UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
20-F




[_]           REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) or 12 (g) OF THE
SECURITIES EXCHANGE ACT OF 1934




OR




[X]           ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT




For the
fiscal year ended December 31, 2007




OR




[_]           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the
transition period from  _____________  to




OR




[_]           SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934




Date of
event requiring this shell company report:




For the
transition period from  ___________ to




Commission
file number:




STAR
BULK CARRIERS CORP.


_______________________________________________


(Exact
name of Registrant as specified in its charter)


_______________________________________________


(Translation
of Registrant’s name into English)




Republic
of the Marshall Islands


_______________________________________________


(Jurisdiction
of incorporation or organization)




Star
Bulk Carriers Corp.


40
Ag. Konstantinou Avenue


Aethrion
Center, Suite B34


Maroussi
15124


Athens,
Greece


Telephone:
011-30-210-638-7399


_______________________________________________


(Address
of principal executive offices)





Prokopios
Tsirigakis, 011 30 210 729 2341, atsirigakis@starbulk.com,
c/o Star Bulk Carriers Corp., 40 Ag.


Konstantinou
Avenue, Aethrion Center, Suite B34, Maroussi 15124


_______________________________________________


(Name,
telephone, email and/or facsimile number and address of Company Contact
Person)




Securities
registered or to be registered pursuant to Section 12(b) of the
Act:




Title
      of each class
            
            Name
      of each exchange on which registeredCommon
      Stock, par value $0.01 per share
            
            NASDAQ
      Global MarketWarrants
      to purchase a share of
              Common
      Stock
            
            NASDAQ
      Global Market









Securities
registered or to be registered pursuant to Section 12(g) of the Act:  None.




Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
 None.




Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual
report:




As
of December 31, 2007, there were 42,516,433 shares of common stock and
19,048,136 warrants of the registrant outstanding.




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.




[_]
      Yes
            [X]
      No




If this
report is an annual report or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.




[_]
      Yes
            [X]
      No




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.




[X]
      Yes
            [_]
      No




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.




Large
accelerated filer
[  ]                        Accelerated
filer  [X]                                Non-accelerated
filer  [  ]




Indicate
by check mark which financial statement item the registrant has elected to
follow.




[_]
      Item 17
            [X]
      Item 18






Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:




[X]
      U.S. GAAP
            
            [_]
      International Financial Reporting Standards as issued by the International
      Accounting Standards Board
            
            [_]
      Other - If “Other” has been checked in response to the previous question,
      indicate by check mark which financial statement item the registrant has
      elected to follow.
              [_]
      Item 17 or [_] Item 18.






If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).


[  ]
      Yes
            [X]
      No









FORWARD-LOOKING
STATEMENTS





Star Bulk
Carriers Corp., or the Company, desires to take advantage of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this cautionary statement in connection with this safe harbor
legislation. This document and any other written or oral statements made by us
or on our behalf may include forward-looking statements, which reflect our
current views with respect to future events and financial performance. The words
“believe,” “except,” “anticipate,” “intends,” “estimate,” “forecast,” “project,”
“plan,” “potential,” “may,” “should,” “expect” and similar expressions identify
forward-looking statements.




Please
note in this annual report, “we,” “us,” “our,” “The Company,” all refer to Star
Bulk Carriers Corp and its subsidiaries.




The
forward-looking statements in this document are based upon various assumptions,
many of which are based, in turn, upon further assumptions, including without
limitation, management’s examination of historical operating trends, data
contained in our records and other data available from third parties. Although
we believe that these assumptions were reasonable when made, because these
assumptions are inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and are beyond our
control, we cannot assure you that we will achieve or accomplish these
expectations, beliefs or projections.




In
addition to these important factors and matters discussed elsewhere herein,
important factors that, in our view, could cause actual results to differ
materially from those discussed in the forward-looking statements include the
strength of world economies, fluctuations in currencies and interest rates,
general market conditions, including fluctuations in charter hire rates and
vessel values, changes in demand in the dry-bulk shipping industry, changes in
the Company’s operating expenses, including bunker prices, drydocking and
insurance costs, changes in governmental rules and regulations or actions taken
by regulatory authorities, potential liability from pending or future
litigation, general domestic and international political conditions, potential
disruption of shipping routes due to accidents or political events, and other
important factors described from time to time in the reports filed by the
Company with the Securities and Exchange Commission.







3






TABLE OF CONTENTS




Page


PART
      I
            5Item
      1.       Identity of Directors, Senior Management
      and Advisers
            5Item
      2.       Offer Statistics and Expected
      Timetable
            5Item
      3.       Key Information
            5Item
      4.       Information on the
      Company
            22Item
      4A.    Unresolved Staff Comments
            36Item
      5.       Operating and Financial Review and
      Prospects
            36Item
      6.       Directors, Senior Management and
      Employees
            52Item
      7.       Major Shareholders and Related
      Party Transactions
            57Item
      8.       Financial
    Information
            59Item
      9.       The Offer and
    Listing
            61Item
      10.     Additional Information
            62Item
      11.     Quantitative and Qualitative Disclosures about
      Market Risk
            72Item
      12.     Description of Securities Other than Equity
      Securities
            73PART
      II
            73Item
      13.     Defaults, Dividend Arrearages and
      Delinquencies
            73Item
      14.     Material Modifications to the Rights of
      Security Holders and Use of Proceeds
            74Item
      15.     Controls and Procedures
            74Item
      16A.  Audit Committee Financial Expert
            78Item
      16B.  Code of Ethics
            78Item
      16C.  Principal Accountant Fees and Services
            78Item
      16D.  Exemptions from the Listing Standards for Audit
      Committees
            79Item
      16E.  Purchases of Equity Securities by the Issuer and Affiliated
      Purchasers
            79PART
      III
            79Item
      17.    Financial Statements
            79Item
      18.    Financial Statements
            79Item
      19.    Exhibits
            80











4


PART
I




Item
1. Identity of Directors, Senior Management and Advisers




Not
Applicable.




Item
2. Offer Statistics and Expected Timetable




Not
Applicable.




Item
3. Key Information




Throughout
this report, the “Company,” “we,” “us” and “our” all refer to Star Bulk Carriers
Corp. and its subsidiaries. We use the term deadweight ton, or dwt, in
describing the size of vessels. Dwt, expressed in metric tons, each of which is
equivalent to 1,000 kilograms, refers to the maximum weight of cargo and
supplies that a vessel can carry. The Company operates drybulk vessels of three
sizes: Capesize, which are vessels between 110,000 and 199,000 dwt, Panamax,
which are vessels between 60,000 and 85,000 dwt and Supramax, which are vessels
between 45,000 and 60,000 dwt. Unless otherwise indicated, all references to
“Dollars,”“USD,”“U.S.” and “$” in this report are to U.S. dollars.




Financial
data presented herein, include the accounts of Star Bulk Carriers Corp. and its
wholly owned subsidiaries, or Star Bulk, and of Star Maritime Acquisition
Corp., or Star Maritime.




Star
Maritime was organized under the laws of the State of Delaware on May 13,
2005 as a blank check company formed to acquire, through a merger, capital stock
exchange, asset acquisition or similar business combination, one or more assets
or target businesses in the shipping industry. Star Maritime’s common stock and
warrants started trading on the American Stock Exchange under the symbols, SEA
and SEA.WS, respectively, on December 21, 2005.  We were incorporated in
the Republic of the Marshall Islands on December 13, 2006 as a wholly-owned
subsidiary of Star Maritime.




On
November 27, 2007, Star Maritime obtained shareholder approval for the
acquisition of the initial fleet of eight drybulk carriers and for effecting a
redomiciliation merger whereby Star Maritime merged with and into Star Bulk with
Star Bulk as the surviving entity, or the Redomiciliation Merger. The
Redomiciliation Merger was completed on November 30, 2007 as a result of which
each outstanding share of Star Maritime common stock was converted into the
right to receive one share of Star Bulk common stock and each outstanding
warrant of Star Maritime was assumed by Star Bulk with the same terms and
restrictions except that each became exercisable for common stock of Star Bulk.
Star Bulk’s common stock and warrants are listed on the NASDAQ Global Market
under the symbols “SBLK” and “SBLKW” respectively.




We
commenced operations on December 3, 2007, which is the date we took delivery of
our first vessel.  During the period from Star Maritime’s inception on May
13, 2005 to December 3, 2007, we were a development stage enterprise.




A. Selected
Consolidated Financial Data




The table
below summarizes the Company’s recent financial information. The historical
information was derived from the audited consolidated financial statements of
Star Maritime and its subsidiaries for the period from May 13, 2005 (date
of Star Maritime’s inception) through December 31, 2005, and for the fiscal year
ended December 31, 2006.  The information of Star Bulk and its
subsidiaries for the fiscal year ended December 31, 2007 includes the
operations for Star Maritime from January 1, 2007 to November 30, 2007, which
is the date that the Redomiciliation Merger was completed. We refer you to
the notes to our consolidated financial statements for a discussion of the basis
on which our consolidated financial statements are presented. The information
provided below should be read in conjunction with Item 5 “Operating and
Financial Review and Prospects” and the consolidated financial statements,
related notes and other financial information included herein.






5




The
historical results included below and elsewhere in this document are
not necessarily indicative of the future performance of Star
Bulk.


3.A.
(i) CONSOLIDATED INCOME STATEMENT





(In
      thousands of U.S. Dollars, except per share and share
data)
            
            May 13,
      2005 (date of inception) to December 31,
            
            
            Year
      Ended December 31,2005
            
            
            2006
            
            
            2007INCOME
      STATEMENTVoyage
      revenues
            
            
            -
            
            
            
            -
            
            
            
            3,633Voyage
      expenses
            
            
            
            
            
            
            
            
            
            
            43Vessel
      operating expenses
            
            
            
            
            
            
            
            
            
            
            645Depreciation
            
            
            
            
            
            
            1
            
            
            
            745General and
      administrative expenses
            
            
            50
            
            
            
            1,210
            
            
            
            7,756Operating
      loss
            
            
            (50
            )
            
            
            (1,211
            )
            
            
            (5,556
            )Finance
      costs
            
            
            -
            
            
            
            -
            
            
            
            (45
            )Interest
      income
            
            
            183
            
            
            
            4,396
            
            
            
            9,021Net
      income, before taxes
            
            
            133
            
            
            
            3,185
            
            
            
            3,420US
      Source Income taxes
            
            
            (23
            )
            
            
            (207
            )
            
            
            (9
            )Net
      Income
            
            
            110
            
            
            
            2,978
            
            
            
            3,411Basic
      and fully diluted earningsEarnings
      per share, basic
            
            
            0.01
            
            
            
            0.10
            
            
            
            0.11Earnings
      per share, diluted
            
            
            0.01
            
            
            
            0.10
            
            
            
            0.09Weighted
      average number of shares outstanding, basic
            
            
            9,918,282
            
            
            
            29,026,924
            
            
            
            30,065,923Weighted
      average number of shares outstanding, diluted
            
            
            9,918,282
            
            
            
            29,026,924
            
            
            
            36,817,616





6


3.A.
(ii) CONSOLIDATED BALANCE SHEET AND OTHER FINANCIAL DATA





(In
      thousands of U.S. Dollars, except per share and share
data)
            
            December
      31,2005
            
            
            2006
            
            2007Cash
      and cash equivalents
            
            
            593
            
            
            
            2,118
            
            
            
            18,985Investments
      in Trust Account
            
            
            188,859
            
            
            
            192,915
            
            
            
            -Total
      assets
            
            
            189,580
            
            
            
            195,186
            
            
            
            403,742Current
      liabilities
            
            
            4,345
            
            
            
            6,973
            
            
            
            3,057Common
      stock
            
            
            3
            
            
            
            3
            
            
            
            425Stockholders’
      equity
            
            
            120,555
            
            
            
            123,533
            
            
            
            375,378Total
      liabilities and stockholders equity
            
            
            189,580
            
            
            
            195,186
            
            
            
            403,742Number
      of shares
            
            
            29,026,924
            
            
            
            29,026,924
            
            
            
            42,516,433OTHER
      FINANCIAL DATANet
      cash (used in) / provided by operating activities
            
            
            (27
            )
            
            
            1,699
            
            
            
            370Net
      cash (used in) / provided by investing activities
            
            
            (188,675
            )
            
            
            (4
            )
            
            
            12,963Net
      cash provided by / (used in) financing activities
            
            
            189,295
            
            
            
            (170
            )
            
            
            3,534FLEET
      DATAAverage
      number of vessels (1)
            
            
            -
            
            
            
            -
            
            
            
            0.21Number
      of vessels as of December 31, 2007
            
            
            -
            
            
            
            -
            
            
            
            4Total
      voyage days for fleet (2)
            
            
            -
            
            
            
            -
            
            
            
            68.75Total
      ownership days for fleet (3)
            
            
            -
            
            
            
            -
            
            
            
            77.73Fleet
      utilization (4)
            
            
            
            
            
            
            
            
            
            
            88.44
            %(In
      U.S. Dollars)AVERAGE
      DAILY RESULTSTime
      charter equivalent (5)
            
            
            -
            
            
            
            -
            
            
            
            52,218





(1)
Average number of vessels is the number of vessels that comprised our fleet for
the relevant period, as measured by the sum of the number of days each vessel
was a part of our fleet during the period divided by the number of calendar days
in that period.




(2)
Voyage days are the total days the vessels were in our possession for the
relevant period after subtracting all off-hire days incurred for any reason
(including off-hire for dry-docking, major repairs, special or intermediate
surveys).




(3)
Ownership days are the total calendar days each vessel in the fleet was owned by
Star Bulk for the relevant period.




(4) Fleet
utilization is calculated by dividing voyage days by available days for the
relevant period and takes into account the dry-docking periods.




(5) Time
charter equivalent rate, or TCE rate, is a measure of the average daily revenue
performance of a vessel on a per voyage basis. Our method of calculating TCE
rate is determined by dividing voyage revenues (net of voyage expenses) or time
charter equivalent revenue or TCE revenue by voyage days for the relevant time
period. Voyage expenses primarily consist of port, canal and fuel costs that are
unique to a particular voyage, which would otherwise be paid by the charterer
under a time charter contract, as well as commissions. TCE rate is a standard
shipping industry performance measure used primarily to compare period-to-period
changes in a shipping company’s performance despite changes in the mix of
charter types (i.e., spot charters, time charters and bareboat charters) under
which the vessels may be employed between the periods.




7


Star Bulk
included TCE revenues, a non-GAAP measure, as it provides additional meaningful
information in conjunction with voyage revenues, the most directly comparable
GAAP measure, because it assists Company management in making decisions
regarding the deployment and use of its vessels and in evaluating their
financial performance. TCE rate is also included herein because it is a standard
shipping industry performance measure used primarily to compare period-to-period
changes in a shipping company’s performance despite changes in the mix of
charter types (i.e., spot charters, time charters and bareboat charters) under
which the vessels may be employed between the periods and because the Company
believes that it presents useful information to investors.




The
following table reflects the calculation of our TCE rates and reconciliation of
TCE revenue as reflected in the consolidated statement of income:




(In
      thousands of U.S. Dollars, expressed in Dollars and voyage
      days)
            
            May
      13, 2005 (date of inception)
              to
      December 31,
            
            
            Year
      Ended December 31,2005
            
            
            2006
            
            
            2007Voyage
      revenues(1)
            
            
            -
            
            
            
            -
            
            
            
            3,633Voyage
      expenses
            
            
            -
            
            
            
            -
            
            
            
            (43
            )Time
      charter equivalent revenues
            
            
            -
            
            
            
            -
            
            
            
            3,590Total
      voyage days for fleet
            
            
            -
            
            
            
            -
            
            
            
            68.75Time
      charter equivalent (TCE) rate (in U.S. dollars)
            
            
            -
            
            
            
            -
            
            
            
            52,218


(1)
Includes the amortization of fair value of below and above market acquired time
charters in the amount of $1.4 million.




B. Capitalization
and Indebtedness




Not
Applicable.




C. Reasons
for the Offer and Use of Proceeds




Not
Applicable.




D. Risk
factors




Some of
the following risks relate principally to the industry in which we operate and
our business in general. Other risks relate principally to the securities market
and ownership of our common stock. The occurrence of any of the events described
in this section could significantly and negatively affect our business,
financial condition, operating results or cash available for dividends or the
trading price of our common stock.




8


Industry
Specific Risk Factors




Charterhire
rates for drybulk carriers are volatile and may decrease in the future, which
would adversely affect our earnings




The
drybulk shipping industry is cyclical with attendant volatility in charterhire
rates and profitability. The degree of charterhire rate volatility among
different types of drybulk carriers varies widely. Charterhire rates for
Capesize, Panamax and Supramax drybulk carriers are at their historically high
levels. If the drybulk shipping market is depressed in the future our earnings
and available cash flow may decrease. Our ability to re-charter our vessels on
the expiration or termination of their current time charters and the charter
rates payable under any renewal or replacement charters will depend upon, among
other things, economic conditions in the drybulk shipping market. Fluctuations
in charter rates and vessel values result from changes in the supply and demand
for drybulk cargoes carried internationally at sea, including coal, iron, ore,
grains and minerals.




The
factors affecting the supply and demand for vessel capacity are outside of our
control, and the nature, timing and degree of changes in industry conditions are
unpredictable.




The
factors that influence demand for vessel capacity include:




·
            demand
      for and production of drybulk
products;


·
            global
      and regional economic and political
conditions;


·
            the
      distance drybulk cargo is to be moved by sea;
  and


·
            changes
      in seaborne and other transportation
patterns.




The
factors that influence the supply of vessel capacity include:




·
            the
      number of new building deliveries;


·
            port
      and canal congestion;


·
            the
      scrapping of older vessels;


·
            vessel
      casualties; and


·
            the
      number of vessels that are out of
service.




We
anticipate that the future demand for our drybulk carriers will be dependent
upon continued economic growth in the world’s economies, including China and
India, seasonal and regional changes in demand, changes in the capacity of the
global drybulk carrier fleet and the sources and supply of drybulk cargo to be
transported by sea. The capacity of the global drybulk carrier fleet seems
likely to increase and economic growth may not continue. Adverse economic,
political, social or other developments could have a material adverse effect on
our business and operating results.




The
market values of our vessels may decrease, which could limit the amount of funds
that we can borrow or trigger certain financial covenants under our current or
future credit facilities and or we may incur a loss if we sell vessels following
a decline in their market value




The fair
market values of our vessels have generally experienced high volatility. The
market prices for secondhand Capesize, Panamax and Supramax drybulk carriers are
at historically high levels.




The fair
market value of our vessels may increase and decrease depending on a number of
factors including:




·
            prevailing
      level of charter rates;


·
            general
      economic and market conditions affecting the shipping
      industry;


·
            types
      and sizes of vessels;


·
              supply
      and demand for vessels;


·
            other
      modes of transportation;


·
            cost
      of newbuildings;


·
            governmental
      or other regulations; and


·
            technological
      advances.


9


In
addition, as vessels grow older, they generally decline in value. If the fair
market value of our vessels declines, we may not be in compliance with certain
provisions of our term loans and we may not be able to refinance our debt or
obtain additional financing. In addition, if we sell one or more of our vessels
at a time when vessel prices have fallen and before we have recorded an
impairment adjustment to our consolidated financial statements, the sale may be
less than the vessel’s carrying value on our consolidated financial statements,
resulting in a loss and a reduction in earnings. Furthermore, if vessel values
fall significantly we may have to record an impairment adjustment in our
consolidated financial statements which could adversely affect our financial
results.




World
events could affect our results of operations and financial
condition




Terrorist
attacks in New York on September 11, 2001 and in London on July 7, 2005 and the
continuing response of the United States and others to these attacks, as well as
the threat of future terrorist attacks in the United States or elsewhere,
continues to cause uncertainty in the world’s financial markets and may affect
our business, operating results and financial condition. The continuing conflict
in Iraq may lead to additional acts of terrorism and armed conflict around the
world, which may contribute to further economic instability in the global
financial markets. These uncertainties could also adversely affect our ability
to obtain additional financing on terms acceptable to us or at all. In the past,
political conflicts have also resulted in attacks on vessels, mining of
waterways and other efforts to disrupt international shipping, particularly in
the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels
trading in regions such as the South China Sea. Any of these occurrences could
have a material adverse impact on our operating results, revenues and
costs.




Terrorist
attacks on vessels, such as the October 2002 attack on the M.V. Limburg, a very large crude
carrier not related to us, may in the future also negatively affect our
operations and financial condition and directly impact our vessels or our
customers. Future terrorist attacks could result in increased volatility of the
financial markets in the United States and globally and could result in, or
pooling, an economic recession affecting the United States or the entire world.
Any of these occurrences could have a material adverse impact on our revenues
and costs.




An
economic slowdown in the Asia Pacific region could materially reduce the amount
and/or profitability of our business




A
significant number of the port calls made by our vessels involve the loading or
discharging of raw materials and semi-finished products in ports in the Asia
Pacific region. As a result, a negative change in economic conditions in any
Asia Pacific country, particularly in China, may have an adverse effect on our
business, financial position and results of operations, as well as our future
prospects. In particular, in recent years, China has been one of the world’s
fastest growing economies in terms of gross domestic product. Such growth may
not be sustained and the Chinese economy may experience contraction in the
future. Moreover, any slowdown in the economies of the United States of America,
the European Union or certain Asian countries may adversely effect economic
growth in China and elsewhere. Our business, financial position, results of
operations, and cash flows as well as our future prospects, will likely be
materially and adversely affected by an economic downturn in any of these
countries.




