peers.

Upon the Company’s emergence from the Chapter

cases on

October

15,

2014,

the Company adopted fresh-start accounting in accordance with provisions of ASC

852,

Reorganizations

(“ASC

852”).

Upon adoption of fresh-start accounting, the Company’s assets and liabilities were recorded at their fair value as of

October

15,

2014,

the fresh-start reporting date. The fair values of the Company’s assets and liabilities as of that date differed materially from the recorded values of its assets and liabilities as reflected in its historical consolidated financial statements. In addition, the Company’s adoption of fresh-start accounting materially affected its results of operations following the fresh-start reporting date, as the Company has a new basis in its assets and liabilities. Consequently, the Company’s historical financial statements prior to

October

15,

2014

may

not be reliable indicators of its financial condition and results of operations for any period after it adopted fresh-start accounting. As a result of the adoption of fresh-start reporting, the Company’s balance sheets and consolidated statements of operations subsequent to

October

15,

2014

are not comparable in many respects to our consolidated balance sheets and consolidated statements of operations prior to

October

15,

2014.

(b)

Use of Estimates:

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include vessel valuations, residual value of vessels, useful life of vessels and the fair value of derivative instruments. Actual results could differ from those estimates.

(c)

Other Comprehensive loss:

The Company records the fair value of interest rate swaps and foreign currency swaps as an asset or liability on the balance sheet. The effective portion of the swap is recorded in accumulated other comprehensive loss. Comprehensive loss is composed of net loss relating to the swaps, and unrealized gains or losses associated with the Company’s available for sale investment. The Company did not have any swaps and available for sale investments as of

December

31,

2016

and

2015.

(d)

Cash, Cash Equivalents and Restricted Cash:

The Company considers liquid investments such as time deposits and certificates of deposit with an original maturity of

three

months or less at the time of purchase to be cash equivalents. Restricted Cash amounting to

$74,917

and

$141,161

is collateralizing a letter of credit as of

December

31,

2016

and

December

31,

2015,

respectively.

(e)	Accounts Receivable: Accounts receivable includes receivables from charterers for hire and voyage charterers. At each balance sheet date, all potentially uncollectible accounts are assessed for purposes of determining the appropriate provision for doubtful accounts.

(f)	Insurance Claims: Insurance claims are recorded on an accrual basis and represent the claimable expenses, net of deductibles, incurred through each balance sheet date, which are expected to be recovered from insurance companies.

(g)

Inventories:

Inventories, which consist of bunkers, are stated at the lower of cost or market. Cost is determined on a

first

-in,

first

-out method. Lubes and spares are expensed as incurred. We will adopt Accounting Standard Update No.

2015

11,

“Simplifying the Measurement of Inventory” prospectively effective

January

2017

that requires the inventory to be measured at the lower of cost and net realizable value. We believe that there will be no impact on the consolidated financial statements as a result of the adoption of the new accounting standard.

(h)

Investments:

Prior to

December

2015,

the Company held an investment in the capital stock of Korea Line Corporation (“KLC”). This investment was designated as Available For Sale (“AFS”) and reported at fair value, with unrealized gains and losses recorded in stockholders’ equity as a component of accumulated other comprehensive loss. Investment gains and losses arise when investments are sold (as determined on a specific identification basis) or are other-than-temporarily impaired. If a decline in the value of an investment below cost is deemed other than temporary, the cost of the investment is written down to fair value, with a corresponding charge to earnings. Factors considered in judging whether an impairment is other than temporary include: the financial condition, business prospects and creditworthiness of the issuer, the relative amount of the decline, our ability and intent to hold the investment until the fair value recovers and the length of time that fair value has been less than cost. There is

investment balance as of

December

31,

2016

and

2015.

(i)

Vessels and vessel improvements, at cost:

Vessels are stated at cost, which consists of the contract price, and other direct costs relating to acquiring and placing the vessels in service. Major vessel improvements are capitalized and depreciated over the remaining useful lives of the vessels. At

October

15,

2014,

the Company’s vessels were adjusted to a fair value aggregating

$842,625,000

as part of fresh start accounting.