10


Changes
in the economic and political environment in China and policies adopted by the
government to regulate its economy may have a material adverse effect on our
business, financial condition and results of operations




The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in such respects
as structure, government involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and balance of payments
position. Prior to 1978, the Chinese economy was a planned economy. Since 1978,
increasing emphasis has been placed on the utilization of market forces in the
development of the Chinese economy. Annual and five year State Plans are adopted
by the Chinese government in connection with the development of the economy.
Although state-owned enterprises still account for a substantial portion of the
Chinese industrial output, in general, the Chinese government is reducing the
level of direct control that it exercises over the economy through State Plans
and other measures. There is an increasing level of freedom and autonomy in
areas such as allocation of resources, production, pricing and management and a
gradual shift in emphasis to a “market economy” and enterprise reform. Limited
price reforms were undertaken, with the result that prices for certain
commodities are principally determined by market forces. Many of the reforms are
unprecedented or experimental and may be subject to revision, change or
abolition based upon the outcome of such experiments. If the Chinese government
does not continue to pursue a policy of economic reform the level of imports to
and exports from China could be adversely affected by changes to these economic
reforms by the Chinese government, as well as by changes in political, economic
and social conditions or other relevant policies of the Chinese government, such
as changes in laws, regulations or export and import restrictions, all of which
could, adversely affect our business, operating results and financial
condition.




Charter
rates are subject to seasonal fluctuations, which may adversely affect our
financial condition and ability to pay dividends




As of
June 25, 2008, our fleet consists of 11 drybulk carriers comprised of
three Capesize, one Panamax and seven Supramax drybulk carriers with an average
age of approximately 10 years and a combined cargo carrying capacity of
approximately 1.0 million dwt. We have entered into agreements to acquire two
additional drybulk vessels for expected delivery to us by July and September of
2008, respectively. We employ all of our vessels on medium-to long-term time
charters, however, we may in the future employ certain of our vessels in the
spot market. Demand for vessel capacity has historically exhibited seasonal
variations and, as a result, in charter rates. This seasonality may result in
quarter-to-quarter volatility in our operating results for vessels trading in
the spot market. The drybulk sector is typically stronger in the fall and winter
months in anticipation of increased consumption of coal and other raw materials
in the northern hemisphere during the winter months. As a result, our revenues
from our drybulk carriers may be weaker during the fiscal quarters ended
June 30 and September 30, and, conversely, our revenues from our drybulk
carriers may be stronger in fiscal quarters ended December 31 and March 31.
Seasonality in the sector in which we operate could materially affect our
operating results and cash available for dividends in the future.




Rising
fuel prices may adversely affect our profits




Fuel is a
significant, if not the largest, expense in our shipping operations when vessels
are not under period charter. Changes in the price of fuel may adversely affect
our profitability. The price and supply of fuel is unpredictable and fluctuates
based on events outside our control, including geopolitical developments, supply
and demand for oil and gas, actions by OPEC and other oil and gas producers, war
and unrest in oil producing countries and regions, regional production patterns
and environmental concerns. Further, fuel may become much more expensive in the
future, which may reduce the profitability and competitiveness of our business
versus other forms of transportation, such as truck or rail.




11


We
are subject to international safety regulations and the failure to comply with
these regulations may subject us to increased liability, may adversely affect
our insurance coverage and may result in a denial of access to, or detention in,
certain ports




Our
business and the operation of our vessels are materially affected by government
regulation in the form of international conventions, national, state and local
laws and regulations in force in the jurisdictions in which the vessels operate,
as well as in the country or countries of their registration. Because such
conventions, laws, and regulations are often revised, we cannot predict the
ultimate cost of complying with such conventions, laws and regulations or the
impact thereof on the resale prices or useful lives of our vessels. Additional
conventions, laws and regulations may be adopted which could limit our ability
to do business or increase the cost of our doing business and which may
materially adversely affect our operations. We are required by various
governmental and quasi-governmental agencies to obtain certain permits,
licenses, certificates, and financial assurances with respect to our
operations.




The
operation of our vessels is affected by the requirements set forth in the United
Nations’ International Maritime Organization’s International Management Code for
the Safe Operation of Ships and Pollution Prevention, or ISM Code. The ISM Code
requires shipowners, ship managers and bareboat charterers to develop and
maintain an extensive “Safety Management System” that includes the adoption of a
safety and environmental protection policy setting forth instructions and
procedures for safe operation and describing procedures for dealing with
emergencies. The failure of a shipowner or bareboat charterer to comply with the
ISM Code may subject it to increased liability, may invalidate existing
insurance or decrease available insurance coverage for the affected vessels and
may result in a denial of access to, or detention in, certain ports. If we are
subject to increased liability for noncompliance or if our insurance coverage is
adversely impacted as a result of noncompliance, we may have less cash available
for distribution to our stockholders as dividends. If any of our vessels are
denied access to, or are detained in, certain ports, this may decrease our
revenues.




Increased
inspection procedures and tighter import and export controls could increase
costs and disrupt our business




International
shipping is subject to various security and customs inspection and related
procedures in countries of origin and destination. Inspection procedures may
result in the seizure of contents of our vessels, delays in the loading,
offloading or delivery and the levying of customs duties, fines or other
penalties against us.




It is
possible that changes to inspection procedures could impose additional financial
and legal obligations on us. Changes to inspection procedures could also impose
additional costs and obligations on our customers and may, in certain cases,
render the shipment of certain types of cargo uneconomical or impractical. Any
such changes or developments may have a material adverse effect on our business,
financial condition and results of operations.




Maritime
claimants could arrest one or more of our vessels, which could interrupt our
cash flow




Crew
members, suppliers of goods and services to a vessel, shippers of cargo and
other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a claimant may seek
to obtain security for its claim by arresting a vessel through foreclosure
proceedings. The arrest or attachment of one or more of our vessels could
interrupt our cash flow and require us to pay large sums of money to have the
arrest or attachment lifted. In addition, in some jurisdictions, such as South
Africa, under the “sister ship” theory of liability, a claimant may arrest both
the vessel which is subject to the claimant’s maritime lien and any “associated”
vessel, which is any vessel owned or controlled by the same owner. Claimants
could attempt to assert “sister ship” liability against one vessel in our fleet
for claims relating to another of our vessels.




12




Governments
could requisition our vessels during a period of war or emergency, resulting in
a loss of earnings




A
government could requisition one or more of our vessels for title or for hire.
Requisition for title occurs when a government takes control of a vessel and
becomes her owner, while requisition for hire occurs when a government takes
control of a vessel and effectively becomes her charterer at dictated charter
rates. Generally, requisitions occur during periods of war or emergency,
although governments may elect to requisition vessels in other circumstances.
Although we would be entitled to compensation in the event of a requisition of
one or more of our vessels, the amount and timing of payment would be uncertain.
Government requisition of one or more of our vessels may negatively impact our
revenues and reduce the amount of cash we have available for distribution as
dividends to our stockholders.




Company
Specific Risk Factors




Star
Bulk has a limited operating history and may not operate profitably in the
future




Star Bulk
was formed December 13, 2006 and in January 2007, entered into agreements to
acquire eight drybulk carriers.  Star Bulk took delivery of its first
vessel in December 2007.  Accordingly, the consolidated financial
statements included in this report reflect the financial results of Star Bulk as
an operating company for a very limited period.  These consolidated
financial statements do not provide a meaningful basis for you to evaluate its
operations and ability to be profitable in the future.  Star Bulk may not
be profitable in the future.




We
are dependent on medium- to long-term time charters in a volatile shipping
industry and a decline in charterhire rates would affect our results of
operations and ability to pay dividends




We
charter all of our vessels pursuant to medium- to long-term time charters with
remaining terms of approximately one to five years. The time charter market is
highly competitive and spot market charterhire rates (which affect time charter
rates) may fluctuate significantly based upon available charters and the supply
of, and demand for, seaborne shipping capacity. Our ability to re-charter our
vessels on the expiration or termination of their current time charters and the
charter rates payable under any renewal or replacement charters will depend
upon, among other things, economic conditions in the drybulk shipping market.
 The drybulk carrier charter market is volatile, and in the past, time
charter and spot market charter rates for drybulk carriers have declined below
operating costs of vessels. If future charterhire rates are depressed, we may
not be able to operate our vessels profitably or to pay you
dividends.




Our
earnings may be adversely affected if we are not able to take advantage of
favorable charter rates




We
charter our drybulk carriers to customers pursuant to medium- to long-term time
charters, which generally last from one to five years. We may in the future
extend the charter periods for the vessels in our fleet. Our vessels that are
committed to longer-term charters may not be available for employment on
short-term charters during periods of increasing short-term charterhire rates
when these charters may be more profitable than long-term charters.




If
we fail to manage our planned growth properly, we may not be able to
successfully expand our fleet adversely affecting the our overall financial
position




We intend
to continue to expand our fleet. Our growth will depend on:




·
            locating
      and acquiring suitable vessels;


·
            identifying
      and consummating acquisitions or joint
ventures;


·
            integrating
      any acquired vessels successfully with our existing
      operations;


·
            enhancing
      our customer base;


·
            managing
      our expansion; and


·
            obtaining
      required financing.




13




Growing
any business by acquisition presents numerous risks such as undisclosed
liabilities and obligations, difficulty experienced in obtaining additional
qualified personnel and managing relationships with customers and suppliers and
integrating newly acquired operations into existing infrastructures. We may not
be successful in executing our growth plans and may incur significant expenses
and losses.




Our
loan agreements may contain restrictive covenants that may limit our liquidity
and corporate activities




Our
current term loan agreements with Commerzbank AG and Piraeus Bank A.E., and any
future loan agreements may impose operating and financial restrictions on us.
These restrictions may limit our ability to:




·
            incur
      additional indebtedness;


·
            create
      liens on our assets;


·
            sell
      capital stock of our subsidiaries;


·
            make
      investments;


·
            engage
      in mergers or acquisitions;


·
            pay
      dividends;


·
            make
      capital expenditures;


·
            change
      the management of our vessels or terminate or materially amend the
      management agreement relating to each vessel;
  and


·
            sell
      our vessels.




Therefore,
we may need to seek permission from our lenders in order to engage in some
important corporate actions. The lenders’ interests may be different from ours,
and we cannot guarantee that we will be able to obtain the lenders’ permission
when needed. This may prevent us from taking actions that are in our best
interest.




Servicing
debt will limit funds available for other purposes, including capital
expenditures and payment of dividends




As of
June 25, 2008, we had $120.0 million outstanding under our term loan agreement
with Commerzbank AG in connection with the purchase of the vessels in our
initial fleet and $85.0 million outstanding under our term loan agreement with
Piraeus Bank A.E. in connection with the purchase of three additional vessels in
our current fleet. In the second quarter of 2008, we entered into agreements to
purchase a 2005 built Supramax drybulk carrier and a 1991 built Capesize drybulk
carrier for the aggregate purchase price of approximately $156.0 million for
expected delivery to us by July and September of 2008, respectively. On April
14, 2008 we entered into a loan agreement of up to $170.0 million with
Piraeus Bank A.E. in order to partly finance the acquisition cost of vessels the
Star Omicron and the
Star Sigma and also to
provide us with additional liquidity.  The Star Alpha, the Star Beta, and the Star Sigma were used as
collateral for this loan.  The loan bears interest at LIBOR plus a
margin and is repayable in twenty-four quarterly installments through April
2014.  As of June 25, 2008, we had outstanding borrowings in the
amount of $85.0 million under this loan.  We may be required to
dedicate a portion of our cash flow from operations to pay the principal and
interest on our debt. These payments limit funds otherwise available for working
capital expenditures and other purposes, including payment of dividends. If we
are unable to service our debt, it may have a material adverse effect on our
financial condition and results of operations.




Default
by our charterers may lead to decreased revenues and a reduction in
earnings




We have
entered into a time charter with each of Worldlink Shipping Limited for the
Star Alpha, Industrial
Carriers Inc. for the StarBeta, North China Shipping Limited Bahamas for the Star Epsilon, Essar for the
Star
Delta, Norden A/S for the Star Zeta, Hyundai Merchant
Marine for the Star Theta,TMT Co. Ltd., or TMT, for the Star Iota and Star Gamma,Ishaar Overseas
for the Star Kappa, Sun
God Navigation S.A. for the Star Sigma and GMI Ltd. for
the Star Omicron.
Consistent with drybulk shipping industry practice, we have not independently
analyzed the creditworthiness of the charterers.  Our revenues may be
dependent on the performance of our charterers and, as a result, defaults by our
charterers may materially adversely affect our revenues.




14




In
the highly competitive international drybulk shipping industry, we may not be
able to compete for charters with new entrants or established companies with
greater resources which may adversely affect our results of
operations




We employ
our vessels in a highly competitive market that is capital intensive and highly
fragmented. Competition arises primarily from other vessel owners, some of whom
have substantially greater resources than us. Competition for the transportation
of drybulk cargoes can be intense and depends on price, location, size, age,
condition and the acceptability of the vessel and its managers to the
charterers. Due in part to the highly fragmented market, competitors with
greater resources could operate larger fleets through consolidations or
acquisitions and may be able to offer more favorable terms.




We
may be unable to attract and retain key management personnel and other employees
in the shipping industry, which may negatively affect the effectiveness of our
management and our results of operations




Our
success will depend to a significant extent upon the abilities and efforts of
our management team. As of December 31, 2007, we had ten employees, including
our Chief Executive Officer and Chief Financial Officer and 16 employees as of
June 2008. As of December 31, 2007, eight employees were engaged in the day to
day management of the vessels in our fleet. Our success will depend upon our
ability to retain key members of our management team and the ability of Star
Bulk Management to recruit and hire suitable employees. The loss of any members
of our senior management team could adversely affect our business prospects and
financial condition. Difficulty in hiring and retaining personnel could
adversely affect our results of operations. We do not maintain “key-man” life
insurance on any of our officers or employees of Star Bulk
Management.




As
we expand our fleet, we will need to implement our operations and financial
systems and hire new shoreside staff and seafarers to staff our vessels; if we
cannot implement these systems or recruit suitable employees, our performance
may be adversely affected




Our
operating and financial systems may not be adequate as we expand our fleet, and
our attempts to implement those systems may be ineffective. In addition, we will
have to rely on our wholly-owned subsidiary, Star Bulk Management, to recruit
shoreside administrative and management personnel. Shoreside personnel will be
recruited by Star Bulk Management through referrals from other shipping
companies and traditional methods of securing personnel, such as placing
classified advertisements in shipping industry periodicals. Star Bulk Management
has sub-contracted crew management, which includes the recruitment of seafarers,
to Bernhardt Schulte Shipmanagement Ltd., formerly Hanseatic Shipping Co. Ltd.,
or the Manager, a major international third-party technical management company,
Univan Shipmanagement Ltd., or Univan and Combine Marine S.A., or Combine Star
Bulk Management and its crewing agent may not be able to continue to hire
suitable employees as Star Bulk expands its fleet. If we are unable to operate
our financial and operations systems effectively, recruit suitable employees or
if Star Bulk Management’s unaffiliated crewing agent encounters business or
financial difficulties, our performance may be materially adversely
affected.




Risks
involved with operating ocean going vessels could affect our business and
reputation, which would adversely affect our revenues




The
operation of an ocean-going vessel carries inherent risks. These risks include
the possibility of:




·
            crew
      strikes and/or boycotts;


·
            marine
      disaster;


·
            piracy;


·
            environmental
      accidents;


·
            cargo
      and property losses or damage; and


·
            business
      interruptions caused by mechanical failure, human error, war, terrorism,
      political action in various countries or adverse weather
      conditions.




Any of
these circumstances or events could increase our costs or lower our
revenues.




15




Our
vessels may suffer damage and may face unexpected drydocking costs, which could
adversely affect our cash flow and financial condition




If our
vessels suffer damage, they may need to be repaired at a drydocking facility.
The costs of drydock repairs are unpredictable and can be substantial. We may
have to pay drydocking costs that our insurance does not cover. The loss of
earnings while these vessels are being repaired and reconditioned, as well as
the actual cost of these repairs, would decrease our earnings.




Purchasing
and operating secondhand vessels may result in increased operating costs and
vessel off-hire, which could adversely affect our earnings




Our
inspection of secondhand vessels prior to purchase does not provide us with the
same knowledge about their condition and cost of any required or anticipated
repairs that we would have had if these vessels had been built for and operated
exclusively by us. We will not receive the benefit of warranties on secondhand
vessels.




Typically,
the costs to maintain a vessel in good operating condition increase with the age
of the vessel. Older vessels are typically less fuel efficient and more costly
to maintain than more recently constructed vessels. Cargo insurance rates
increase with the age of a vessel, making older vessels less desirable to
charterers.




Governmental
regulations, safety or other equipment standards related to the age of vessels
may require expenditures for alterations, or the addition of new equipment, to
our vessels and may restrict the type of activities in which the vessels may
engage. As our vessels age, market conditions may not justify those expenditures
or enable us to operate its vessels profitably during the remainder of their
useful lives.




We
inspected the nine vessels that we acquired from TMT and the two vessels that we
acquired from third parties, considered the age and condition of the vessels in
budgeting for their operating, insurance and maintenance costs, and if we
acquire additional second-hand vessels in the future, we may encounter higher
operating and maintenance costs due to the age and condition of those additional
vessels.




We
may not have adequate insurance to compensate us for the loss of a vessel, which
may have a material adverse effect on our financial condition and results of
operation




We have
procured hull and machinery insurance, protection and indemnity insurance, which
includes environmental damage and pollution insurance coverage and war risk
insurance for our fleet. We do not maintain, for our vessels, insurance against
loss of hire, which covers business interruptions that result from the loss of
use of a vessel. We may not be adequately insured against all risks. We may not
be able to obtain adequate insurance coverage for our fleet in the future. The
insurers may not pay particular claims. Our insurance policies may contain
deductibles for which we will be responsible and limitations and exclusions
which may increase our costs or lower our revenue. Moreover, insurers may
default on claims they are required to pay. If our insurance is not enough to
cover claims that may arise, the deficiency may have a material adverse effect
on our financial condition and results of operations.




We
may not be able to pay dividends




We intend
to pay a regular quarterly dividend however, we may incur other expenses or
liabilities that would reduce or eliminate the cash available for distribution
as dividends. Our loan agreements, including future credit facilities we may
enter into, may also prohibit or restrict the declaration and payment of
dividends under some circumstances.




In
addition, the declaration and payment of dividends will be subject at all times
to the discretion of our board of directors. The timing and amount of dividends
will depend on our earnings, financial condition, cash requirements and
availability, fleet renewal and expansion, restrictions in our loan agreements,
the provisions of Marshall Islands law affecting the payment of dividends and
other factors. Marshall Islands law generally prohibits the payment of dividends
other than from surplus or while a company is insolvent or would be rendered
insolvent upon the payment of such dividends, or if there is no surplus,
dividends may be declared or paid out of net profits for the fiscal year in
which the dividend is declared and for the preceding fiscal year.




16


We
are a holding company, and depend on the ability of our subsidiaries to
distribute funds to us in order to satisfy our financial obligations or to make
dividend payments




We are a
holding company and our wholly-owned subsidiaries, conduct all of our operations
and own all of our operating assets. We will have no significant assets other
than the equity interests in our wholly-owned subsidiaries. As a result, our
ability to make dividend payments depends on our subsidiaries and their ability
to distribute funds to us. If we are unable to obtain funds from our
subsidiaries, our board of directors may exercise its discretion not to pay
dividends.  We and our subsidiaries will be permitted to pay dividends
under our credit facilities only for so long as we are in compliance with all
applicable financial covenants, terms and conditions.




We
depend on officers who may engage in other business activities in the
international shipping industry which may create conflicts of
interest




Prokopios
Tsirigakis, our Chief Executive Officer and a member of our board of directors,
and George Syllantavos, our Chief Financial Officer, Secretary and member of our
board of directors participate in business activities not associated with the
Company. As a result, Mr. Tsirigakis and Mr. Syllantavos may devote
less time to the Company than if they were not engaged in other business
activities and may owe fiduciary duties to the shareholders of both the Company
as well as shareholders of other companies which they may be affiliated, which
may create conflicts of interest in matters involving or affecting the Company
and its customers. It is not certain that any of these conflicts of interest
will be resolved in our favor.




We
are incorporated in the Republic of the Marshall Islands, which does not have a
well-developed body of corporate law, which may negatively affect the ability of
public shareholders to protect their interests




We are
incorporated under the laws of the Republic of the Marshall Islands, and our
corporate affairs are governed by our Articles of Incorporation and Bylaws and
by the Marshall Islands Business Corporations Act or BCA. The provisions of the
BCA resemble provisions of the corporation laws of a number of states in the
United States. However, there have been few judicial cases in the Republic of
the Marshall Islands interpreting the BCA. The rights and fiduciary
responsibilities of directors under the law of the Republic of the Marshall
Islands are not as clearly established as the rights and fiduciary
responsibilities of directors under statutes or judicial precedent in existence
in certain United States jurisdictions. Shareholder rights may differ as well.
While the BCA does specifically incorporate the non-statutory law, or judicial
case law, of the State of Delaware and other states with substantially similar
legislative provisions, public shareholders may have more difficulty in
protecting their interests in the face of actions by the management, directors
or controlling shareholders than would shareholders of a corporation
incorporated in a United States jurisdiction.




Our
directors and officers are non-U.S. residents, and although may bring an
original action in the courts of the Marshall Islands or obtain a judgment
against us, our directors or our management based on U.S. laws in the event you
believe your rights as a shareholder have been infringed, it may be difficult to
enforce judgments against us, our directors or our management




All of
our assets are located outside of the United States. Our business will be
operated primarily from our offices in Athens, Greece. In addition, our
directors and officers are non-residents of the United States, and all or a
substantial portion of the assets of these non-residents are located outside the
United States. As a result, it may be difficult or impossible for you to bring
an action against us or against these individuals in the United States if you
believe that your rights have been infringed under securities laws or otherwise.
Even if you are successful in bringing an action of this kind, the laws of the
Marshall Islands and of other jurisdictions may prevent or restrict you from
enforcing a judgment against our assets or the assets of our directors and
officers. Although you may bring an original action against us, our officers and
directors in the courts of the Marshall Islands based on U.S. laws, and the
courts of the Marshall Islands may impose civil liability, including monetary
damages, against us, our officers or directors for a cause of action arising
under Marshall Islands law, it may be impracticable for you to do so given the
geographic location of the Marshall Islands.




17




There
is a risk that we could be treated as a U.S. domestic corporation for U.S.
federal income tax purposes after the merger of Star Maritime with and into Star
Bulk, with Star Bulk as the surviving corporation, or Redomiciliation Merger,
which would adversely affect our earnings




Section 7874(b)
of the U.S. Internal Revenue Code of 1986, or the Code, provides that, unless
certain requirements are satisfied, a corporation organized outside the United
States which acquires substantially all of the assets (through a plan or a
series of related transactions) of a corporation organized in the United States
will be treated as a U.S. domestic corporation for U.S. federal income tax
purposes if shareholders of the U.S. corporation whose assets are being acquired
own at least 80% of the non-U.S. acquiring corporation after the acquisition. If
Section 7874(b) of the Code were to apply to Star Maritime and the
Redomiciliation Merger, then, among other consequences, the Company, as the
surviving entity of the Redomiciliation Merger, would be subject to U.S. federal
income tax as a U.S. domestic corporation on its worldwide income after the
Redomiciliation Merger. Upon completion of the Redomiciliation Merger and the
concurrent issuance of stock to TMT under the acquisition agreements, the
stockholders of Star Maritime owned less than 80% of the Company. Therefore, the
Company believes that it should not be subject to Section 7874(b) of the
Code after the Redomiciliation Merger. Star Maritime obtained an opinion of its
counsel, Seward & Kissel LLP, that Section 7874(b) should not
apply to the Redomiciliation Merger. However, there is no authority directly
addressing the application of Section 7874(b) to a transaction such as the
Redomiciliation Merger where shares in a foreign corporation such as the Company
are issued concurrently with (or shortly after) a merger. In particular, since
there is no authority directly applying the “series of related transactions” or
“plan” provisions to the post-acquisition stock ownership requirements of
Section 7874(b), the United States Internal Revenue Service, or IRS, may
not agree with Seward & Kissel’s opinion on this matter. Moreover, Star
Maritime has not sought a ruling from the IRS on this point. Therefore, IRS may
seek to assert that we are subject to U.S. federal income tax on our
worldwide income for taxable years after the Redomiciliation Merger although
Seward & Kissel is of the opinion that such an assertion should not be
successful.




We
may have to pay tax on United States source income, which would reduce our
earnings




Under the
Code, 50% of the gross shipping income of a vessel owning or chartering
corporation, such as the Company and its subsidiaries, that is attributable to
transportation that begins or ends, but that does not both begin and end, in the
United States is characterized as U.S. source shipping income and such income is
subject to a 4% U.S. federal income tax without allowance for deduction, unless
that corporation qualifies for exemption from tax under Section 883 of the
Code and the Treasury regulations promulgated thereunder.




We expect
that we will qualify for this statutory tax exemption and we intend to take this
position for U.S. federal income tax return reporting purposes for our 2007
taxable year. However, there are factual circumstances beyond our control that
could cause us to lose the benefit of this tax exemption and thereby become
subject to U.S. federal income tax on our U.S. source income.




If we are
not entitled to this exemption under Section 883 for any taxable year, we
would be subject for those years to a 4% U.S. federal income tax on its
U.S.-source shipping income. The imposition of this taxation could have a
negative effect on our business and would result in decreased
earnings.




U.S.
tax authorities could treat us as a “passive foreign investment company,” which
could have adverse U.S. federal income tax consequences to U.S.
holders




We will
be treated as a “passive foreign investment company,” or PFIC, for U.S. federal
income tax purposes if either (1) at least 75% of its gross income for any
taxable year consists of certain types of “passive income” or (2) at least
50% of the average value of its assets produce or are held for the production of
those types of “passive income.”  For purposes of these tests,
“passive income” includes dividends, interest, and gains from the sale or
exchange of investment property and rents and royalties other than rents and
royalties which are received from unrelated parties in connection with the
active conduct of a trade or business. For purposes of these tests, income
derived from the performance of services does not constitute “passive income.”
U.S. shareholders of a PFIC may be subject to a disadvantageous U.S. federal
income tax regime with respect to the income derived by the PFIC, the
distributions they receive from the PFIC and the gain, if any, they derive from
the sale or other disposition of their shares in the PFIC.






18




Based on
our method of operation, we take the position for United States federal income
tax purposes we are not a PFIC with respect to any taxable year. In this regard,
we intend to treat the gross income we will derive or will be deemed to derive
from our time chartering activities as services income, rather than rental
income. Accordingly, we take the position that our income from our time
chartering activities does not constitute “passive income,” and the assets that
we will own and operate in connection with the production of that income do not
constitute passive assets.




There is,
however, no direct legal authority under the PFIC rules addressing our method of
operation. In addition, we have not received an opinion of counsel with respect
to this issue. Accordingly, the U.S. Internal Revenue Service, or the IRS, or a
court of law may not accept our position, and there is a risk that the IRS or a
court of law could determine that we are a PFIC. Moreover, may constitute a PFIC
for any future taxable year if there were to be changes in the nature and extent
of its operations. For example, if we were treated as earning rental income from
our chartering activities rather than services income, we would be treated as a
PFIC.




If the
IRS were to find that we are or have been a PFIC for any taxable year, its U.S.
shareholders will face adverse U.S. tax consequences. Under the PFIC rules,
unless those shareholders make an election available under the Code (which
election could itself have adverse consequences for such shareholders), such
shareholders would be liable to pay U.S. federal income tax at the then highest
income tax rates on ordinary income plus interest upon excess distributions and
upon any gain from the disposition of our common shares, as if the excess
distribution or gain had been recognized ratably over the shareholder’s holding
period of our common shares.




Our
internal controls over financial reporting do not currently meet all of the
standards contemplated by Section 404 of the Sarbanes-Oxley Act of 2002, Section
404. Since we failed to achieve and maintain effective internal controls over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, we
may be unable to accurately report our consolidated financial results or prevent
fraud and could be required to restate our historical financial statements, any
of which could have a material adverse effect on our business and the price of
our common stock.




Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer have conducted an evaluation of the effectiveness of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of December 31, 2007. Based on this evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31,
2007, the Company’s disclosure controls and procedures were not effective
because of the material weakness in internal control over financial reporting
described below.Management has assessed the effectiveness of the Company’s internal control over
financial reporting at December 31, 2007, based on the framework established inInternal
Control—Integrated Frameworkissued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on the
aforementioned assessment, the management concluded that internal control over
financial reporting was not effective due to material weaknesses identified in
the Company’s internal control over financial reporting.




Star Bulk
took delivery of its first vessel in December 2007 and, as a result, management
began the process to replace the internal controls over financial reporting
which previously existed while the Company was a blank check company with those
of a company that owns and operates vessels.  Although progress was
made,  the Company did not have sufficient time to complete designing
and implementing a comprehensive system of internal controls over financial
reporting that would prevent or timely detect material adjustments and identify
financial statement disclosure requirements.  Consequently,
adjustments and disclosures that were material in the aggregate to the
consolidated financial statements and necessary to present the consolidated
financial statements for the year ended December 31, 2007 in accordance
with U.S. GAAP were made by the Company after being identified by the Company’s
independent registered public accounting firm.  Specifically, we did
not have in place adequate internal controls over our financial close and
reporting processes and we lacked sufficient accounting personnel with the
necessary level of US GAAP expertise which resulted in the Company not being
able to:




19




·
            Properly
      evaluate and account for non-routine or complex transactions, including
      the determination of the purchase price of the vessels fair value of time
      charter agreements acquired, the application of SFAS 123(R), the
      classification of expenses related to the target acquisition process, and
      the completeness of the accrual of general and administrative expenses;
      and




·
            Properly
      identify all financial statement disclosure requirements in accordance
      with U.S. GAAP including disclosure surrounding related party
      transactions.




We have
determined that these adjustments were not prevented or detected due
to material weaknesses in our controls due to the absence of
sufficient time for management to (1) design and implement a comprehensive
system of internal controls and (2) hire sufficient accounting personnel with
the requisite US GAAP expertise that are required to support our operation as a
shipping company. However, management has made the necessary adjustments to
present the annual consolidated financial statements for the year ended December
31, 2007 in accordance with U.S. GAAP.


We will
continue to evaluate the effectiveness of our disclosure controls and procedures
and internal control over financial reporting on an ongoing basis, including
consideration of the material weaknesses identified above, or other deficiencies
we may identify. The Company has already and will further implement actions as
necessary in its continuing assessment of disclosure controls and internal
controls over financial reporting.




We may be
unable to successfully complete the procedures and attestation requirements of
Section 404 or our auditors may identify significant deficiencies, as well as
material weaknesses, in internal control over financial reporting in future
reporting periods. If we are not able to implement the requirements of Section
404 in a timely manner or with adequate compliance, our independent registered
public accounting firm may not be able to certify as to the adequacy of our
internal controls over financial reporting. Matters impacting our internal
controls may cause us to be unable to report our consolidated financial
information on a timely basis and thereby subject us to adverse regulatory
consequences, including sanctions by the SEC or violations of NASDAQ Global
Market listing rules. There could also be a negative reaction in the financial
markets due to a loss of investor confidence in us and the reliability of our
consolidated financial statements. Confidence in the reliability of our
financial statements could also suffer if our independent registered public
accounting firm were to report material weaknesses in our internal controls
over financial reporting. This could materially adversely affect us and lead to
a decline in the price of our common stock. We believe that the out-of-pocket
costs, the diversion of management’s attention from running our day-to-day
operations and operational changes caused by the need to comply with the
requirements of Section 404 will be significant. If the time and costs
associated with such compliance exceed our current expectations, our
profitability could be affected.




Risks
Relating to Our Common Stock




There may
be no continuing public market for you to resell our common
stock




Our
common shares commenced trading on the NASDAQ Global Market in December 2007. We
cannot assure you that an active and liquid public market for our common shares
will continue. The price of our common stock may be volatile and may fluctuate
due to factors such as:




20




·
            actual
      or anticipated fluctuations in our quarterly and annual results and those
      of other public companies in our
industry;


·
            mergers
      and strategic alliances in the drybulk shipping
  industry;


·
            market
      conditions in the drybulk shipping industry and the general state of the
      securities markets;


·
            changes
      in government regulation;


·
            shortfalls
      in our operating results from levels forecast by securities analysts;
      and


·
            announcements
      concerning us or our competitors.




You may
not be able to sell your shares of our common stock in the future at the price
that you paid for them or at all.




Certain
stockholders hold registration rights, which if exercised, may have an adverse
effect on the market price of our common stock




Initial
Stockholders of Star Maritime who purchased common stock prior to Star
Maritime’s initial public offering are entitled to demand that we register the
resale of their shares at any time after the shares are released from escrow
which, except in limited circumstances, will not be before December 15,
2008. If such stockholders exercise their registration rights with respect to
all of their shares, there will be an additional 9,026,924 shares of common
stock eligible for trading in the public market. In addition, certain of Star
Maritime’s officers and directors who purchased units in Star Maritime’s private
placement in December 2005 are entitled to demand the registration of the
securities underlying the 1,132,500 units, with each unit consisting of one
share and one warrant. If all of these stockholders exercise their registration
rights with respect to all of their shares of common stock and warrants, there
will be an additional 1,132,500 shares of common stock and 1,132,500 warrants
eligible for trading in the public market. The presence of these additional
shares and warrants may have an adverse effect on the market price of our common
stock and warrants.




Future
sales of our common stock or warrants could cause the market price of our common
stock or warrants to decline




Sales of
a substantial number of shares of our common stock or warrants in the public
market, or the perception that these sales could occur, may depress the market
price for our common stock. These sales could also impair our ability to raise
additional capital through the sale of our equity securities in the
future.




We may
issue additional shares of our common stock, warrants or other equity securities
or securities convertible into our equity securities in the future and our
stockholders may elect to sell large numbers of shares held by them from time to
time. Our amended and restated articles of incorporation authorize us to issue
100,000,000 common shares with par value $0.01 per share of which 42,516,433
shares and 19,048,136 warrants were outstanding as of December 31, 2007 and
54,530,989 shares and 5,934,080 warrants were outstanding as of June 25,
2008.




Anti-takeover
provisions in our organizational documents could make it difficult for our
stockholders to replace or remove our current board of directors or have the
effect of discouraging, delaying or preventing a merger or acquisition, which
could adversely affect the market price of our common stock




Several
provisions of our amended and restated articles of incorporation and bylaws
could make it difficult for our stockholders to change the composition of our
board of directors in any one year, preventing them from changing the
composition of management. In addition, the same provisions may discourage,
delay or prevent a merger or acquisition that stockholders may consider
favorable.






21




These
provisions include:




·
            authorizing
      our board of directors to issue “blank check” preferred stock without
      stockholder approval;


·
            providing
      for a classified board of directors with staggered, three year
      terms;


·
            prohibiting
      cumulative voting in the election of directors;
  and


·
            authorizing
      the board to call a special meeting at any
time.




Item
4. Information on the Company




A. History
and development of the Company




We were
incorporated in the Marshall Islands on December 13, 2006. Our executive
offices are located at 40 Ag. Konstantinou Avenue, Aethrion Center, Suite
B34, Maroussi 15124 Athens, Greece and our telephone number is
011-30-210-638-7399.




Star
Maritime Acquisition Corp. or Star Maritime was organized under the laws of the
State of Delaware on May 13, 2005 as a blank check company formed to
acquire, through a merger, capital stock exchange, asset acquisition or similar
business combination, one or more assets or target businesses in the shipping
industry.  Following the formation of Star Maritime, our officers and
directors were the holders of 9,026,924 shares of common stock representing all
of our then issued and outstanding capital stock.  On December 21,
2005, Star Maritime consummated its initial public offering of 18,867,500 units,
at a price of $10.00 per unit, each unit consisting of one share of Star
Maritime common stock and one warrant to purchase one share of Star Maritime
common stock at an exercise price of $8.00 per share.  In addition, Star
Maritime completed during December 2005 a private placement of an aggregate of
1,132,500 units, or Private Placement, each unit consisting of one share of
common stock and one warrant, to Messrs. Tsirigakis and Syllantavos, our
Chief Executive Officer and Chief Financial Officer, respectively, and
Messrs. Pappas and Erhardt, our Chairman of the Board and one of our
directors.  The gross proceeds of the private placement of $11.3 million
were used to pay all fees and expenses of the initial public offering and as a
result, the entire gross proceeds of the initial public offering amounting to
$188.7 million were deposited in a trust account maintained by American Stock
Transfer & Trust Company, or the Trust Account.  Star Maritime’s
common stock and warrants started trading on the American Stock Exchange under
the symbols, SEA and SEA.WS, respectively on December 21, 2005.




On
January 12, 2007, Star Maritime and Star Bulk entered into definitive agreements
to acquire a fleet of eight drybulk carriers with a combined cargo-carrying
capacity of approximately 692,000 dwt. from certain subsidiaries of TMT Co.
Ltd., or TMT, a shipping company headquartered in Taiwan. These eight drybulk
carriers are referred to as the initial fleet, or initital vessels. The
aggregate purchase price specified in the Master Agreement by and among the
Company, Star Maritime and TMT, or the Master Agreement for the initial
fleet was $224.5 million in cash and 12,537,645 shares of common stock of Star
Bulk at $9.63 per share, determined based on the average price of the Star
Maritime common shares for 15 trading days prior to January 12, 2007. As
additional consideration for eight vessels, 1,606,962 shares of common
stock of Star Bulk will be issued to TMT in two installments as follows:
(i) 803,481 additional shares of Star Bulk’s common stock, no more than 10
business days following Star Bulk’s filing of its Annual Report on
Form 20-F for the fiscal year ended December 31, 2007, and
(ii) 803,481 additional shares of Star Bulk’s common stock, no more than 10
business days following Star Bulk’s filing of its Annual Report on
Form 20-F for the fiscal year ended December 31, 2008.




On
November 2, 2007, the SEC declared effective our joint proxy/registration
statement filed on Forms F-1/F-4 and on November 27, 2007 we obtained
shareholder approval for the acquisition of the initial fleet and for effecting
the Redomiciliation Merger as a result of which Star Maritime merged into
Star Bulk with Star Maritime merging out of existence and Star Bulk being the
surviving entity.  Each share of Star Maritime common stock was exchanged
for one share of Star Bulk common stock and each warrant of Star Maritime was
assumed by Star Bulk with the same terms and conditions except that each became
exercisable for common stock of Star Bulk.  The Redomiciliation Merger
became effective after stock markets closed on Friday, November 30, 2007 and the
common shares and warrants of Star Maritime ceased trading on the American Stock
Exchange under the symbols SEA and SEAU, respectively.  Star Bulk shares
and warrants started trading on the NASDAQ National Market on Monday, December
3, 2007 under the ticker symbols SBLK and SBLKW,
respectively.  Immediately following the effective date of the
Redomiciliation Merger, TMT and its affiliates owned 30.2% of Star Bulk’s
outstanding common stock.






22




We began
operations on December 3, 2007 with the delivery of our first vessel the
Star Epsilon.  Of
the initial fleet of eight drybulk vessels Star Bulk agreed to acquire, three of
such eight vessels were delivered by the end of December 2007.  Upon
delivery of the vessels, we paid TMT $25.5 million in cash and 12,537,645 shares
of Star Bulk common stock.  Additionally, on December 3, 2007, we entered
into an agreement to acquire an additional Supramax vessel, the Star Kappa from TMT, which
was not included in the initial fleet, which was delivered to us on December 14,
2007.




Capital
Expenditures




Vessel
Acquisitions




On
January 12, 2007, pursuant to the Master Agreement, we agreed to acquire our
initial fleet of eight drybulk carriers with a combined cargo-carrying capacity
of approximately 692,000 dwt. from certain subsidiaries of TMT.  The
aggregate purchase price specified in the Master Agreement for the initial fleet
was $224.5 million in cash and 12,537,645 shares of common stock of Star Bulk at
$9.63 per share, determined based on the average price of the Star Maritime
common shares for 15 trading days prior to January 12, 2007. As additional
consideration for eight vessels, 1,606,962 shares of common stock of Star
Bulk will be issued to TMT in two installments as follows: (i) 803,481
additional shares of Star Bulk’s common stock, no more than 10 business days
following Star Bulk’s filing of its Annual Report on Form 20-F for the
fiscal year ended December 31, 2007, and (ii) 803,481 additional
shares of Star Bulk’s common stock, no more than 10 business days following Star
Bulk’s filing of its Annual Report on Form 20-F for the fiscal year ended
December 31, 2008.




On
December 3, 2007, we entered into an agreement with TMT, a company affiliated
with Mr. Nobu Su, one of our directors, to acquire Star Kappa, a 2001 built
Supramax drybulk carrier for the aggregate purchase price of $72.0 million with
a cargo carrying capacity of approximately 52,055 dwt.  We financed the
total purchase price with proceeds from Star Maritime's initial public offering,
which were deposited in the Trust Account.  Following the delivery of this
vessel to us in December 2007, it commenced a three year time charter at an
average daily hire rate of $47,800.




On
January 22, 2008, we entered into an agreement to acquire Star Sigma, a 1991 built
Capesize drybulk carrier for the aggregate purchase price of $83.7 million with
a cargo carrying capacity of approximately 184,403 dwt.  We financed
approximately $65.0 million of the purchase price with borrowings under the
Piraeus Bank A.E. term loan facility.  Following the delivery of this
vessel to us in April 2008, it commenced a one year time charter at a daily hire
rate of $100,000.  We entered into a three year time charter agreement at
an average daily hire rate of $63,000 to employ the Star Sigma.  We expect this time charter
to commence following the termination of the initial charter in April
2009.




On March
11, 2008, we entered into an agreement to acquire Star Omicron, a 2005 built
Supramax drybulk carrier for the aggregate purchase price of $72.0 million with
a cargo carry capacity of approximately 53,489 dwt.  We financed
approximately $20.0 million of the purchase price with borrowings under Piraeus
Bank A.E. term loan facility.  Following the delivery of this vessel to us
in April 2008, it commenced a three year time charter at a daily hire rate of
$43,000.




On May
22, 2008, we entered into an agreement to acquire Star Cosmo, a 2005 built
Supramax drybulk carrier for the aggregate purchase price of $68.8 million with
a cargo carry capacity of approximately 52,200 dwt.  We expect to finance
the purchase price through a combination of the proceeds received from the
conversion of our warrants and borrowings under our Piraeus Bank A.E. term loan
facility.   We entered into a three year time charter agreement to
employ this vessel at an average daily hire rate of $41,900 following its
expected delivery to us by July of 2008.