(j)

Vessel lives and Impairment of Long-Lived Assets:

The Company estimates the useful life of the Company's vessels to be

years from the date of initial delivery from the shipyard to the original owner. In addition, the Company estimates the scrap value of the vessels to be

$300

per lwt based on the

-year average scrap value of steel. Prior to

October

15,

2014,

the Company used a

year useful life for its vessels and a

$150

per lwt estimate for scrap value.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets

may

not be recoverable. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the Company will evaluate the asset for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset as provided by

third

parties or discounted cash flow analyses. In this respect, management regularly reviews the carrying amount of the vessels in connection with the estimated recoverable amount for each of the Company's vessels. The Company has begun a fleet renewal strategy, which has been made possible as a result of raising capital through private placements of our common stock in the latter part of

2016.

As of

December

31,

2016,

as part of our fleet renewal program, management considers it probable that we will divest some of our older vessels as well as certain less efficient vessels from its fleet to achieve operating cost savings. The Company identified

two

groups of vessels. Group

vessels were selected based on the shipyard they were built and their technical specifications. The group consists of

five

sister ships constructed in Dayang shipyard with

53,000

dwt. These vessels were identified by management as having poorer fuel efficiency, among other reasons, compared to their peers. The

second

group of

vessels are older than

years and less than

53,000

dwt. As vessels get older, they become more expensive to maintain and drydock. Additionally, management’s strategy entails trading larger Ultramax vessels as the Company renews its fleet. For those

sixteen

vessels, management believes that it is probable that such vessels will be sold within the next

two

years. Based on management’s projected undiscounted cash flows prior to sale, factoring the probability of sale, such vessels were determined to be impaired, and written down to their current fair value as of

December

31,

2016,

which was determined by obtaining broker quotes from

two

unaffiliated shipbrokers. As a result, the Company recorded an impairment charge of

$122,860,600

in the

fourth

quarter of

2016.

The carrying value of these vessels prior to impairment was

$234,860,600.

In addition to the above, in

2015,

the Company identified

six

vessels which it was probable that the Company was going to sell, and recognized an impairment charge in

2015

$50,872,734.

The carrying value of these vessels prior to impairment in

2015

was

$76,332,734.

As the value of such vessels further declined in the

first

quarter of

2016,

the Company recorded an additional impairment charge of

$6,167,262

in that quarter. Out of the

six

vessels initially identified in

2015,

four

vessels were sold and

two

vessels have been reclassified to assets held for sale as of

December

31,

2016

and subsequently sold.

(k)

Accounting for Drydocking Costs:

The Company follows the deferral method of accounting for drydocking costs whereby actual costs incurred are deferred and are amortized on a straight-line basis over the period through the date the next drydocking is required to become due, generally

months if the vessels are

years old or more and

months for the vessels younger than

years. Costs deferred as part of the drydocking include direct costs that are incurred as part of the drydocking to meet regulatory requirements. Certain costs are capitalized during drydocking if they are expenditures that add economic life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency. Direct costs that are deferred include the shipyard costs, parts, inspection fees, steel, blasting and painting. Expenditures for normal maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as incurred. Unamortized drydocking costs of vessels that are sold are written off and included in the calculation of the resulting gain or loss in the year of the vessels’ sale. Unamortized drydocking costs are written off as drydocking expense if the vessels are drydocked before the expiration of the applicable amortization period.

(l)

Deferred Financing Costs:

Fees incurred for obtaining new loans or refinancing existing

ones

are deferred and amortized to interest expense over the life of the related debt using the effective interest method. Unamortized deferred financing costs are written off when the related debt is repaid or refinanced and such amounts are expensed in the period the repayment or refinancing is made. Such amounts are classified as a reduction of the long-term debt balance on the consolidated balance sheets. Accordingly,

$435,816

previously classified in other assets was retrospectively classified as a reduction of the long-term debt balance as of

December

31,

2015

as a result of the adoption of ASU

2015

2016.

(m)

Other fixed assets:

Other fixed assets are stated at cost less accumulated depreciation. Depreciation is based on a straight line basis over the estimated useful life of the asset. Other fixed assets consist principally of leasehold improvements, computers and software and are depreciated over

years.

(n)	Accounting for Revenues and Expenses : Revenues generated from time charters and/or revenues generated from profit sharing arrangements are recognized over the term of the respective time charter agreements as service is provided and the profit sharing is fixed and determinable.