On June
3, 2008, we entered into an agreement to acquire Star Ypsilon, a 1991 built
Capsize drybulk carrier for the aggregate purchase price of $87.2 million with a
cargo carry capacity of approximately 150,940 dwt. We expect to finance the
purchase price through a combination of the proceeds received from the
conversion of our warrants and borrowings under our Piraeus Bank A.E. term loan
facility.  We entered into a three year time charter agreement to employ
this vessel at an average daily hire rate of $93,333 following its expected
delivery to us by September of 2008.






23




Vessel
Dispositions




On April
24, 2008, we entered into an agreement to sell Star Iotafor $18.4 million.  We
expect to deliver the vessel to its purchasers by September
2008.




Other
Significant Transactions




On
January 18, 2008, our board of directors approved a plan for the repurchase of
up to an aggregate of $50.0 million of our common stock and warrants, which the
Company may repurchase from time to time until December 31, 2008. The plan calls
for the repurchases of both common stock and warrants to be made in open market
or privately negotiated transactions in compliance with Rule 10b-18 under the
Securities Exchange Act of 1934, as amended, to the extent applicable, subject
to market and business conditions, applicable legal requirements and other
factors. The plan will be implemented by our management at its discretion. The
plan calls for the repurchased shares and warrants to be retired as soon as
practicable following the repurchase. The plan does not obligate us to purchase
any particular number of shares, and may be suspended at any time in our sole
discretion in accordance with Rule 10b-18. As of June 25, 2008, we repurchased
52,000 shares of common stock for an aggregate purchase price of $586,706, equal
to $11.24 per share and 1,362,500 warrants for an aggregate purchases price of
$5,474,363, equal to $4.02 per warrant. As of June 25, 2008, we may repurchase
up to $43,938,931 of our common stock and warrants under our repurchase
plan.




As of
June 25, 2008, 12,703,420 warrants have been converted into shares of common
stock resulting in proceeds to us of $101,562,192. As of November 30, 2007, the
date of the Redomiciliation Merger, we had 41,564,569 shares of common stock and
20,000,000 warrants outstanding.




B. Business
overview




Introduction




We are an
international company providing worldwide transportation services in the drybulk
sector through our vessel-owning subsidiaries for a broad range of vendors and
customers of major and minor drybulk cargoes along worldwide shipping
routes.  Our fleet
carries a variety of drybulk commodities including coal, iron ore, and grains,
or major bulks, as well as bauxite, phosphate, fertilizers and steel products,
or minor bulks.  We charter all of our vessels pursuant to medium- to
long-term time charters with terms of approximately one to five
years.




Our
Fleet




As of
June 25, 2008 we owned and operated a fleet of 11 vessels consisting of three
Capesize, one Panamax, and seven Supramax drybulk carriers with an average age
of 10 years and a combined cargo carrying capacity of approximately 1.0 million
dwt. Following the expected delivery of the Star Cosmoand the Star Ypsilonin July
and September 2008, our fleet will consist of 13 vessels, including four
Capesize, one Panamax and eight Supramax drybulk carriers with an aggregate
cargo carrying capacity of approximately 1.2 million dwt and an average age of
11.4 years.  See Item 4. “Information on the Company—History and
Development of the Company—Capital Expenditures.”






24




The
following table presents summary information for all of the vessels in our fleet
as of June 25, 2008:




Vessel
      Name
                Vessel
      Type
                
                Size
                  (dwt.)
                
                Year
                  Built
                
                Average DailyHireRate
                
                Type/Remaining
      Term
                Vessel
      Delivery DateStar Alpha (ex A
      Duckling)
                Capesize
                
                
                175,075
                
                1992
                
                $
                47,500
                
                Time
      charter/1.5 years
                January
      9, 2008Star Beta(ex B
      Duckling)
                Capesize
                
                
                174,691
                
                1993
                
                $
                106,500
                
                Time
      charter/2.0 years
                December
      28, 2008Star Gamma (ex C
      Duckling)
                Supramax
                
                
                53,098
                
                2002
                
                $
                28,500
                
                Time
      charter/3.5 years
                January
      4, 2008Star Delta (ex F
      Duckling)
                Supramax
                
                
                52,434
                
                2000
                
                $
                25,800
                
                Time
      charter/1.0 year
                January
      2, 2008Star Epsilon (ex G
      Duckling)
                Supramax
                
                
                52,402
                
                2001
                
                $
                25,550
                
                Time
      charter/6.0 years
                December
      3, 2007Star Zeta (ex I
      Duckling)
                Supramax
                
                
                52,994
                
                2003
                
                $
                42,500
                
                Time
      charter/3.5 years
                January
      2, 2008Star Theta (ex J
      Duckling)
                Supramax
                
                
                52,425
                
                2003
                
                $
                32,500
                
                Time
      charter/1.0 year
                December
      6, 2008Star Iota(ex Mommy
      Duckling)(1)
                Panamax
                
                
                78,585
                
                1983
                
                $
                18,000
                
                Time
      charter/1.0 year
                March
      7, 2008Star Kappa (ex E
      Duckling)
                Supramax
                
                
                52,055
                
                2001
                
                $
                47,800
                
                Time
      charter/2.5 years
                December
      14, 2007Star Sigma (ex
      Sinfonia)
                Capesize
                
                
                184,403
                
                1991
                
                $
                100,000
                
                Time
      charter/4.0 years
                April
      15, 2008Star Omicron (ex Nord
      Wave)
                Supramax
                
                
                53,489
                
                2005
                
                $
                43,000
                
                Time
      charter/2.0 years
                April
      17, 2008Vessels To Be
      DeliveredStar Cosmo (ex
      Victoria) (2)
                Supramax
                
                
                52,200
                
                2005
                
                $
                41,900
                
                3
      years from delivery
                July
      2008 (expected)Star Ypsilon(ex Falcon
      Cape) (3)
                Capesize
                
                
                150,940
                
                1991
                
                $
                93,333
                
                3
      years from delivery
                September
      2008 (expected)
  (1) On
April 24, 2008, we entered into an agreement to sell Star Iotafor $18.4
million.  We expect to deliver to its purchasers by September 2008.




(2) We
expect the Star Cosmo
to be delivered to us by July 2008.




(3) We
expect the Star Ypsilon
to be delivered to us by September 2008.




We
actively manage the deployment of our fleet on time charters, which generally
can last up to several years. Currently, all of our vessels are employed on
medium to long-term time charters.  A time charter is generally a contract
to charter a vessel for a fixed period of time at a set daily rate.  Under
time charters, the charterer pays voyage expenses such as port, canal and fuel
costs.  We pay for vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oil, insurance, maintenance and
repairs, as well as for commissions.  We are also responsible for the
drydocking costs relating to each vessel.




Our
vessels operate worldwide within the trading limits imposed by our insurance
terms and do not operate in areas where United States, European Union or United
Nations sanctions have been imposed.




Competition




Demand
for drybulk carriers fluctuates in line with the main patterns of trade of the
major drybulk cargoes and varies according to changes in the supply and demand
for these items. We compete with other owners of drybulk carriers in the
Capesize, Panamax and Supramax size sectors. Ownership of drybulk carriers is
highly fragmented and is divided among approximately 1,500 independent drybulk
carrier owners. We compete for charters on the basis of price, vessel location,
size, age and condition of the vessel, as well as on our reputation as an owner
and operator.






25




Our
subsidiary, Star Bulk Management arranges our charters (whether voyage charters,
period time charters, bareboat charters or pools) through the use of a worldwide
network of shipbrokers, who negotiate the terms of the charters based on market
conditions.  These shipbrokers advise Star Bulk Management on a continuous
basis of the availability of cargo for any particular vessel. There may be
several shipbrokers involved in any one charter. The negotiation for a charter
typically begins prior to the completion of the previous charter in order to
avoid any idle time. The terms of the charter are based on industry
standards.


Customers




During
December 2007, three of the eight vessels we acquired from TMT in our initial
fleet were delivered to us. We also took delivery of an additional vessel from
TMT, which was not included in our initial fleet, the Star Kappa. Due to the
limited time that the small number of vessels were operational during the fourth
quarter of 2007, each of North China Shipping Limited, Hyndai Merchant Marine,
Industrial Carriers Inc. and Ishaar Overseas which are the respective customers
of the Star Epsilon,
the Star Theta, the
Star Beta and the Star Kappa accounted for 44%,
36%, 0% and 20% of our revenues, respectively.




As of
June 25, 2008, our vessels were chartered as follows: Worldlink Shipping Limited
for the Star
Alpha, Industrial Carriers Inc. for the StarBeta, North China Shipping Limited Bahamas for the Star
Epsilon, Essar for the Star
Delta, Norden A/Sfor theStarZeta, Hyundai Merchant Marine for theStarTheta,TMT Co. Ltd., or TMT, for the Star
Iota and the Star
Gamma,Ishaar Overseas for the Star
Kappa, Sun God Navigation S.A. for the Star
Sigma and GMI Ltd. for the Star
Omicron.




Management
of the Fleet




As of
December 31, 2007, we had ten employees and as of June 25, 2008, 16
employees.  As of December 31, 2007, eight employees, through Star Bulk
Management, were engaged in the day to day management of the vessels in our
fleet.  Our wholly-owned subsidiary, Star Bulk Management performs
operational and technical management services for the vessels in our fleet,
including chartering, marketing, capital expenditures, personnel, accounting,
paying vessel taxes and maintaining insurance.  Our Chief Executive Officer
and our Chief Financial Officer are also the senior management of Star Bulk
Management.  Star Bulk Management employs such number of additional
shore-based executives and employees designed to ensure the efficient
performance of its activities.




We reimburse and/or advance funds as necessary to Star Bulk Management
in order for it to conduct its activities and discharge its obligations, at
cost.  We also maintain working capital reserves as may be agreed
between Star Bulk and Star Bulk Management from time to time.




Star Bulk
Management is responsible for the management of the vessels. Star Bulk
Management’s responsibilities include, inter alia, locating, purchasing,
financing and selling vessels, deciding on capital expenditures for the vessels,
paying vessels’ taxes, negotiating charters for the vessels, managing the mix of
various types of charters, developing and managing the relationships with
charterers and the operational and technical management of the vessels.
Technical management includes maintenance, drydocking, repairs, insurance,
regulatory and classification society compliance, arranging for and managing
crews, appointing technical consultants and providing technical
support.




We do not
intend to pay commissions to our affiliates in connection with the chartering of
vessels to or from any of our affiliates or for the purchase of vessels from or
sale to its affiliates.




Star Bulk
Management subcontracts the technical and crew management of our vessels to
Bernhardt Schulte Shipmanagement Ltd., formerly Hanseatic Shipping Co. Ltd., or
the Manager, Univan Shipmanagement Ltd., or Univan and Combine Marine S.A., or
Combine.




On November
2 and December 5, 2007, we entered into agreements with Bernhardt Schulte
Shipmanagement Ltd. for the technical management of the Star Alpha,theStar Beta, theStar Delta,theStar Epsilon and theStar Theta,theStar OmicronandtheStar Kappa,respectively.
Under these agreements, we pay the Manager an aggregate annual management fee of
$90,000 per vessel. The agreements continue indefinitely unless either party
terminates the agreements upon three months' written notice or a certain
termination event occurs.




26




On July
4, 2007, we entered into an agreement with Univan for the technical management
of the Star Iota. Under
the agreement, we pay a monthly management fee of $8,500, which is reviewed two
months before the beginning of each calendar year. The agreement continues
indefinitely unless either party terminates the agreement after one year upon
three months' written notice or a certain termination event
occurs.




Under an
agreement dated May 4, 2007, we appointed Combine, a company affiliated with Mr.
Tsirigakis, our Chief Executive Officer, Mr. Pappas, the Chairman of our Board
and one of our directors and Mr. Christos Anagnostou, a former officer of Star
Maritime, as interim manager of the vessels in the initial fleet.  Under
the agreement, Combine provides interim technical management and associated
services, including legal services, to the vessels in exchange for a flat
fee of $10,000 per vessel prior to delivery and at a daily fee of $450 U.S.
dollars per vessel during the term of the agreement until such time as the
technical management of the vessel is transferred to another technical
management company.  Combine is entitled to be reimbursed at cost by us for
any and all expenses incurred by them in the management of the vessels, but
shall provide us the full benefit of all discounts and rebates enjoyed by them.
 The term of the agreement is for one year from the date of delivery of
each vessel currently.  Either party may terminate the agreement upon
thirty days’ written notice.  The Star Gamma, the Star Zeta and the Star Sigma are currently
managed by Combine.




Crewing




Star Bulk
Management is responsible for recruiting, either directly or through a technical
manager or a crew manager, the senior officers and all other crew members for
the vessels in our fleet.  Star Bulk Management has the responsibility to
ensure that all seamen have the qualifications and licenses required to comply
with international regulations and shipping conventions, and that the vessels
are manned by experienced and competent and trained personnel.  Star Bulk
Management is also responsible for insuring that seafarers’ wages and terms of
employment conform to international standards or to general collective
bargaining agreements to allow unrestricted worldwide trading of the
vessels.  Star Bulk Management has subcontracted the crewing of our entire
fleet to the Manager, Univan and Combine.




The
International Drybulk Shipping Industry




Drybulk
cargo is cargo that is shipped in large quantities and can be easily stowed in a
single hold with little risk of cargo damage.  In 2007, based on Clarkson's
"Dry Bulk Trade Outlook," May 2008, approximately 3,011 million tons of drybulk
cargo was transported by sea, comprising more than one-third of all
international seaborne trade.




The
demand for drybulk carrier capacity is determined by the underlying demand for
commodities transported in drybulk carriers, which in turn is influenced by
trends in the global economy.  Between 2001 and 2007, trade in all drybulk
commodities increased from 2,144 million tons to 3,011 million tons, an increase
of 40.4%.  One of the main reasons for the resurgence in drybulk trade has
been the growth in imports by China of iron ore, coal and steel products during
the last eight years.  Chinese imports of iron ore alone increased from
55.3 million tons in 1999 to more than 380 million tons in 2007.  Demand
for drybulk carrier capacity is also affected by the operating efficiency of the
global fleet, with port congestion, which has been a feature of the market in
2004, absorbing additional tonnage.




The
global drybulk carrier fleet may be divided into four categories based on a
vessel's carrying capacity. These categories consist of:




·
            Capesize
      vessels, which have carrying capacities of more than 85,000 dwt. These
      vessels generally operate along long-haul iron ore and coal trade routes.
      There are relatively few ports around the world with the infrastructure to
      accommodate vessels of this size.




·
            Panamax
      vessels have a carrying capacity of between 60,000 and 85,000 dwt. These
      vessels carry coal, grains, and, to a lesser extent, minor bulks,
      including steel products, forest products and fertilizers. Panamax
      vessels are able to pass through the Panama Canal making them more
      versatile than larger vessels.






27




·
              Handymax
      vessels have a carrying capacity of between 35,000 and 60,000 dwt. The
      subcategory of vessels that have a carrying capacity of between 45,000 and
      60,000 dwt called Supramax. These vessels operate along a large number of
      geographically dispersed global trade routes mainly carrying grains and
      minor bulks. Vessels below 60,000 dwt are sometimes built with on-board
      cranes enabling them to load and discharge cargo in countries and ports
      with limited infrastructure.


·
            Handysize
      vessels have a carrying capacity of up to 35,000 dwt. These vessels carry
      exclusively minor bulk cargo. Increasingly, these vessels have operated
      along regional trading routes. Handysize vessels are well suited for small
      ports with length and draft restrictions that may lack the infrastructure
      for cargo loading and unloading.




The
supply of drybulk carriers is dependent on the delivery of new vessels in
accordance with Clarkson's "Dry Bulk Tarde Outlook," May 2008, and the removal
of vessels from the global fleet, either through scrapping or loss.  As of
end of April 2008, the global drybulk carrier orderbook amounted to 242.4
million dwt, or 61% of the existing fleet at that time, with most vessels on the
orderbook expected to be delivered within 36 months. The level of scrapping
activity is generally a function of scrapping prices in relation to current and
prospective charter market conditions, as well as operating, repair and survey
costs. Drybulk carriers at or over 25 years old are considered to be scrapping
candidate vessels.




Charterhire
Rates




Charterhire
rates paid for drybulk carriers are primarily a function of the underlying
balance between vessel supply and demand, although at times other factors may
play a role. Furthermore, the pattern seen in charter rates is broadly mirrored
across the different charter types and between the different drybulk carrier
categories. However, because demand for larger drybulk carriers is affected by
the volume and pattern of trade in a relatively small number of commodities,
charterhire rates (and vessel values) of larger ships tend to be more volatile
than those for smaller vessels.




In the
time charter market, rates vary depending on the length of the charter period
and vessel specific factors such as age, speed and fuel consumption. In the
voyage charter market, rates are influenced by cargo size, commodity, port dues
and canal transit fees, as well as delivery and redelivery regions. In general,
a larger cargo size is quoted at a lower rate per ton than a smaller cargo size.
Routes with costly ports or canals generally command higher rates than routes
with low port dues and no canals to transit.




Voyages
with a load port within a region that includes ports where vessels usually
discharge cargo or a discharge port within a region with ports where vessels
load cargo also are generally quoted at lower rates, because such voyages
generally increase vessel utilization by reducing the unloaded portion (or
ballast leg) that is included in the calculation of the return charter to a
loading area.




Within
the drybulk shipping industry, the charterhire rate references most likely to be
monitored are the freight rate indices issued by the Baltic Exchange. These
references are based on actual charterhire rates under charter entered into by
market participants as well as daily assessments provided to the Baltic Exchange
by a panel of major shipbrokers. The Baltic Panamax Index is the index with the
longest history. The Baltic Capesize Index and Baltic Handymax Index are of more
recent origin. In 2007, rates for all sizes of drybulk carriers strengthened
appreciably to historically high levels, primarily due to the high level of
demand for raw materials imported by China.




Vessel
Prices




Vessel
prices, both for new-buildings and secondhand vessels, have increased
significantly during the past two years as a result of the strength of the
drybulk shipping industry. Because sectors of the shipping industry (drybulk
carrier, tanker and container ships) are in a period of prosperity, newbuilding
prices for all vessel types have increased significantly due to a reduction in
the number of berths available for the construction of new vessels in
shipyards.




28




Environmental
and Other Regulations


Government
regulations and laws significantly affect the ownership and operation of our
fleet. We are subject to various international conventions and treaties, laws
and regulations in force in the countries in which our vessels may operate or
are registered, relating to safety and health and environmental protection
including the storage, handling, emission, transportation and discharge of
hazardous and non-hazardous materials, and the remediation of contamination and
liability for damage to natural resources.


A variety
of government, quasi-governmental and private organizations subject our vessels
to both scheduled and unscheduled inspections. These entities include the local
port authorities (applicable national authorities such as the United States
Coast Guard and harbor masters), classification societies, flag state
administration (country of registry) and charterers. Some of these entities
require us to obtain permits, licenses, certificates and other authorizations
for the operation of our vessels. Our failure to maintain necessary permits or
approvals could require us to incur substantial costs or temporarily suspend the
operation of one or more of the vessels in our fleet.




In recent
periods, heightened levels of environmental and quality concerns among insurance
underwriters, regulators and charterers have led to greater inspection and
safety requirements on all vessels and may accelerate the scrapping of older
vessels throughout the industry. Increasing environmental concerns have created
a demand for vessels that conform to the stricter environmental standards. We
believe that the operation of our vessels is in substantial compliance with
applicable environmental laws and regulations and that our vessels have all
material permits, licenses, certificates or other authorizations necessary for
the conduct of our operations. However, because such laws and regulations are
frequently changed and may impose increasingly stricter requirements, we cannot
predict the ultimate cost of complying with these requirements or the impact of
these requirements on the resale value or useful lives of our vessels. In
addition, a future serious marine incident that results in significant oil
pollution or otherwise causes significant adverse environmental impact could
result in additional legislation or regulation that could negatively affect our
profitability.




International
Maritime Organization




The
United Nations International Maritime Organization, or IMO has negotiated
international conventions that impose liability for oil pollution in
international waters and a signatory’s territorial waters. In
September 1997, the IMO adopted Annex VI to the International Convention
for the Prevention of Pollution from Ships to address air pollution from ships.
Annex VI was ratified in May 2004 and became effective in May 2005.
Annex VI set limits on sulfur oxide and nitrogen oxide emissions from ship
exhausts and prohibits deliberate emissions of ozone depleting substances, such
as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur
content of fuel oil and allows for special areas to be established with more
stringent controls on sulfur emissions. Compliance with these regulations could
require the installation of expensive emission control systems and could have an
adverse financial impact on the operation of our vessels. Our vessel manager has
informed us that a plan to conform with the Annex VI resolutions is in
place and we believe we are in substantial compliance with
Annex VI.




The
operation of our vessels is also affected by the requirements set forth in the
IMO’s Management Code for the Safe Operation of Ships and Pollution Prevention,
or ISM Code. The ISM Code requires shipowners and bareboat charterers to develop
and maintain an extensive “Safety Management System” that includes the adoption
of a safety and environmental protection policy setting forth instructions and
procedures for safe operations and describing procedures for dealing with
emergencies. The failure of a shipowner or bareboat charterer to comply with the
ISM Code may subject such party to increased liability, may decrease available
insurance coverage for the affected vessels and may result in a denial of access
to, or detention in, certain ports. As of the date of this prospectus, each of
our vessels is ISM code-certified. However, there can be no assurance that these
certifications will be maintained indefinitely.




Safety
Management System Requirements




IMO also
adopted SOLAS and the International Convention on Load Line, 1996, or LL
Convention, which impose a variety of standards that regulate the design and
operational features of ships. IMO periodically revises the SOLAS Convention and
LL Convention standards. We believe that all our vessels are in substantial
compliance with SOLAS Convention and LL Convention standards.




29




Under
Chapter IX of SOLAS, our operations are also subject to environmental standards
and requirements contained in the ISM Code promulgated by the IMO also affect
our operations. The ISM Code requires the party with operational control of a
vessel to develop an extensive safety management system that includes, among
other things, the adoption of a safety and environmental protection policy
setting forth instructions and procedures for operating its vessels safely and
describing procedures for responding to emergencies. We intend to rely upon the
safety management system that we and our technical manager will develop for
compliance with the ISM Code.
  The ISM
Code requires that vessel operators also obtain a safety management certificate
for each vessel they operate. This certificate evidences compliance by a
vessel’s management with code requirements for a safety management system. No
vessel can obtain a certificate unless its manager has been awarded a document
of compliance, issued by each flag state, under the ISM Code. We will obtain
documents of compliance for our offices and safety management certificates for
all of our vessels for which the certificates are required by the IMO. As
required, we renew these documents of compliance and safety management
certificates annually.




Pollution
Control and Liability Requirements




IMO has
negotiated international conventions that impose liability for oil pollution in
international waters and the territorial waters of the signatory to such
conventions. For example, IMO adopted an International Convention for the
Control and Management of Ships’ Ballast Water and Sediments, or the BWM
Convention, in February 2004. The BWM Convention’s implementing regulations call
for a phased introduction of mandatory ballast water exchange requirements
(beginning in 2009), to be replaced in time with mandatory concentration limits.
The BWM Convention will not become effective until 12 months after it has been
adopted by 30 states, the combined merchant fleets of which represent not less
than 35% of the gross tonnage of the world’s merchant shipping.




Although
the United States is not a party to these conventions, many countries have
ratified and follow the liability plan adopted by the IMO and set out in the
International Convention on Civil Liability for Oil Pollution Damage of 1969, as
amended in 2000, or the CLC. Under this convention and depending on whether the
country in which the damage results is a party to the 1992 Protocol to the CLC,
a vessel’s registered owner is strictly liable for pollution damage caused in
the territorial waters of a contracting state by discharge of persistent oil,
subject to certain complete defenses. The limits on liability outlined in the
1992 Protocol use the International Monetary Fund currency unit of Special
Drawing Rights, or SDR. Under an amendment to the 1992 Protocol that became
effective on November 1, 2003, for vessels of 5,000 to 140,000 gross tons
(a unit of measurement for the total enclosed spaces within a vessel), liability
will be limited to approximately 4.51 million SDR plus 631 SDR for each
additional gross ton over 5,000. For vessels of over 140,000 gross tons,
liability will be limited to 89.77 million SDR. The exchange rate between SDRs
and U.S. dollars was 0.615713 SDR per U.S. dollar on March 20, 2008. As the
convention calculates liability in terms of a basket of currencies, these
figures are based on currency exchange rates on March 13, 2007. The right to
limit liability is forfeited under the CLC where the spill is caused by the
owner’s actual fault and under the 1992 Protocol where the spill is caused by
the owner’s intentional or reckless conduct. Vessels trading to states that are
parties to these conventions must provide evidence of insurance covering the
liability of the owner. In jurisdictions where the International Convention on
Civil Liability for Oil Pollution Damage has not been adopted, various
legislative schemes or common law govern, and liability is imposed either on the
basis of fault or in a manner similar to that convention. We believe that our
P&I insurance will cover the liability under the plan adopted by the
IMO.




Compliance
Enforcement




The flag
state, as defined by the United Nations Convention on Law of the Sea, has
overall responsibility for the implementation and enforcement of international
maritime regulations for all ships granted the right to fly its flag. The
“Shipping Industry Guidelines on Flag State Performance” evaluates flag states
based on factors such as sufficiency of infrastructure, ratification of
international maritime treaties, implementation and enforcement of international
maritime regulations, supervision of surveys, casualty investigations and
participation at IMO meetings. Our vessels will be flagged in the Marshall
Islands. Marshall Islands-flagged vessels have historically received a good
assessment in the shipping industry.






30


Noncompliance
with the ISM Code or other IMO regulations may subject the shipowner or bareboat
charterer to increased liability, may lead to decreases in available insurance
coverage for affected vessels and may result in the denial of access to, or
detention in, some ports. The United States Coast Guard and European Union
authorities have indicated that vessels not in compliance with the ISM Code by
the applicable deadlines will be prohibited from trading in United States and
European Union ports, respectively.


The
United States Oil Pollution Act of 1990




The
United States Oil Pollution Act of 1990, or OPA, established an extensive
regulatory and liability regime for the protection and cleanup of the
environment from oil spills. OPA affects all owners and operators whose vessels
trade in the United States, its territories and possessions or whose vessels
operate in United States waters, which includes the United States’ territorial
sea and its two hundred nautical mile exclusive economic zone.




Under
OPA, vessel owners, operators and bareboat charterers are “responsible parties”
and are jointly, severally and strictly liable (unless the spill results solely
from the act or omission of a third party, an act of God or an act of war) for
all containment and clean-up costs and other damages arising from discharges or
threatened discharges of oil from their vessels. OPA defines these other damages
broadly to include:




·
            natural
      resources damage and the costs of assessment
  thereof;




·
            real
      and personal property damage;




·
            net
      loss of taxes, royalties, rents, fees and other lost
    revenues;




·
            lost
      profits or impairment of earning capacity due to property or natural
      resources damage; and




·
            net
      cost of public services necessitated by a spill response, such as
      protection from fire, safety or health hazards, and loss of subsistence
      use of natural resources.




Under
amendments to OPA that became effective on July 11, 2006, the liability of
responsible parties is limited to the greater of $950 per gross ton or $0.8
million per drybulk vessel that is over 300 gross tons (subject to possible
adjustment for inflation). These limits of liability do not apply if an incident
was directly caused by violation of applicable United States federal safety,
construction or operating regulations or by a responsible party’s gross
negligence or willful misconduct, or if the responsible party fails or refuses
to report the incident or to cooperate and assist in connection with oil removal
activities.




We
currently maintain pollution liability coverage insurance in the amount of $1.0
billion per incident for each of our owned vessels. If the damages from a
catastrophic spill were to exceed our insurance coverage it could have an
adverse effect on our business, financial condition and results of
operation.




OPA
requires owners and operators of vessels to establish and maintain with the
United States Coast Guard evidence of financial responsibility sufficient to
meet their potential liabilities under OPA. Currently United States the Coast
Guard regulations require evidence of financial responsibility in the amount of
$1,250 per gross ton for non-tank vessels, which includes the OPA limitation on
liability of $950 per gross ton and the United States Comprehensive
Environmental Response, Compensation, and Liability Act, or CERCLA. Under the
regulations, vessel owners and operators may evidence their financial
responsibility by showing proof of insurance, surety bond, self-insurance, or
guaranty. Under OPA, an owner or operator of a fleet of vessels is required only
to demonstrate evidence of financial responsibility in an amount sufficient to
cover the vessels in the fleet having the greatest maximum liability under
OPA.






31




The
United States Coast Guard’s regulations concerning certificates of financial
responsibility provide, in accordance with OPA, that claimants may bring suit
directly against an insurer or guarantor that furnishes certificates of
financial responsibility. In the event that such insurer or guarantor is sued
directly, it is prohibited from asserting any contractual defense that it may
have had against the responsible party and is limited to asserting those
defenses available to the responsible party and the defense that the incident
was caused by the willful misconduct of the responsible party. Certain
organizations, which had typically provided certificates of financial
responsibility under pre-OPA laws, including the major protection and indemnity
organizations have declined to furnish evidence of insurance for vessel owners
and operators if they are subject to direct actions or are required to waive
insurance policy defenses.


The
United States Coast Guard’s financial responsibility regulations may also be
satisfied by evidence of surety bond, guaranty or by self-insurance. Under the
self-insurance provisions, the shipowner or operator must have a net worth and
working capital, measured in assets located in the United States against
liabilities located anywhere in the world, that exceeds the applicable amount of
financial responsibility. We have complied with the United States Coast Guard
regulations by providing a certificate of responsibility from third party
entities that are acceptable to the United States Coast Guard evidencing
sufficient self-insurance.




OPA
specifically permits individual states to impose their own liability regimes
with regard to oil pollution incidents occurring within their boundaries, and
some states have enacted legislation providing for unlimited liability for oil
spills. In some cases, states, which have enacted such legislation, have not yet
issued implementing regulations defining vessel owners’ responsibilities under
these laws. We intend to comply with all applicable state regulations in the
ports where our vessels call.




The
United States Clean Water Act




The U.S.
Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances
in navigable waters and imposes strict liability in the form of penalties for
any unauthorized discharges. The CWA also imposes substantial liability for the
costs of removal, remediation and damages and complements the remedies available
under OPA and CERCLA.




Currently,
under U.S. Environmental Protection Agency, or EPA, regulations that have been
in place since 1978, vessels are exempt from the requirement to obtain CWA
permits for the discharge in U.S. ports of ballast water and other substances
incidental to their normal operation. However, on March 30, 2005, the
United States District Court for the Northern District of California ruled in
Northwest Environmental
Advocate v. EPA, 2005 U.S. Dist. LEXIS 5373, that EPA exceeded its
authority in creating an exemption for ballast water. On September 18,
2006, the court issued an order invalidating the blanket exemption in EPA’s
regulations for all discharges incidental to the normal operation of a vessel as
of September 30, 2008 and directing EPA to develop a system for regulating
all discharges from vessels by that date. Under the court’s ruling, owners and
operators of vessels visiting U.S. ports would be required to comply with any
CWA-permitting program to be developed by EPA or face penalties. Although EPA
has appealed the decision to the Ninth Circuit Court of Appeals, we cannot
predict the outcome of the litigation. If the District Court’s order is
ultimately upheld, we will incur certain costs to obtain CWA permits for our
vessels and meet any treatment requirements, although we do not expect that
these costs would be material.




Additional
Environmental Requirements




The
European Union is considering legislation that will affect the operation of
vessels and the liability of owners for oil pollution. It is difficult to
predict what legislation, if any, may be promulgated by the European Union or
any other country or authority.






32


The U.S.
National Invasive Species Act, or NISA, was enacted in 1996 in response to
growing reports of harmful organisms being released into U.S. ports through
ballast water taken on by ships in foreign ports. The United States Coast Guard
adopted regulations under NISA in July 2004 that impose mandatory ballast
water management practices for all vessels equipped with ballast water tanks
entering U.S. waters. These requirements can be met by performing mid-ocean
ballast exchange, by retaining ballast water on board the ship, or by using
environmentally sound alternative ballast water management methods approved by
the United States Coast Guard. (However, mid-ocean ballast exchange is mandatory
for ships heading to the Great Lakes or Hudson Bay, or vessels engaged in the
foreign export of Alaskan North Slope crude oil.) Mid-ocean ballast exchange is
the primary method for compliance with the United States Coast Guard
regulations, since holding ballast water can prevent ships from performing cargo
operations upon arrival in the United States, and alternative methods are still
under development. Vessels that are unable to conduct mid-ocean ballast exchange
due to voyage or safety concerns may discharge minimum amounts of ballast water
(in areas other than the Great Lakes and the Hudson River), provided that they
comply with recordkeeping requirements and document the reasons they could not
follow the required ballast water management requirements. The United States
Coast Guard is developing a proposal to establish ballast water discharge
standards, which could set maximum acceptable discharge limits for various
invasive species, and/or lead to requirements for active treatment of ballast
water. A number of bills relating to regulation of ballast water management have
been recently introduced in the U.S. Congress but it is difficult to predict
which, if any, will be enacted into law.








Vessel
Security Regulations




Since the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the
MTSA, came into effect. To implement certain portions of the MTSA, in
July 2003, the United States Coast Guard issued regulations requiring the
implementation of certain security requirements aboard vessels operating in
waters subject to the jurisdiction of the United States. Similarly, in
December 2002, amendments to SOLAS created a new chapter of the convention
dealing specifically with maritime security. The new chapter became effective in
July 2004 and imposes various detailed security obligations on vessels and
port authorities, most of which are contained in the newly created International
Ship and Port Facilities Security Code, or the ISPS Code. The ISPS Code is
designed to protect ports and international shipping against terrorism. After
July 1, 2004, to trade internationally, a vessel must attain an International
Ship Security Certificate from a recognized security organization approved by
the vessel’s flag state. Among the various requirements are:




The
United States Coast Guard regulations, intended to align with international
maritime security standards, exempt from MTSA vessel security measures
non-United States vessels that have on board, as of July 1, 2004, a valid ISSC
attesting to the vessel’s compliance with SOLAS security requirements and the
ISPS Code. We have implemented the various security measures addressed by MTSA,
SOLAS and the ISPS Code.




Inspection
by Classification Societies




Every
seagoing vessel must be “classed” by a classification society. The
classification society certifies that the vessel is “in class,” signifying that
the vessel has been built and maintained in accordance with the rules of the
classification society and complies with applicable rules and regulations of the
vessel’s country of registry and the international conventions of which that
country is a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order,
acting on behalf of the authorities concerned.




The
classification society also undertakes on request other surveys and checks that
are required by regulations and requirements of the flag state. These surveys
are subject to agreements made in each individual case and/or to the regulations
of the country concerned.






33




For
maintenance of the class, regular and extraordinary surveys of hull, machinery,
including the electrical plant, and any special equipment classed are required
to be performed as follows:
  ·
              Annual
      Surveys:  For seagoing ships, annual surveys are
      conducted for the hull and the machinery, including the electrical plant,
      and where applicable for special equipment classed, at intervals of 12
      months from the date of commencement of the class period indicated in the
      certificate.


·
              Intermediate
      Surveys:  Extended annual surveys are referred to as
      intermediate surveys and typically are conducted two and one-half years
      after commissioning and each class renewal. Intermediate surveys may be
      carried out on the occasion of the second or third annual
      survey.


·
            Class Renewal
      Surveys:  Class renewal surveys, also known as special
      surveys, are carried out for the ship’s hull, machinery, including the
      electrical plant, and for any special equipment classed, at the intervals
      indicated by the character of classification for the hull. At the special
      survey, the vessel is thoroughly examined, including audio-gauging to
      determine the thickness of the steel structures. Should the thickness be
      found to be less than class requirements, the classification society would
      prescribe steel renewals. The classification society may grant a one-year
      grace period for completion of the special survey. Substantial amounts of
      money may have to be spent for steel renewals to pass a special survey if
      the vessel experiences excessive wear and tear. In lieu of the special
      survey every four or five years, depending on whether a grace period was
      granted, a shipowner has the option of arranging with the classification
      society for the vessel’s hull or machinery to be on a continuous survey
      cycle, in which every part of the vessel would be surveyed within a
      five-year cycle.




Upon a
shipowner’s request, the surveys required for class renewal may be split
according to an agreed schedule to extend over the entire period of class. This
process is referred to as continuous class renewal.




All areas
subject to survey as defined by the classification society are required to be
surveyed at least once per class period, unless shorter intervals between
surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years.




Most
vessels are also drydocked every 30 to 36 months for inspection of the
underwater parts and for repairs related to inspections. If any defects are
found, the classification surveyor will issue a “recommendation” which must be
rectified by the shipowner within prescribed time limits.




Most
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as “in class” by a classification society that is a member of the
International Association of Classification Societies. Each of our vessels is
certified as being “in class” by one of the major Classification Societies
(e.g., American Bureau of Shipping, Lloyd’s Register of Shipping, Nippon Kaiji
Kiokai, RINA and Bureau Veritas. All new and secondhand vessels that we purchase
must be certified prior to their delivery under our standard purchase contracts
and memorandum of agreement. If the vessel is not certified on the date of
closing, we have no obligation to take delivery of the vessel.


Risk of Loss and Liability
Insurance
  General
  The
operation of any drybulk vessel includes risks such as mechanical failure, hull
damage, collision, property loss, cargo loss or damage and business interruption
due to political circumstances in foreign countries, hostilities and labor
strikes. In addition, there is always an inherent possibility of marine
disaster, including oil spills and other environmental incidents, and the
liabilities arising from owning and operating vessels in international trade.
OPA, which imposes virtually unlimited liability upon owners, operators and
demise charterers of vessels trading in the United States exclusive economic
zone for certain oil pollution accidents in the United States, has made
liability insurance more expensive for shipowners and operators trading in the
United States market.


34




We maintain hull and machinery
insurance, war risks insurance, protection and indemnity cover, and freight,
demurrage and defense cover for our fleet in amounts that we believe to be
prudent to cover normal risks in our operations. However, we may not be able to
achieve or maintain this level of coverage throughout a vessel’s useful life.
Furthermore, while we believe that the insurance coverage that we will obtain is
adequate, not all risks can be insured, and there can be no guarantee that any
specific claim will be paid, or that we will always be able to obtain adequate
insurance coverage at reasonable rates.


Hull &
Machinery and War Risks Insurance




We
maintain marine hull and machinery and war risks insurance, which cover the risk
of actual or constructive total loss, for all of our vessels. Our vessels are
each covered up to at least fair market value with deductibles of $75,000 - $
150,000 per vessel per incident. We also maintain increased value coverage for
most of our vessels. Under this increased value coverage, in the event of total
loss of a vessel, we will be able to recover the sum insured under the increased
value policy in addition to the sum insured under the hull and machinery policy.
Increased value insurance also covers excess liabilities which are not
recoverable under our hull and machinery policy by reason of
under-insurance.




Protection
and Indemnity Insurance




Each of
our vessels is entered either with the Standard Club or with the Britannia Club,
or the Clubs, for third party liability marine insurance coverage. The Clubs are
mutual insurance vehicles. As a member of the Clubs, we are insured, subject to
agreed deductibles, and our terms of entry, for our legal liabilities and
expenses arising out of our interest in an entered ship, out of events occurring
during the period of entry of the ship in the Club and in connection with the
operation of the ship, against the risks specified in the rules of the Club.
These risks include liabilities arising from death of crew and passengers, loss
or damage to cargo, collisions, property damage, oil pollution and wreck
removal.




The
Standard Club and the Britannia Club benefit from membership of the
International Group of P&I Clubs (the International Group) for their main
reinsurance program (see below), coupled with their own complementary insurance
program for additional risks.




The
Club’s policy year commences on February 20th of each year. Calls levied are by
way of Estimated Total Premiums (ETP), with the amount of the final installment
of the ETP being varied according to the actual total premium ultimately
required by the Club for a particular policy year. Members have a liability to
pay supplementary calls which might be levied by the Board of the Club if the
ETP is insufficient to cover the Club’s outgoings.




Insurance
coverage is limited to an unspecified sum, being the amount available from
reinsurance plus the maximum amount collectable from members of the
International Group by way of ‘overspill’ calls. This is currently around $5.5
billion. There are, however, certain exceptions. Owners are presently covered
for claims in respect of oil pollution up to a limit of $1.0 billion. Also, from
2007/2008 policy year a new limit has been introduced on insurance coverage for
passenger and crew claims, with a sub-limit of $2.0 billion for passenger
claims.




Under the
International Group reinsurance program each P&I Club in the International
Group currently bears the first $7.0 million of each and every claim. The excess
of every claim over $7.0 million up to $50.0 million is shared by the Clubs
under a Pooling Agreement. The excess of each claim over $50.0 million is
reinsured by the International Group under the General Excess of Loss
Reinsurance Contract. This policy presently provides a further $3.0 billion of
insurance coverage. Claims which exceed this figure are pooled by way of
‘overspill’ calls as described above.






35


Permits and
Authorizations




We are
required by various governmental and quasi-governmental agencies to obtain
certain permits, licenses and certificates with respect to our vessels. The
kinds of permits, licenses and certificates required depend upon several
factors, including the commodity transported, the waters in which the vessel
operates, the nationality of the vessel’s crew and the age of a vessel. We have
been able to obtain all permits, licenses and certificates currently required to
permit our vessels to operate. Additional laws and regulations, environmental or
otherwise, may be adopted which could limit our ability to do business or
increase the cost of our doing business.




C. Organizational
structure




As of
December 31, 2007, the Company is the sole owner of all of the outstanding
shares of the subsidiaries listed in Note 1 of our consolidated financial
statements under Item 18 “Financial Statements”.




D. Property,
plant and equipment




We do not
own any real property. Our interests in the vessels in our fleet are our only
material properties. See Item 4. “Information on the Company—Our
Fleet”.




Item
4A. Unresolved Staff Comments




None.




Item
5. Operating and Financial Review and Prospects




The
following is a discussion of Star Bulk and Star Maritime following the
Redomiciliation Merger discussed below and in Note 1 to the consolidated
financial statements as of December 31, 2007. Also following is a discussion of
Star Maritime’s financial condition and results of operations for the fiscal
year ended December 31, 2006. All of these consolidated financial statements
have been prepared in accordance with Generally Accepted Accounting Principles
in the United States of America (“U.S. GAAP”). You should read this section
together with the consolidated financial statements including the notes to those
consolidated financial statements for the years and periods mentioned above
which are included in this document. This discussion contains forward-looking
statements that reflect our current views with respect to future events and
financial performance. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
such as those set forth in the section entitled “Risk Factors” and elsewhere in
this report.