Under voyage charters, voyage expenses such as bunkers, port charges, canal tolls, cargo handling operations and brokerage commissions are paid by the Company whereas, under time charters, such voyage costs are paid by the Company's customers. Vessel operating costs include crewing, vessel maintenance and vessel insurance. All voyage and vessel operating expenses are expensed as incurred on an accrual basis, except for commissions. Commissions are recognized over the related time or voyage charter period since commissions are earned as the Company's revenues are earned. Probable losses on voyages are provided for in full at the time such loss can be estimated.

For the Company’s vessels operating in a pool, revenues and voyage expenses are pooled and allocated to each pool participant under a time charter agreement basis in accordance with an agreed-upon formula. The formula in the pool agreement for allocating gross shipping revenues net of voyage expenses is based on points allocated to participants’ vessels based on cargo carrying capacity and other technical characteristics, such as speed and fuel consumption. The selection of charterers, negotiation of rates and collection of related receivables and the payment of voyage expenses, which include the cost of bunkers and port expenses, are the responsibility of the pool. The operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel. The pool

may

enter into contracts that earn either voyage charter revenue or time charter revenue. Since the members of the pool share in the revenue less voyage expenses generated by the entire group of vessels in the pool, and the pool operates in the spot market, the revenue earned by these vessels is subject to the fluctuations of the spot market. The Company recognizes revenue from this pool arrangement based on its portion of the net distributions reported by the pool, which represents the net voyage revenue of the pool after voyage expenses and pool manager fees. The pool follows the same revenue recognition principles, as applied by the Company, in determining shipping revenues and voyage expenses, including recognizing revenue only after a charter has been agreed to by both the pool and the customer, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.

(o)	Unearned Charter Hire Revenue: Unearned charter hire revenue represents cash received from charterers prior to the time such amounts are earned. These amounts are recognized as revenue as services are provided in future periods.

(p)	Repairs and Maintenance: All repair and maintenance expenses are expensed as incurred and are recorded in Vessel Expenses.

(q)	Protection and Indemnity Insurance: The Company’s Protection and Indemnity Insurance is subject to additional premiums referred to as "back calls" or "supplemental calls" which are accounted for on an accrual basis and are recorded in Vessel Expenses.

(r)

Earnings Per Share:

Basic earnings per share is computed by dividing the net income or loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the impact of stock options, warrants and restricted stock unless their impact is antidilutive.

(s)

Interest Rate Risk Management:

The Company is exposed to the impact of interest rate changes. The Company's objective is to manage the impact of interest rate changes on earnings and cash flows of its borrowings. The Company

may

use interest rate swaps to manage net exposure to interest rate changes related to its borrowings.

(t)

Federal Taxes:

The Company is a Republic of the Marshall Islands Corporation. The Company does not believe its operations will quality for Internal Revenue Code Section

883

exemption and therefore will be subject to United States federal taxes on United States source shipping income. Such taxes, amounting to

$0.6

million and

$0.3

million, are included as a component of voyage expenses in the consolidated statements of operations for the years ended

December

31,

2016

and

2015,

respectively. Prior to

October

16,

2014,

we qualified for Internal Revenue Code Section

883

exemption and were not subject to federal taxes.

(u)	Restructuring charges : Restructuring charges consist of professional fees for advisors and attorneys who assisted the Company in the debt restructuring relative to the First Lien Facility in 2016.

Impact of Recently Issued Accounting Standards

May

2014,

the FASB issued Accounting Standards Update, (“ASU”) No.

2014

09,

Revenue from Contracts with Customers (“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

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. The standard is effective for annual periods beginning after

December

15,

2017,

and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In

May

2016,

the FASB issued Accounting Standards Update No.

2016

12,

Revenue from Contracts with Customers. This update provides further guidance on applying collectability criterion to assess whether the contract is valid and represents a substantive transaction on the basis whether a customer has the ability and intention to pay the promised consideration.

The requirements of this standard include an increase in required disclosures. Management has not yet selected a transition method and is currently analyzing the impact of the adoption of this guidance on the Company’s consolidated financial statements, including assessing changes that might be necessary to information technology systems, processes and internal controls to capture new data and address changes in financial reporting. The Company believes that the adoption of the standard will impact the timing of recognition of revenue.

August

2014,

the FASB issued ASU No.