Overview




We are an
international company providing worldwide transportation solutions in the
drybulk sector through our vessels-owning subsidiaries for a broad range of
customers of major and minor bulk cargoes including iron ore, coal, grain,
cement, fertilizer, along worldwide shipping routes. We were incorporated in the
Marshall Islands on December 13, 2006. Our executive offices are located at
40 Ag. Konstantinou Avenue, Aethrion Center, Suite B34, Maroussi 15124 Athens,
Greece and our telephone number is 011-30-210-638-7399.




Star
Maritime Acquisition Corp. or Star Maritime was organized under the laws of the
State of Delaware on May 13, 2005 as a blank check company formed to
acquire, through a merger, capital stock exchange, asset acquisition or similar
business combination, one or more assets or target businesses in the shipping
industry.  Following the formation of Star Maritime, our officers and
directors were the holders of 9,026,924 shares of common stock representing all
of our then issued and outstanding capital stock. On December 21, 2005,
Star Maritime consummated its initial public offering of 18,867,500 units, at a
price of $10.00 per unit, each unit consisting of one share of Star Maritime
common stock and one warrant to purchase one share of Star Maritime common stock
at an exercise price of $8.00 per share.  In addition, Star Maritime
completed during December 2005 a private placement of an aggregate of 1,132,500
units, or the Private Placement, each unit consisting of one share of common
stock and one warrant, to Messrs. Tsirigakis and Syllantavos, our Chief
Executive Officer and Chief Financial Officer, respectively, and
Messrs. Pappas and Erhardt, our Chairman of the Board and one of our
directors. The gross proceeds of the private placement of $11.3 million were
used to pay all fees and expenses of the initial public offering and as a
result, the entire gross proceeds of the initial public offering amounting to
$188.7 million were deposited in a trust account maintained by American Stock
Transfer & Trust Company, or the Trust Account. Star Maritime’s common
stock and warrants started trading on the American Stock Exchange under the
symbols, SEA and SEA.WS, respectively on December 21,
2005.


36


On
January 12, 2007, Star Maritime and Star Bulk entered into definitive agreements
to acquire a fleet of eight drybulk carriers with a combined cargo-carrying
capacity of approximately 692,000 dwt. from certain subsidiaries of TMT Co.
Ltd., or TMT, a shipping company headquartered in Taiwan.  These eight
drybulk carriers are referred to as the initial fleet, or initial vessels.
 The aggregate purchase price specified in the Master Agreement by and
among the Company, Star Maritime and TMT, or the Master Agreement, for the
initial fleet was $224.5 million in cash and 12,537,645 shares of common stock
of Star Bulk at $9.63 per share, determined based on the average price of the
Star Maritime common shares for 15 trading days prior to January 12, 2007.
 As additional consideration for eight vessels, 1,606,962 shares of
common stock of Star Bulk will be issued to TMT in two installments as follows:
(i) 803,481 additional shares of Star Bulk’s common stock, no more than 10
business days following Star Bulk’s filing of its Annual Report on
Form 20-F for the fiscal year ended December 31, 2007, and
(ii) 803,481 additional shares of Star Bulk’s common stock, no more than 10
business days following Star Bulk’s filing of its Annual Report on
Form 20-F for the fiscal year ended December 31, 2008.




On
November 2, 2007, the SEC declared effective our joint proxy/registration
statement filed on Forms F-1/F-4 and on November 27, 2007 we obtained
shareholder approval for the acquisition of the initial fleet and for effecting
the Redomiciliation Merger as a result of which Star Maritime merged into Star
Bulk with Star Maritime merging out of existence and Star Bulk being the
surviving entity.  Each share of Star Maritime common stock was
exchanged for one share of Star Bulk common stock and each warrant of Star
Maritime was assumed by Star Bulk with the same terms and conditions except that
each became exercisable for common stock of Star Bulk.  The Redomiciliation
Merger became effective after stock markets closed on Friday, November 30, 2007
and the common shares and warrants of Star Maritime ceased trading on the
American Stock Exchange under the symbols SEA and SEAU, respectively.  Star
Bulk shares and warrants started trading on the NASDAQ Market on Monday,
December 3, 2007 under the ticker symbols SBLK and SBLKW
respectively.  Immediately following the effective date of the
Redomiciliation Merger, TMT and its affiliates owned 30.2% of Star Bulk’s
outstanding common stock.




We began
operations on December 3, 2007 with the delivery of our first vessel the
Star Epsilon.  Of
the initial fleet of eight drybulk vessels Star Bulk agreed to acquire, three of
such eight vessels were delivered by the end of December 2007.  Upon
delivery of the vessels, we paid TMT $25.5 million in cash and 12,537,645 shares
of Star Bulk common stock.  Additionally, on December 3, 2007, we entered
into an agreement to acquire an additional Supramax vessel, the Star Kappa from TMT, which
was delivered to us on December 14, 2007.




A. Operating
Results




Factors
Affecting Our Results of Operations




We
charter all of our vessels, primarily pursuant to medium- to long-term time
charters with terms of approximately one to five years. Under our time charters,
the charterer typically pays us a fixed daily charterhire rate and bears all
voyage expenses, including the cost of bunkers (fuel oil) and port and canal
charges. We remain responsible for paying the chartered vessel’s operating
expenses, including the cost of crewing, insuring, repairing and maintaining the
vessel, the costs of spares and consumable stores, tonnage taxes and other
miscellaneous expenses, and we also pay commissions to one or more unaffiliated
ship brokers and to in-house brokers associated with the charterer for the
arrangement of the relevant charter. Although the vessels in our fleet are
primarily employed on medium- to long-term time charters ranging from one to
five years, we may employ these and additional vessels under bareboat charters
or in drybulk carrier pools in the future.




37




·
            Average number of
      vessels is the number of vessels that constituted our fleet for the
      relevant period, as measured by the sum of the number of days each vessel
      was a part of our fleet during the period divided by the number of
      calendar days in that period.




·
            Ownership days are the
      total calendar days each vessel in the fleet was owned by Star Bulk for
      the relevant period.




·
            Available days for the
      fleet are the total calendar days the vessels were in possession
      for the relevant period after subtracting for off-hire days with major
      repairs dry-docking or special or intermediate surveys or transfer of
      ownership.




·
            Voyage days are the
      total days the vessels were in our possession for the relevant period
      after subtracting all off-hire days incurred for any reason (including
      off-hire for dry-docking, major repairs, special or intermediate
      surveys).




·
            Fleet utilization is
      calculated by dividing voyage days by ownership days for the relevant
      period and takes into account the dry-docking
  periods.




·
            Time charter equivalent rate,
      or TCE rate, is a measure of the average daily revenue performance
      of a vessel on a per voyage basis. Our method of calculating TCE rate is
      determined by dividing voyage revenues (net of voyage expenses) or time
      charter equivalent revenue or TCE revenue by voyage days for the relevant
      time period. Voyage expenses primarily consist of port, canal and fuel
      costs that are unique to a particular voyage, which would otherwise be
      paid by the charterer under a time charter contract, as well as
      commissions. TCE rate is a standard shipping industry performance measure
      used primarily to compare period-to-period changes in a shipping company’s
      performance despite changes in the mix of charter types (i.e., spot
      charters, time charters and bareboat charters) under which the vessels may
      be employed between the periods.




The
following table reflects our voyage days, calendar days, fleet utilization and
TCE rates for the year ended December 31, 2007. We took delivery of three of the
eight vessels in our initial fleet and one additional vessel from TMT during
December 2007.




Year
      Ended
              December
      31,2007Average
      number of vessels
            
            
            0.21Total
      voyage days for fleet
            
            
            68.75Total
      ownership days for fleet
            
            
            77.73Fleet
      Utilization
            
            
            88.44
            %Time
      charter equivalent rate
            
            $
            52,218




Voyage
Revenues




Voyage
revenues are driven primarily by the number of vessels in our fleet, the number
of voyage days and the amount of daily charterhire, or time charter equivalent,
that our vessels earn under period charters, which, in turn, are affected by a
number of factors, including our decisions relating to vessel acquisitions and
disposals, the amount of time that we spend positioning our vessels, the amount
of time that our vessels spend in dry-dock undergoing repairs, maintenance and
upgrade work, the age, condition and specifications of our vessels, levels of
supply and demand in the seaborne transportation market and other factors
affecting spot market charter rates for vessels.






38
  Vessels
operating on time charters for a certain period of time provide more predictable
cash flows over that period of time, but can yield lower profit margins than
vessels operating in the spot charter market during periods characterized by
favorable market conditions. Vessels operating in the spot charter market
generate revenues that are less predictable but may enable us to capture
increased profit margins during periods of improvements in charter rates
although we are exposed to the risk of declining vessel rates, which may have a
materially adverse impact on our financial performance. If we employ vessels on
period time charters, future spot market rates may be higher or lower than the
rates at which we have employed our vessels on period time
charters.


Time
Charter Equivalent (TCE)




A
standard maritime industry performance measure used to evaluate performance is
the daily time charter equivalent, or daily TCE. Daily TCE revenues, a non-GAAP
measure, are voyage revenues minus voyage expenses divided by the number of
voyage days during the relevant time period. Voyage expenses primarily consist
of port, canal and fuel costs that are unique to a particular voyage, which
would otherwise be paid by a charterer under a time charter, as well as
commissions. We believe that the daily TCE neutralizes the variability created
by unique costs associated with particular voyages or the employment of vessels
on time charter or on the spot market and presents a more accurate
representation of the revenues generated by our vessels.




Vessel
Operating Expenses




Vessel
operating expenses include crew wages and related costs, the cost of insurance
and vessel registry, expenses relating to repairs and maintenance, the costs of
spares and consumable stores, tonnage taxes, regulatory fees, technical
management fees and other miscellaneous expenses.  Other factors beyond
Star Bulk’s control, some of which may affect the shipping industry in general,
including, for instance, developments relating to market prices for crew wages
and insurance, may also cause these expenses to increase. Technical vessel
managers established an operating expense budget for each vessel and perform the
day-to-day management of the vessels.  Star Bulk Management monitors the
performance of each of the technical vessel managers by comparing actual vessel
operating expenses with the operating expense budget for each vessel.  Star
Bulk is responsible for the costs of any deviations from the budgeted
amounts.




Depreciation




We
depreciate our vessels on a straight-line basis over their estimated useful
lives determined to be 25 years from the date of their initial delivery from the
shipyard. Depreciation is based on cost less the estimated residual
value.




Management
Fees




Under an agreement dated May 4,
2007, we appointed Combine, a company affiliated with Mr. Tsirigakis, our
Chief Executive Officer, Mr. Pappas, the Chairman of our Board and one of
our directors and Mr. Christo Anagnostou, the former officer of Star
Maritime as interim manager of the vessels in the initial fleet. Under the
agreement, Combine provides interim technical management and associated services
to the vessels in exchange for a flat fee of $10,000 per vessel and at a daily
feeof $450 per vessel during the term of the agreement until such time
as the technical management of the vessel is transferred to another technical
management company.  Combine is entitled to be reimbursed at cost by us for
any and all expenses incurred by them in the management of the vessels, but
shall provide us the full benefit of all discounts and rebates enjoyed by them.
 The term of the agreement is for one year from the date of delivery of
each vessel.  Either party may terminate the agreement upon thirty days’
written notice. TheStar
Gamma,the Star Zetaandthe
Star Sigma are
currently managed by Combine.




On November
2 and December 5, 2007, we entered into agreements with Bernhardt Schulte
Shipmanagement Ltd. for the technical management of the Star Alpha,the Star Beta,the Star Delta, theStar Epsilon and the Star Theta, Star Omicron,andthe
Star Kappa,respectively.  Under these agreements, we pay the Manager an
aggregate annual management fee of $90,000, per vessel.


On July
4, 2007, we entered into an agreement with Univan for the technical management
of the Star Iota.
 Under the agreement, we pay a monthly management fee of $8,500, which is
reviewed two months before the beginning of each calendar year.


39




General
and Administrative Expenses




We incur
general and administrative expenses, including our onshore personnel related
expenses, legal and accounting expenses.




Interest
and Finance Costs




We defer
financing fees and expenses incurred upon entering into our credit facility and
amortize them to interest and financing costs over the term of the underlying
obligation using the effective interest method. We also expect to incur interest
expenses and other financing fees under our new credit facilities in connection
with borrowings during 2008 to partially finance new vessel acquisitions and to
provide additional liquidity to the Company.




Interest
income




We did
not have any operations for the period from May 13, 2005 to December 3, 2007.
During this period, all of our income was derived from interest income, the
majority of which was earned on funds held in the Trust Account which consisted
of the entire gross proceeds of the initial public offering in the amount of
$188.7 million. The gross proceeds of the private placement in the amount of
$11.325 million were used to pay all fees and expenses of the initial public
offering.




Inflation




Inflation had
not a material effect on our expenses given current economic conditions. In the
event that significant global inflationary pressures appear, these pressures
would increase our operating, voyage, administrative and financing
costs.




Special
or Intermediate Survey and Drydocking Costs




We have
not incurred drydocking costs in 2007. Beginning with our first fiscal quarter
ended March 31, 2008, we elected to change our policy for accounting for vessel
drydocking costs from the deferral method, under which we deferred and amortized
our drydocking costs over the estimated period of benefit between drydockings,
to the direct expense method, under which we expense all drydocking costs as
incurred.




There
have been no drydocking costs that the Company has incurred prior to the first
quarter of 2008, therefore, there will be no impact on the Company’s prior
consolidated financial statements as a result of the adoption of this change in
policy. The Company believes that the new direct expensing method eliminates the
significant amount of subjectivity that is needed to determine which costs and
activities related to drydocking should be deferred. The first effect of this
change in accounting policy, will appear in the Company’s results for the
quarter ended March 31, 2008.




Lack
of Historical Operating Data for Vessels Before Their Acquisition by
Us




Consistent
with shipping industry practice, other than inspection of the physical condition
of the vessels and examinations of classification society records, there is no
historical financial due diligence process when we acquire vessels. Accordingly,
we do not obtain the historical operating data for the vessels from the sellers
because that information is not material to our decision to make vessel
acquisitions, nor do we believe it would be helpful to potential investors in
our stock in assessing our business or profitability. Most vessels are sold
under a standardized agreement, which, among other things, provides the buyer
with the right to inspect the vessel and the vessel’s classification society
records. The standard agreement does not give the buyer the right to inspect, or
receive copies of, the historical operating data of the vessel. Prior to the
delivery of a purchased vessel, the seller typically removes from the vessel all
records, including past financial records and accounts related to the vessel. In
addition, the technical management agreement between the seller’s technical
manager and the seller is automatically terminated and the vessel’s trading
certificates are revoked by its flag state following a change in
ownership.




40




Consistent
with shipping industry practice, we treat the acquisition of a vessel (whether
acquired with, or without charter) as the acquisition of an asset rather than a
business, which we believe to be in accordance with applicable US GAAP and
SEC rules. Where a vessel has been under a voyage charter, the vessel is
delivered to the buyer free of charter, and it is rare in the shipping industry
for the last charterer of the vessel in the hands of the seller to continue as
the first charterer of the vessel in the hands of the buyer. All of the vessels
in our current fleet have been acquired with time charters attached, with the
exception of the Star
Beta.  In most cases, when a vessel is under time charter and the
buyer wishes to assume that charter, the vessel cannot be acquired without the
charterer’s consent and the buyer entering into a separate direct agreement
(called a “novation agreement”) with the charterer to assume the charter. The
purchase of a vessel itself does not transfer the charter because it is a
separate service agreement between the vessel owner and the
charterer.




Where we
identify any intangible assets or liabilities associated with the acquisition of
a vessel, we allocate the purchase price of acquired tangible and intangible
assets based on their relative fair values.  Where we have assumed an
existing charter obligation or entered into a time charter with the existing
charterer in connection with the purchase of a vessel with the time charter
agreement at charter rates that are less than market charter rates, we record a
liability, based on the difference between the assumed charter agreement rate
and the market charter rate for an equivalent charter
agreement.  Conversely, where we assume an existing charter obligation
or enter into a time charter with the existing charterer in connection with the
purchase of a vessel with the charter agreement at charter rates that are above
prevailing market charter rates, we record an asset, based on the difference
between the market charter rate and the assumed contracted charter rate for an
equivalent vessel. This determination is made at the time the vessel is
delivered to us, and such assets and liabilities are amortized to revenue over
the remaining period of the charter.




From
December 3, 2007 to March 31, 2008, we took delivery of nine secondhand vessels,
the Star
Alpha, the Star
Beta, the Star
Gamma, the Star
Delta, the Star
Epsilon, the Star
Zeta, the Star
Theta, the Star
Kappa and the Star
Iota, all with charter party
arrangements attached with the exception of theStar
Beta, which we agreed to assume through arrangements with the respective
charterers.




Following
the consummation of the Redomiciliation Merger, Star Bulk took delivery from
TMT, the vessels indicated in Note 1 of our consolidated financial statements
pursuant to the Master Agreement (except from theStar
Kappa which was acquired from TMT separately). The aggregate purchase
price paid to TMT consisted of both cash and 12,537,645 of our common shares.
The fair value of the common shares issued to TMT was based on the closing share
price of Star Bulk’s shares on the delivery date of each vessel. The total
consideration for the Star
Epsilon, the Star
Theta and the Star
Beta, three vessels of initial fleet delivered to us during December
2007, was $166.8 million. In addition, on December 3, 2007, we entered into an
agreement to acquire the Star Kappafrom
TMT for $72.0 million, an additional vessel not included in the initial fleet,
which was delivered to us on December 14, 2007.




During
2007, we acquired three drybulk carriers, the Star Epsilon, the Star Theta and the Star Kappa, with attached
time charter contracts, which we agreed to assume through arrangements with the
respective charterers. Upon delivery of the above vessels, we evaluated the
charter contract and assumed and recognized (a) an asset of approximately $2.0
million for one of the vessels with a corresponding decrease in the vessel’
purchase price and (b) a liability of approximately $26.8 million for the other
two vessels with a corresponding increase in the vessels’ purchase
price.




On
January 22, 2008, we entered into an agreement to acquire the Star Sigma, a 1991 built
Capesize drybulk carrier with a cargo carrying capacity of approximately 184,403
dwt for a purchase price of $83.74 million. This vessel was delivered to us in
April 2008, following which the vessel will be employed on a year time charter
at a daily hire rate of $100,000. On March 6, 2008, the Star Sigma was committed
to a further three year time charter commencing in April 2009 with an average
daily rate of $63,000.






41




On March
11, 2008, we entered into an agreement to acquire the Star Omicron, a 2005 built
Supramax drybulk carrier with a cargo carrying capacity of 53,489 dwt for a
purchase price of $72.0 million.  Following its delivery to us in April
2008, the Star Omicron
was employed on a three year time charter at a gross daily charterhire rate of
$43,000.




When we
purchase a vessel and assume or renegotiate a related time charter, we must take
the following steps before the vessel will be ready to commence
operations:




·
            obtain
      the charterer’s consent to us as the new
owner;


·
            obtain
      the charterer’s consent to a new technical
  manager;


·
            in
      some cases, obtain the charterer’s consent to a new flag for the
      vessel;


·
            arrange
      for a new crew for the vessel, and where the vessel is on charter, in some
      cases, the crew must be approved by the
  charterer;


·
            replace
      all hired equipment on board, such as gas cylinders and communication
      equipment;


·
            negotiate
      and enter into new insurance contracts for the vessel through our own
      insurance brokers;


·
            register
      the vessel under a flag state and perform the related inspections in order
      to obtain new trading certificates from the flag
  state;


·
            implement
      a new planned maintenance program for the vessel;
  and


·
            ensure
      that the new technical manager obtains new certificates for compliance
      with the safety and vessel security regulations of the flag
      state.




The
following discussion is intended to help you understand how acquisitions of
vessels affect our business and results of operations.




Our
business is comprised of the following main elements:




·
            employment
      and operation of our drybulk vessels;
and


·
            management
      of the financial, general and administrative elements involved in the
      conduct of our business and ownership of our drybulk
    vessels.




The
employment and operation of our vessels require the following main
components:




·
            vessel
      maintenance and repair;


·
            crew
      selection and training;


·
            vessel
      spares and stores supply;


·
            contingency
      response planning;


·
            onboard
      safety procedures auditing;


·
            accounting;


·
            vessel
      insurance arrangement;


·
            vessel
      chartering;


·
            vessel
      security training and security response plans
  (ISPS);


·
            obtain
      ISM certification and audit for each vessel within the six months of
      taking over a vessel;


·
            vessel
      hire management;


·
            vessel
      surveying; and


·
            vessel
      performance monitoring.




42


The
management of financial, general and administrative elements involved in the
conduct of our business and ownership of our vessels requires the following main
components:




·
            management
      of our financial resources, including banking relationships (i.e.,
      administration of bank loans and bank
accounts);


·
            management
      of our accounting system and records and financial
    reporting;


·
            administration
      of the legal and regulatory requirements affecting our business and
      assets; and


·
            management
      of the relationships with our service providers and customers.








·
            rates
      and periods of charterhire;


·
            levels
      of vessel operating expenses;


·
            depreciation
      and amortization expenses;


·
            financing
      costs; and


·
            fluctuations
      in foreign exchange rates.