2014

15,

“Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.” This ASU establishes specific guidance to an organization's management on their responsibility to evaluate whether there is substantial doubt about the organization's ability to continue as a going concern. The provisions of this ASU are effective for interim and annual periods ending after

December

15,

2016.

There was no impact on the financial statements due to the adoption of this accounting standard.

July

2015,

the FASB issued ASU No.

2015

11,

“Simplifying the Measurement of Inventory.” The new guidance specifies that the inventory be measured at the lower of cost and net realizable value. The amendment would apply prospectively and would be effective for annual reporting periods beginning after

December

15,

2016

and interim reporting periods within annual reporting periods after

December

15,

2017.

The Company intends to adopt the new accounting standard as of

January

2017.

The Company believes that there will be no impact on the consolidated financial statements because of the adoption of the new accounting standard.

February

2016,

the FASB issued Accounting Standards Update No.

2016

02,

Leases. ASU

2016

is intended to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In order to meet that objective, the new standard requires recognition of the assets and liabilities that arise from leases. A lessee will be required to recognize on the balance sheet the assets and liabilities for leases with lease terms of more than

months. Accounting by lessors will remain largely unchanged from current U.S. generally accepted accounting principles.

The requirements of this standard include an increase in required disclosures. The new standard is effective for public companies for fiscal years beginning after

December

15,

2018,

and interim periods within those years, with early adoption permitted.

Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they

first

apply the new guidance, using a modified retrospective transition method. The Company is currently evaluating the effect that adopting this standard will have on our financial statements and related disclosures.

Management expects that the Company will recognize increases in reported amounts for vessel and other fixed assets and related lease liabilities upon adoption of the new standard. Refer to Note

- Commitments and Contingencies for disclosure about the Company’s time charter and lease commitments as of

December

31,

2016.

March

2016,

the FASB issued Accounting Standards Update No.

2016

09,

“Stock Compensation”. The new guidance is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Accounting Standard Update allows the entity to make an accounting policy election to account for forfeitures when they occur. The standard is effective for annual periods beginning after

December

15,

2016

and interim periods within those annual periods. The Company believes there will be no impact on the consolidated financial statements as a result of the adoption of the new accounting standard.

August

2016,

the FASB issued Accounting Standards Update No.

2016

15,

“Statement of Cash Flows (Topic

230)

- Classification of Certain Cash Receipts and Cash Payments.” The new guidance is intended to provide specific guidance on cash flow classification issues such as debt prepayment or debt extinguishment costs, settlement of

zero

coupon debt instruments or cases where the coupon interest rate is insignificant compared to the effective interest rate of the borrowing, contingent consideration payments in a business combination, proceeds from insurance claim settlements and distributions received by equity method investees. The standard is effective for annual periods beginning after

December

15,

2017

and interim periods within those annual periods. The amendments should be applied using a retrospective transition method to each period presented. The Company believes there will be no impact on the consolidated financial statements as a result of the adoption of the new accounting standard.

October

2016,

the FASB issued Accounting Standards Update No.

2016

17,

“Interests held through related parties that are under Common Control. The amendments change the evaluation of whether a reporting entity is the primary beneficiary of a Variable Interest Entity by changing how a reporting entity that is a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control. The amendments in this Update are effective for fiscal years beginning after

December

15,

2016

and interim periods within those annual periods. The Company is not expecting any impact of the adoption of this standard on its consolidated financial statements.

November

2016,

the FASB issued Accounting Standards Update No.

2016

18,

“Statement of Cash Flows- Restricted Cash”. The amendments in this Update 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. The amendments in this Update are effective for fiscal years beginning after

December

15,

2017

and interim periods within those fiscal years. The Company will include

$74,917

of restricted cash within cash and cash equivalents when reconciling the beginning-of-period and end-of-period totals shown on the consolidated statement of cash flows upon adoption of this standard.

January

2017,

the FASB issued Accounting Standards Update No.

2017

01,

“Business Combinations (Topic

805).”

The amendments in this Update are intended to clarify the definition of business. The current guidance specifies

three

elements of a business – inputs, processes, and outputs. The new guidance provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. The standard is effective to annual periods beginning after

December

15,

2017,

including interim periods within those periods. The Company is evaluating the potential impact of the adoption of this standard on its consolidated financial statements.