Critical
Accounting Policies




We make
certain estimates and judgments in connection with the preparation of our
consolidated financial statements, which are prepared in accordance with
accounting principles generally accepted in the United States, or U.S. GAAP,
that affect the reported amount of assets and liabilities, revenues and expenses
and related disclosure of contingent assets and liabilities at the date of our
consolidated financial statements. Actual results may differ from these
estimates under different assumptions or conditions.




Critical
accounting policies are those that reflect significant judgments or
uncertainties, and potentially result in materially different results under
different assumptions and conditions. We have described below what it believes
will be the most critical accounting policies that involve a high degree of
judgment and the methods of their application.




Impairment of long-lived assets.The
Company follows SFAS No. 144 “Accounting for the Impairment or Disposal of
Long-lived Assets,” which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. The standard requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed 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
should evaluate the asset for an impairment loss. Measurement of the impairment
loss is based on the fair value. In this respect, management regularly reviews
the carrying amount of the vessels on vessel by vessel basis when events and
circumstances indicate that the carrying amount of the vessels might not be
recoverable.  No impairment losses were recorded in any of the periods
presented.




Depreciation.  Vessels
are stated at cost, which consists of the contract price and any material
expenses incurred upon acquisition, such as (initial repairs, improvements,
delivery expenses and other expenditures to prepare the vessel for its initial
voyage).




The cost
of each of the Company’s vessels is depreciated beginning when the vessel is
ready for its intended use, on a straight-line basis over the vessel’s remaining
economic useful life, after considering the estimated residual value (vessel’s
residual value is equal to the product of its lightweight tonnage and estimated
scrap rate per ton). Management estimates the useful life of the Company’s
vessels to be 25 years from the date of initial delivery from the shipyard. When
regulations place limitations over the ability of a vessel to trade on a
worldwide basis, its remaining useful life is adjusted at the date such
regulations are adopted. Depreciation expense is calculated based on cost less
the estimated residual scrap value. Scrap value is estimated by the Company by
taking the cost of steel times the weight of the ship noted in lightweight ton,
or lwt.


Certain
vessels are purchased by assuming existing time charter agreement. Such acquired
time charter agreements are recorded at fair value by separately measuring
such  intangible assets acquired. Fair value of above or below market
acquired time charters was determined by comparing existing charter rates in the
acquired time charter agreements with the market rates for equivalent time
charter agreements prevailing at the time the foregoing vessels are delivered.
The present values representing the fair value of the above or below market time
charters is recorded as an intangible asset or liability,
respectively.




43




Revenue recognition. The
Company generates its revenues from time charterers for the charterhire of its
vessels. Vessels are chartered using time charters, where a contract is entered
into for the use of a vessel for a specific period of time and a specified daily
charterhire rate. All of the Company’s time charter agreements are classified as
operating leases. Revenues under operating lease arrangements are recognized
when a charter agreement exists, charter rate is fixed and determinable, the
vessel is made available to the lessee, and collection of the related revenue is
reasonably assured. Revenues are recognized ratably on a straight line basis
over the period of the respective time charter agreement in accordance with SFAS
No. 13 “Accounting for Leases.”




Deferred
revenue includes cash received prior to the consolidated balance sheet date and
is related to revenue earned after such date.




Voyage related and vessel operating
costs are expensed as incurred. Under time charter, specified voyage
costs, such as fuel and port charges are borne and paid by the charterer and
other non-specified voyage expenses, such as commission are paid by the Company.
Vessel operating costs including crews, maintenance and insurance are paid by
the Company.




Recent
Accounting Pronouncements:




1.
            In
      September 2006 the FASB issued SFAS No. 157 “Fair Value Measurements”
      (SFAS No. 157). SFAS No. 157 provides guidance for using fair value to
      measure assets and liabilities. The standard applies whenever other
      standards require (or permit) assets or liabilities to be measured at fair
      value. Under the standard, fair value refers to the price that would be
      received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants in the market in which the
      reporting entity transacts. SFAS No. 157 clarifies the principle that fair
      value should be based on the assumptions market participants would use
      when pricing the asset or liability. In support of this principle, the
      standard establishes a fair value hierarchy that prioritizes the
      information used to develop those assumptions. The fair value hierarchy
      gives the highest priority to quoted prices in active markets and the
      lowest priority to unobservable data, for example, the reporting entity’s
      own data. Under the standard, fair value measurements will be required to
      be separately disclosed by level within the fair value hierarchy. SFAS No.
      157 is effective for consolidated financial statements issued for fiscal
      years beginning after November 15, 2007, and interim periods within those
      fiscal years. Early adoption is permitted. The Company will adopt this
      pronouncement beginning in fiscal year 2008. The adoption of the standard
      is not expected to have a material effect on the Company’s financial
      position, results of operations or cash flows.


2.
            In
      February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS No. 159), which permits
      the entities to choose to measure many financial instruments and certain
      other items at fair value that are not currently required to be measured
      at fair value. This Statement is expected to expand the use of fair value
      measurement, which is consistent with the Board’s long-term measurement
      objectives for accounting for financial instruments. The objective is to
      improve financial reporting by providing entities with the opportunity to
      mitigate volatility in reported earnings caused by measuring related
      assets and liabilities differently without having to apply complex hedge
      accounting provisions. This statement also establishes presentation and
      disclosure requirements designed to facilitate comparisons between
      entities that choose different measurement attributes for similar types of
      assets and liabilities. SFAS No. 159 is effective as of the beginning of
      an entity’s first fiscal year that begins after November 15, 2007. Early
      adoption is permitted as of the beginning of a fiscal year on or before
      November 15, 2007, provided the entity also elects to apply the provisions
      of SFAS No. 157. This statement will be effective for the Company for the
      fiscal year beginning on January 1, 2008. The Company has not opted to
      fair value any of its financial assets
      and  liabilities.


3.
            In
      December, 2007, the FASB issued SFAS No. 141(R), “Business
      Combinations” (SFAS No. 141(R)). This Statement is a revision of SFAS
      No. 141, “Business Combinations,” issued in June 2001 and is designed
      to improve the relevance, representational fairness and comparability and
      information that a reporting entity provides about a business combination
      and its effects. The Statement establishes principles and requirements for
      how the acquirer recognizes assets, liabilities and non-controlling
      interests, how to recognize and measure goodwill and the disclosures to be
      made. SFAS No. 141(R) applies prospectively to business combinations for
      which the acquisition date is on or after the beginning of the first
      annual reporting period beginning on or after December 15, 2008. As
      the provisions of SFAS No. 141(R) are applied prospectively, the
      impact to the Company cannot be determined until the transactions
      occur.




44




4.
            In
      December 2007, the FASB issued SFAS No. 160 “Non-controlling Interests in
      Consolidated Financial Statements” (SFAS No. 160), an amendment of
      ARB No. 51. SFAS No. 160 amends ARB No. 151 to establish accounting and
      reporting standards for the non-controlling interest in a subsidiary and
      for the deconsolidation of a subsidiary. This Standard applies to all
      entities that prepare consolidated financial statements, except
      not-for-profit organizations. The objective of the Standard is to improve
      the relevance, comparability and transparency of the financial information
      that a reporting entity provides in its consolidated financial statements.
      SFAS No. 160 is effective as of the beginning of an entity’s fiscal year
      that begins on or after December 15, 2008. Earlier adoption is prohibited.
      This statement will be effective for the Company for the fiscal year
      beginning January 1, 2009. The adoption of this standard is not expected
      to have a material effect on the consolidated financial
      statements.





5.
            In
      March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Acitivities” (SFAS No. 161).  The new
      standard is intended to improve financial reporting about derivative
      instruments and hedging activities by requiring enhanced disclosures to
      enable investors to better understand their effects on an entity’s
      financial position, financial performance, and cash flows.  It is
      effective for financial statements issued for fiscal years and interim
      periods beginning after November 15, 2008.  The adoption of this
      standard is not expected to have a material effect on the consolidated
      financial statements.




RESULTS
OF OPERATIONS




Star
Maritime was organized under the laws of the State of Delaware on May 13, 2005
as a blank check company formed to acquire, through a merger, capital stock
exchange, asset acquisition or similar business combination, one or more assets
or target businesses in the shipping industry.




On
November 27, 2007, the Company obtained shareholder approval for the acquisition
of the initial fleet of eight drybulk carriers and for effecting the
Redomiciliation Merger whereby Star Maritime merged with and into Star Bulk with
Star Bulk as the surviving entity.  The Redomiciliation Merger was
completed on November 30, 2007.  Our first vessel was delivered on December
3, 2007.  Thus, we cannot present a meaningful comparison of our results of
operations for the years ended December 31, 2006 with the year ended
December 31, 2007 and for the period from May 13, 2005 (date of
inception) to December 31, 2005 with the year ended December 31,
2006.




During
the period from the Company’s inception to the date it commenced operations, the
Company was a development stage enterprise in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 7 “Accounting and Reporting By
Development Stage Companies.”




Year
ended December 31, 2007




Voyage
Revenues: Voyage revenues for 2007 were $3.6 million. All of our
revenues for the year ended December 31, 2007 were earned from time charters. We
expect that revenues in future fiscal years will be higher than those in 2007
due to a full operating year for our existing fleet.




Voyage
Expenses: Voyage expenses, which mainly consist of commissions payable to
brokers, were $42,548 for the year ended December 31,
2007.  Consistent with drybulk industry practice, we pay commissions
ranging from 0% to 3.75% of the total daily charter hire rate of each charter to
ship brokers associated with the charterers, depending on the number of brokers
involved with arranging the charter. In 2007, our commissions totaled
$33,298.




Vessel Operating
Expenses: For 2007, our vessel operating expenses were $0.645
million.  Vessel operating expenses include crew wages and related costs,
the cost of insurance, expenses relating to repairs and maintenance, the cost of
spares and consumable stores, management fees, tonnage taxes and other
miscellaneous expenses. Other factors beyond our control, some of which may
affect the shipping industry in general, including, for instance, developments
relating to market prices for insurance, may also cause these expenses to
increase. In future fiscal years, vessel operating expenses will likely increase
as we operate our existing fleet for the full year.




45




General and
Administrative Expenses:  For 2007, we incurred $7.8 million of
general and administrative expenses. Our general and administrative expenses
include the salaries and other related costs of the executive officers and other
employees, our office rents, legal and accounting costs, regulatory compliance
costs and long-term compensation costs. We expect that our general and
administrative expense will increase as we continue as an operating company for
the full year.




Depreciation:
We depreciate our vessels based on a straight line basis over the expected
useful life of each vessel, which is 25 years from the date of their initial
delivery from the shipyard. Depreciation is based on the cost of the vessel less
its estimated residual value, which is estimated at $200 per lwt, at the date of
the vessel’s acquisition. Secondhand vessels are depreciated from the date of
their acquisition through their remaining estimated useful life. However, when
regulations place limitations over the ability of a vessel to trade on a
worldwide basis, its useful life is adjusted to end at the date such regulations
become effective. For 2007, we recorded $0.7 million of vessel depreciation
charges.




Interest
Expense: In 2007, we did not pay interest under our term-loan
facility.




Interest
Income: Interest income was $9.0 million during 2007.  We did not
have any operations for the period from May 13, 2005 (date of inception of Star
Maritime) to December 3, 2007.  During this period, all of our income was
derived from interest income, unrealized and realized gains on investments, the
majority of which was earned on funds held in the Trust Account which consisted
of the entire gross proceeds of the initial public offering in the amount of
$188.7 million. The gross proceeds of the private placement in the amount of
$11.3 million were used to pay all fees and expenses of the initial public
offering.




Star
Maritime Year Ended December 31, 2006 and the Period from May 13, 2005
(inception) to December 31, 2005




For the
fiscal year ended December 31, 2006, we incurred $1.2 million of operating
expenses, compared to $50,211 during the period from May 13, 2005 (date of
inception) through December 31, 2005, which were paid from the net proceeds
that were not deposited into the Trust Account. Our operating expenses consisted
primarily of expenses related to professional fees of $596,423 insurance costs
of $112,242 due diligence fees in connection with the search for a business
target of $262,877 and other expenses of $239,558. Other expenses incurred of
$265,935 for the period from inception to December 31, 2006 consist of:
Depreciation in the amount of $408; Financial Fees in the amount of $1,387:
Freight in the amount of $2,806; Franchise Taxes in the amount of $146,050; Rent
in the amount of $89,000; General and Administrative Expenses in the amount of
$16,351; and Interest Expense in the amount of $9,933. The other expenses
incurred of $239,558 for the fiscal year ended December 31, 2006 consist
of: Depreciation in the amount of $408; Financial Fees in the amount of $1,331;
Freight in the amount of $2,806; Franchise Taxes in the amount of $144,025; Rent
in the amount of $89,000; and General and Administrative Expense in the amount
of $1,988.




“Franchise
Taxes” refer to Delaware State taxes for Star Maritime, “Rent” refers to the
$7,500 per month to Schwartz & Weiss, P.C. for office space and
certain other services performed in New York.




“Interest
Expense” refers to interest paid on Mr. Tsirigakis’ loan to Star Maritime
prior to Star Maritime’s initial public offering.




The
increase in operating expenses from the period from May 13, 2005 (date of
inception) through December 31, 2005, was the result of our due diligence
efforts in searching for a business target after the Initial Public Offering and
the fee payable of $7,500 per month for office space and certain other
additional services from the law firm of Schwartz & Weiss,
P.C.




For the
fiscal year ended December 31, 2006, we earned net income after taxes of
$2,978,086, which consisted of $5,141,143 before the deduction of $2,163,057 of
net interest attributable to common stock subject to possible redemption
compared to $110,331 during the period from May 13, 2005 (date of
inception) through December 31, 2005. Since we did not have any operations,
all of our income was derived from the interest income earned and unrealized and
realized gains on funds held in the trust account.






46


B. Liquidity
and Capital Resources




Our
principal source of funds has been equity provided by our shareholders,
operating cash flow and long-term borrowing. Our principal use of funds has been
capital expenditures to establish and grow our fleet, maintain the quality of
our drybulk carriers, comply with international shipping standards and
environmental laws and regulations, fund working capital requirements, make
interest repayments on outstanding loan facilities, and pay dividends. We expect
to rely upon operating cash flow, long-term borrowing, and future equity
financing to implement our growth plan and meet our liquidity requirements going
forward.  We believe that we will have sufficient liquidity to meet
all of our current work capital requirements.




We
believe that our current cash balance, as well as operating cash flow, is
sufficient to meet our current liquidity needs, assuming the charter market does
not deteriorate to the low-rate environment. If we do acquire additional
vessels, we may rely on new debt, proceeds from future offerings and revenue
from operations to meet our liquidity needs going forward.




Our
practice has been to acquire drybulk carriers using a combination of funds
received from equity investors and bank debt secured by mortgages on our drybulk
carriers. Our business is capital-intensive and its future success will depend
on our ability to maintain a high-quality fleet through the acquisition of newer
drybulk carriers and the selective sale of older drybulk carriers. These
acquisitions will be principally subject to management’s expectation of future
market conditions as well as our ability to acquire drybulk carriers on
favorable terms.




Our
short-term liquidity requirements relate to servicing our debt, payment of
operating costs, funding working capital requirements and maintaining cash
reserves against fluctuations in operating cash flows. Sources of short-term
liquidity include our revenues earned from our charters.




Our
medium and long-term liquidity requirements include funding the equity portion
of investments in new or additional vessels and repayment of long-term debt
balances.  Sources of funding our long-term liquidity requirements
include new loans or equity issues or vessel sales.




As of
December 31, 2007, we had cash and cash equivalents of $19.0 million.  As
of December 31, 2006 and 2005, Star Maritime had cash and cash equivalents of
$2.1 million and $0.6 million, respectively.




On May
22, 2008, we entered into an agreement to acquire theStar Cosmo, a 2005 built
Supramax drybulk carrier for the aggregate purchase price of $68.8 million with
a cargo carry capacity of approximately 52,200 dwt.  We expect to
finance the purchase price through a combination of the proceeds received from
the conversion of our warrants and borrowings under our Piraeus Bank A.E. term
loan facility.




On June
3, 2008, we entered into an agreement to acquire theStar Ypsilon, a 1991 built
Capsize drybulk carrier for the aggregate purchase price of $87.2 million with a
cargo carry capacity of approximately 150,940 dwt.  We expect to
finance the purchase price through a combination of the proceeds received from
the conversion of our warrants and borrowings under our Piraeus Bank A.E. term
loan facility.




As of
December 31, 2007, we paid no dividends to our shareholders.  On
February 14, and April 16, 2008, the Company declared dividends amounting to
approximately $4.6 million ($0.10 per share, paid on February 28, 2008 to the
stockholders of record on February 25, 2008) and approximately $18.8 million
($0.35 per share, paid on May 23, 2008 to the shareholders of record on May 16,
2008), respectively.




Credit
Facilities




Commerzbank
AG Loan Facility




On
December 27, 2007, we entered into a term loan agreement with Commerzbank AG in
the amount of $120.0 million to partially finance the Star Gamma, the Star Delta, the Star Epsilon, the Star Zeta, and the Star Theta,which also
provide the security for this loan agreement. Upon signing the term loan
facility agreement we committed to paying a management fee of 0.5% of the loan
amount and a commitment fee of 0.35% per annum payable quarterly in arrears over
the committed but un-drawn portion of the loan.






47




Under the
terms of this term loan facility, the repayment of $120.0 million which is the
maximum amount we are able to borrow, is over a nine year term and divided into
two tranches. The first tranche incorporates up to the first $50.0 million that
is borrowed and will be repayable in twenty-eight consecutive quarterly
installments commencing twenty-seven months after our initial borrowings but no
later than March 31, 2010: (i) the first four installments will amount to $2.25
million each, (ii) the next thirteen installments will amount to $1.0 million
each and (iii) the remaining eleven installments will amount to $1.3 million
each and a final balloon payment of $13.7 million payable together with the last
installment. The second tranche incorporates the balance of the loan up to the
full amount of $120.0 million. The balance of our borrowings will be repayable
in twenty-eight consecutive quarterly installments commencing twenty-seven
months after draw down but no later than March 31, 2010:  (i) the
first four installments will amount to $4.0 million each and (ii) the remaining
twenty-four installments will amount to $1.75 million each and a final balloon
payment of $12.0 million payable together with the last installment. Should any
tranche not be drawn down with the maximum amount specified above, the repayment
installments will be reduced in the inverse order of maturity. Our term loan
bears interest at LIBOR plus a margin at a minimum of 0.8% to a maximum of 1.25%
depending on whether our aggregate drawdown ranges from 60% up to 75% of the
aggregate market value of our initial fleet.




As of
June 25, 2008, we had outstanding borrowings of $120.0 million, which is
the maximum amount of borrowings permitted under this facility.




Piraeus
Bank A.E. Loan Facility




On April
14, 2008, we entered into a term loan agreement with Piraeus Bank A.E. in the
amount of $170.0 million to partially finance the acquisition of the Star Omicron and the Star Sigma and to provide
additional liquidity to the Company. This loan agreement is secured by the Star Alpha, the Star Beta, and the Star Sigma. Upon signing the
term loan facility agreement we committed to paying a management fee of 0.35% of
the loan amount and a commitment fee of 0.25% per annum payable quarterly in
arrears over the committed but un-drawn portion of the loan.




Under the
terms of this term loan facility, the repayment of $170.0 million (a) begins
three months after we draw down $65.0 million under this facility to partially
finance the Star Sigma
but no later than July 2008 and (b) is divided into 24 consecutive quarterly
installments: (i) the first installment will amount to $8.0 million, (ii) the
second through fourth installments will amount to $12.0 million each, (iii) the
fifth to eighth installments will amount to $10.0 million each, (iv) the ninth
through sixteenth installments amount to $5.0 million each, (v) the seventeenth
through twentieth installments will amount to $3.0 million each, (vi) the
twenty-first through twenty-fourth installments will amount to $2.5 million each
of and a final balloon payment in the amount of $24.0 million provided that if
this loan facility is drawdown in less than the maximum available amount
thereof, each repayment installment, including the balloon installment shall be
reduced pro-rata by an amount in aggregate equal to such undrawn amount. The
term of this loan facility is six years. Our term loan bears interest at LIBOR
plus a margin of 1.25%.




As of
June 25, 2008, we borrowed $85.0 million under this loan facility.




Our term
loan agreements contain financial covenants, including requirements to maintain
(i) a minimum liquidity of $10.0 million or $1.0 million per vessel whichever is
greater which includes undrawn funds of the credit facility; and (ii) a minimum
market value adjusted equity ratio of 25%.  Our term loan also contains
general covenants, including requirements that (i) Petros Pappas may not resign
without the consent of the lender; and (ii) Prokopios Tsirigakis remain as our
Chief Executive Officer.  As of June 25, 2008, we complied with all of
these covenants.




Cash
Flows




Year
ended December 31, 2007




The
following table presents cash flow information for the years ended December 31,
2007 and 2006 and the period from May 13, 2005 (date of inception) to
December 31, 2005.  We were formed on December 13, 2006.  Star
Maritime was formed on May 13, 2005.  The information was derived from the
audited consolidated statements of cash flows of Star Bulk and Star
Maritime and is expressed in thousands of U.S. Dollars.




48




Net
      cash provided by operating activities
            
            $
            370Net
      cash provided by investing activities
            
            
            12,963Net
      cash provided by financing activities
            
            
            3,534Increase
      in cash and cash equivalents
            
            
            16,867Cash
      and cash equivalents beginning of year
            
            
            2,118Cash
      and cash equivalents end of year
            
            $
            18,985




Cash from
operating activities is mainly composed of revenues generated under our time
charters and interest income as well as unrealized and realized gains on
investments in Trust Account.




Net cash
provided by investing activities was $13.0 million of which $194.1 million
represented amounts received from the Trust Account which consisted of the gross
proceeds of the initial public offering in the amount of $188.7 million. The
gross proceeds of the Private Placement in the amount of $11.3 million were used
to pay fees and expenses of the initial public offering. During 2007,
following the Redomiciliation Merger, the funds were released to us from the
Trust Account and were used to purchase vessels from our initial
fleet. This amount was partially offset by $179.0 million including the amounts
we paid to acquire the vessels delivered in 2007 and advances we made for
vessels to be acquired.  It also includes a $2.0 million
payment for the above market acquired time charter
agreement.




Net cash
provided by financing activities was $3.5 million for the year ended
December 31, 2007 representing $7.5 million received from warrants
exercised, offset by $4.0 million of deferred underwriting fees paid based on
the underwriting agreement signed prior to the initial public offering in
December 2005.




Year
ended December 31, 2006




Net
      cash provided by operating activities
            
            $
            1,699Net
      cash used in investing activities
            
            
            (4
            )Net
      cash used in financing activities
            
            
            (170
            )Increase
      in cash and cash equivalents
            
            
            1,525Cash
      and cash equivalents beginning of year
            
            
            593Cash
      and cash equivalents end of year
            
            $
            2,118




Cash from
operating activities is mainly composed of revenues generated from interest
income and unrealized and realized gains on investment held in Trust
account.




Year
ended December 31, 2005




Net
      cash used in operating activities
            
            $
            (27
            )Net
      cash used in investing activities
            
            
            (188,675
            )Net
      cash provided by financing activities
            
            
            189,295Increase
      in cash and cash equivalents
            
            
            593Cash
      and cash equivalents beginning of year
            
            
            -Cash
      and cash equivalents end of year
            
            $
            593




Net cash
used in investing activities was $188.7 million. This amount represents the
payment the Company made to the Trust Account.




Net cash
provided by financing activities was $189.3 million for the year ended
December 31, 2005 mainly representing proceeds from the initial public
offering in the amount of $188.7 million and proceeds from the private placement
in the amount of $11.3 million which were offset by the payment of offering
costs in the amount of $10.7 million.






49




Vessel
Deliveries




The
following table shows the five vessels of our initial fleet which were delivered
to us following December 31, 2007 and their respective delivery
dates:




Vessel
            Date
      of DeliveryStar
      Zeta (ex I Duckling)
            January
      2, 2008Star
      Delta (ex F Duckling)
            January
      2, 2008Star
      Gamma (ex C Duckling)
            January
      4, 2008Star
      Alpha (ex A Duckling)
            January
      9, 2008Star
      Iota  (ex Mommy Duckling)
            March
      7, 2008




Vessel
Acquisitions




On
January 22, 2008, we entered into an agreement to acquire Star Sigma, a 1991 built
Capesize drybulk carrier for the aggregate purchase price of $83.7 million with
a cargo carrying capacity of approximately 184,403 dwt. We financed
approximately $65.0 million of the purchase price with borrowings under our
Piraeus Bank A.E. term loan facility. Following the delivery of this vessel to
us in April 2008, it commenced a one year time charter at a daily hire rate
of $100,000.    We entered into a three year time charter
agreement at an average daily hire rate of $63,000 to employ the Star Sigma.  We expect this time charter
to commence following the termination of the initial charter in April
2009.




On March
11, 2008, we entered into an agreement to acquire Star Omicron, a 2005 built
Supramax drybulk carrier for the aggregate purchase price of $72.0 million with
a cargo carry capacity of approximately 53,489 dwt. We financed approximately
$20.0 million of the purchase price with borrowings under our Piraeus Bank A.E.
term loan facility. Following the delivery of this vessel to us in April 2008,
it commenced a three year time charter at a daily hire rate of
$43,000.




On May
22, 2008, we entered into an agreement to acquire Star Cosmo, a 2005 built
Supramax drybulk carrier for the aggregate purchase price of $68.8 million with
a cargo carry capacity of approximately 52,200 dwt. We expect to finance the
purchase price through a combination of the proceeds received from the
conversion of our warrants and borrowings under our Piraeus Bank A.E. term loan
facility. We expect this vessel will be employed on a three year time charter at
an average daily hire rate of $41,900 following its expected delivery to us by
July of 2008.




On June
3, 2008, we entered into an agreement to acquire Star Ypsilon, a 1991 built
Capsize drybulk carrier for the aggregate purchase price of $87.2 million with a
cargo carry capacity of approximately 150,940 dwt. We expect to finance the
purchase price through a combination of the proceeds received from the
conversion of our warrants and borrowings under our Piraeus Bank A.E. term loan
facility. We expect this vessel will be employed on a three year time charter at
an average daily hire rate of $93,333 following its expected delivery to us by
September of 2008.




Vessel
Dispositions




On April
24, 2008, we entered into an agreement to sell Star Iotafor $18.4 million.  We
expect to deliver the vessel to its purchasers by September
2008.




Other
Significant Transactions




On
January 18, 2008, our board of directors approved a plan for the repurchase of
up to an aggregate of $50.0 million of our common stock and warrants, which the
Company may repurchase from time to time until December 31, 2008.  The plan
calls for the repurchases of both common stock and warrants to be made in open
market or privately negotiated transactions in compliance with Rule 10b-18 under
the Securities Exchange Act of 1934, as amended, subject to market and business
conditions, applicable legal requirements and other factors.  The plan will
be implemented by our management at its discretion.  The plan calls for the
repurchased shares and warrants to be retired as soon as practicable following
the repurchase.  The plan does not obligate us to purchase any particular
number of shares, and may be suspended at any time in our sole discretion in
accordance with Rule 10b-18.  As of June 25, 2008, we repurchased 52,000
shares of common stock for an aggregate purchase price of $586,706, equal to
$11.24 per share and 1,362,500 warrants for an aggregate purchases price of
$5,474,363, equal to $4.02 per warrant.  As of June 25, 2008, we may
repurchase up to $43,938,931 of our common stock and warrants under
the repurchase plan.




50


As of
June 25, 2008, 12,703,420 warrants have been converted into shares of common
stock resulting in proceeds to the Company of $101,562,192. As of November 30,
2007, the date of the Redomiciliation Merger, we had 41,564,569 shares of common
stock and 20,000,000 warrants outstanding.




C. Research
and Development, Patents and Licenses




Not
Applicable.




D. Trend
Information




Not
Applicable.




E. Off-balance
Sheet Arrangements




As of the
date of this annual report, we do not have any off-balance sheet
arrangements.




F. Contractual
Obligations




The
following table presents our contractual obligations as of December 31,
2007:




Payments due by period(in
      thousands of U.S. Dollars - unless indicated
    otherwise)Obligations
            
            Total
            
            
            Less
      than
              1
      year
            
            
            1-3
      years (2009-2010)
            
            
            3-5
      years (2011-2012)
            
            
            More
      than 5 years (After January 1, 2013)Vessel
      Purchase Agreements(1)
            
            
            115,590
            
            
            
            115,590
            
            
            
            -
            
            
            
            -
            
            
            
            -Management
      Agreement(2)
            
            
            327
            
            
            
            327
            
            
            
            -
            
            
            
            -
            
            
            
            -Senior
      Secured Term loan(3)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Principal
      Payments(3)Interest
      payments(3)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Operating
      lease obligation(4)
            
            
            12
            
            
            
            12Total
            
            
            115,929
            
            
            
            115,929
            
            
            
            -
            
            
            
            -
            
            
            
            -




(1)
            Pursuant
      to separate definitive agreements, Star Bulk acquired the vessels in its
      initial fleet from wholly-owned subsidiaries of TMT for an aggregate
      purchase price consisting of $224.5 million in cash and 12,537,645
      shares of common stock of Star Bulk issued at the time of the vessel
      delivery and an additional 1,606,962 shares of common stock of Star Bulk
      to be issued in two installments. The $115.59 million represents
      the balance of the above cash amount remaining unpaid as at December 31,
      2007.


(2)
            Pursuant
      to an agreement dated May 4, 2007, Combine will act as interim
      manager of the vessels in the initial fleet. Under the agreement, Combine
      will provide technical management and associated services to the vessels
      as from their delivery to Star Bulk, and further provide such services and
      shore personnel so as to effect the smooth delivery of the vessels to Star
      Bulk. Star Bulk pays $450 per day per vessel (Star GammaandStar Zeta) under the
      combine management agreement.


(3)
            As
      of December 31, 2007, we had no contractual obligations under either of
      our term loan facilities with Commerzbank A.G. or Piraeus Bank
      A.E.






51




a.
            On
      December 27, 2007 the Company entered into a loan agreement with
      Commerzbank A.G. in the amount of $120.0 million to partially finance the
      acquisition of the Star
      Gamma, the Star
      Delta, the Star
      Epsilon, the Star
      Zeta, and the Star Theta. The loan
      bears interest at LIBOR plus a margin ranging from 0.80% to
      1.25% and is repayable in twenty-eight quarterly installments through
      December 2016. As of December 31, 2007, we had no outstanding borrowings
      under this loan agreement.b.
            On,
      April 14, 2008 the Company entered into a loan agreement with Piraeus Bank
      A.E. in the amount of $170.0 million to partially finance the acquisition
      cost of the Star Omicron and the Star Sigma and to provide additional
      liquidity to the Company. The loan bears interest at LIBOR plus a margin
      of 1.25% and is repayable in twenty-four quarterly installments
      through April 2014.As
      of June 25, 2008, we had outstanding borrowings of $120.0 million and
      $85.0 million under our Commerzbank A.G. and Piraeus Bank A.E. term loan
      facilities, respectively.




(4)
            In
      May 2007, we entered into a one-year lease for our office
      facilities.  In May 2008, we extended the lease
      for our office facilities that terminates in August 2008. Rental
      expense for the year ended December 31, 2007, was
      $11,000.  Our future rental commitment is $12,000 for
      2008.




Dividend
Payments




On
February 14, and April 16, 2008, the Company declared dividends amounting to
approximately $4.6 million ($0.10 per share, paid on February 28, 2008 to the
stockholders of record on February 25, 2008) and approximately $18.8 million
($0.35 per share, paid on May 23, 2008 to the shareholders of record on May 16,
2008), respectively.




G. Safe
Harbor




See
section “forward looking statements” at the beginning of this annual
report.




Item
6. Directors and Senior Management




A. Directors,
Senior Management and Employees




Set forth
below are the names, ages and positions of our directors, executive officers and
key employees. The board of directors is elected annually on a staggered basis,
and each director elected holds office until his successor shall have been duly
elected and qualified, except in the event of his death, resignation, removal or
the earlier termination of his term of office. Officers are elected from time to
time by vote of our board of directors and hold office until a successor is
elected.




Name
            
            Age
            
            PositionProkopios
      (Akis) Tsirigakis
            
            
            51
            
            Chief
      Executive Officer, President and Class C DirectorGeorge
      Syllantavos
            
            
            44
            
            Chief
      Financial Officer, Secretary and Class C DirectorPetros
      Pappas
            
            
            53
            
            Chairman
      and Class A DirectorNobu
      Su
            
            
            49
            
            Class
      A DirectorPeter
      Espig
            
            
            41
            
            Class
      B DirectorKoert
      Erhardt
            
            
            50
            
            Class
      B DirectorTom
      Søfteland
            
            
            46
            
            Class
      B Director




52


Prokopios (Akis)
Tsirigakis serves as our Chief Executive Officer, President and director.
He has been Star Maritime’s Chairman of the Board, Chief Executive Officer and
President since inception. Mr. Tsirigakis is experienced in ship
management, ship ownership and overseeing new shipbuilding projects. Since
November 2003, he has been the Joint Managing Director of Oceanbulk
Maritime S.A., a dry cargo shipping company that has operated and managed
vessels aggregating as much as 1.6 million deadweight tons of cargo
capacity and which is part of the Oceanbulk Group of affiliated companies
involved in the service sectors of the shipping industry. Since
November 1998, Mr. Tsirigakis has been the Managing Director of
Combine Marine Inc., a company which he founded that provides ship
management services to third parties and which is part of the Oceanbulk Group.
From 1991 to 1998, Mr. Tsirigakis was the Vice-President and Technical
Director of Konkar Shipping Agencies S.A. of Athens, after having served as
Konkar’s Technical Director from 1984 to 1991, which at the time managed 16
drybulk carriers, multi-purpose vessels and tanker/combination carriers. From
1982 to 1984, Mr. Tsirigakis was the Technical Manager of Konkar’s
affiliate, Arkon Shipping Agencies Inc. of New York, a part of the
Archirodon Construction Group. He is a member of the Technical Committee
(CASTEC) of Intercargo, the International Association of Dry Cargo Shipowners,
and of the Technical Committees of Classification Societies. Mr. Tsirigakis
received his Masters and B.Sc. in Naval Architecture from The University of
Michigan, Ann Arbor and has three years of seagoing experience.
Mr. Tsirigakis formerly served on the board of directors of
Dryships Inc., a company listed on the NASDAQ Global Market which provides
international seaborne transportation services carrying various dry-bulk
cargoes.




George
Syllantavos serves as our Chief Financial Officer, Secretary and
director. He has also been Star Maritime’s Chief Financial Officer, Secretary
and a member of its board of directors since inception and its Secretary since
December 2005. From May 1999 to December 2007, he was the President
and General Manager of Vortex Ltd., an aviation consulting firm
specializing in strategic and fleet planning. From January 1998 to
April 1999, he served as a financial advisor to Hellenic Telecommunications
Organization S.A., where, on behalf of the Chief Executive Officer, he
coordinated and led the company’s listing on the New York Stock Exchange
(NYSE:OTE) and where he had responsibilities for the strategic planning and
implementation of multiple acquisitions of fixed-line telecommunications
companies, including RomTelecom. Mr. Syllantavos served as a financial and
strategic advisor to both the Greek Ministry of Industry & Energy (from
June 1995 to May 1996) and the Greek Ministry of Health (from
May 1996 to January 1998), where, in 1997 and 1998, he helped
structure the equivalent of a US$700 million bond issuance for the payment
of outstanding debts to the supplier of the Greek National Health System. From
1998 to 2004, he served as a member of the Investment Committee of Rand
Brothers & Co., a small U.S. merchant banking firm, where he reviewed
and analyzed more than 35 acquisition targets of small or medium sized
privately-held manufacturing firms in the U.S. and internationally, of which he
negotiated, structured and directed the acquisition of three such firms with
transactions ranging in size from $7 million to $11 million.
Mr. Syllantavos has a B.Sc. in Industrial Engineering from Roosevelt
University and an MBA in Operations Management, International Finance and
Transportation Management from Northwestern University (Kellogg).




Petros
Pappas serves as our non-executive Chairman of the board of directors. He
has been a member of Star Maritime’s board of directors since inception.
Throughout his career as a principal and manager in the shipping industry,
Mr. Pappas has been involved in over 120 vessel acquisitions and disposals.
In 1989, he founded Oceanbulk Maritime S.A., a dry cargo shipping company that
has operated managed vessels aggregating as much as 1.6 million deadweight
tons of cargo capacity. He also founded the Oceanbulk Group of affiliated
companies, which are involved in the service sectors of the shipping industry.
The Oceanbulk Group is comprised of Oceanbulk Maritime S.A., Interchart
Shipping Inc., Oceanbulk Shipping and Trading S.A., Interchart
Shipping Inc., Oceanbulk Shipping and Trading S.A., Oceanbulk S &
P, Combine Marine Inc., More Maritime Agencies Inc., and Sentinel
Marine Services Inc. Additionally, Mr. Pappas ranked among the top 25
Greek ship owners (by number of ocean going vessels) as evaluated by the U.S.
Department of Commerce’s 2004 report on the Greek shipping industry.
Mr. Pappas has been a Director of the UK Defense Club, a leading insurance
provider of legal defense services in the shipping industry worldwide, since
January 2002, and is a member of the Union of Greek Shipowners (UGS).
Mr. Pappas received his B.A. in Economics and his MBA from The University
of Michigan, Ann Arbor.






53




Nobu Su
serves as a member of our board of directors. Mr. Su served as the Co-Chairman
of our board of directors from November 20, 2007 until January 24, 2008. Since
2002, Mr. Nobu Su has served as Chief Executive Officer of TMT. Under the
direction of Mr. Nobu Su, TMT has expanded its fleet to include drybulk
carriers, very large crude carriers, cargo carriers, liquefied natural gas
carriers, automobile carriers, and cement carriers. In addition to increasing
the service capabilities of TMT, Mr. Nobu Su has transformed TMT into a
global leader in the international shipping industry. Under his direction, TMT
has emerged as one of the most successful participants in the global freight
derivatives market (FFA market). Mr. Nobu Su graduated with a BSc in
economics from Keio University in Japan.




Peter
Espig serves as a member of our board of directors. Mr. Espig is
experienced in the analysis of investment opportunities, raising capital, deal
sourcing and financial structuring. In August 2006, he founded and
currently serves as CEO of Advance Capital Japan, a private equity and
consulting firm focused on raising capital for mid-sized companies and pre-IPO
investment and consulting. From 2005 to 2006, Mr. Espig served as
Vice-President of the Principal Finance and Securitization Group and Asia
Special Situations Group for Goldman Sachs Japan where he was responsible for
sourcing and analyzing investment opportunities, balance sheet restructuring and
IPO and exit preparations for various corporate and real estate investments.
Prior to joining Goldman Sachs, Mr. Espig served from 2004 to 2005 as
Vice-President of the New York private equity firm, Olympus Capital, where he
participated in corporate restructurings, investment analysis and financing
negotiations for both domestic and international investments. From 2003 to 2004,
Mr. Espig worked as a leveraged finance, special situations banker for
Shinsei bank where he participated in leverage buyouts and debt restructurings.
In 1989, Mr. Espig received his B.A. from the University of British
Columbia and in 2003, Mr. Espig received his MBA from Columbia Business
School where he was honored as a Chazen Society International
Scholar.




Koert
Erhardt serves as a member of our board of directors. He has been a
member of Star Maritime’s board of directors since inception. From
September 2004 to December 2004, he served as the Chief Executive
Officer and a member of the board of directors of CC Maritime S.A.M., an
affiliate of the Coeclerici Group, an international conglomerate whose
businesses include shipping and transoceanic transportation of drybulk
materials. From 1998 to September 2004, he served as General Manager of
Coeclerici Armatori S.p.A. and Coeclerici Logistics S.p.A., affiliates of the
Coeclerici Group, where he created a shipping pool that commercially managed
over 130 vessels with a carrying volume of 72 million tons and developed
the use of Freight Forward Agreement trading as a hedging mechanism to the
pool’s exposure and positions. From 1994 to 1998, he served as the General
Manager of Bulkitalia, a prominent shipping concern which at the time owned and
operated over 40 vessels. From 1990 to 1994, Mr. Erhardt served in various
positions with Bulk Italia. From 1988 to 1990, he was the Managing Director and
Chief Operating Officer of Nedlloyd Drybulk, the drybulk arm of the Nedlloyd
Group, an international conglomerate whose interests include container ship
liner services, tankers, oil drilling rigs, pipe laying vessels and ship
brokering. Mr. Erhardt received his Diploma in Maritime Economics and
Logistics from Hogere Havenen Vervoersschool (now Erasmus University),
Rotterdam, and received his MBA International Executive Program at INSEAD,
Fontainebleau, France. Mr. Erhardt has also studied at the London School of
Foreign Trade.




Tom
Søfteland serves as a member of our board of directors. He has been a
member of Star Maritime’s the board of directors since inception. Since
October 1996, he has been the Chief Executive Officer of Capital Partners
A.S. of Bergen, Norway, a financial services firm that he founded and which
specializes in shipping and asset finance. From 1990 to October 1996, he
held various positions at Industry & Skips Banken, ASA, a bank
specializing in shipping, most recently as its Deputy Chief Executive Officer.
Mr. Søfteland received his B.Sc. in Economics from the Norwegian School of
Business and Administration (NHH).




B. Compensation
of Directors and Senior Management




For the
period ended December 31, 2007, our Chief Executive Officer and President
Prokopios Tsirigakis and our Chief Financial Officer and Secretary, George
Syllantavos received aggregate compensation from the Company in the amount of
$659,000. Non-employee directors of Star Bulk receive an annual cash retainer of
$15,000, plus a fee of $1,000 for each board and committee meeting attended,
including meetings attended telephonically. The chairman of the audit committee
receives an additional $7,500 per year and each chairman of our other standing
committees will receive an additional $5,000 per year. In addition, each
director is reimbursed for out-of-pocket expenses in connection with attending
meetings of the board of directors or committees. We do not have a retirement
plan for our officers or directors.




54


Equity
Incentive Plan




We have
adopted an equity incentive plan, which we refer to as the 2007 Equity Incentive
Plan, under which officers, key employees, directors and consultants of the
Company and its subsidiaries will be eligible to receive options to acquire
shares of common stock, stock appreciation rights, restricted stock and other
stock-based or stock-denominated awards. We have reserved a total of 2,000,000
shares of common stock for issuance under the plan, subject to adjustment for
changes in capitalization as provided in the plan. The purpose of the 2007
Equity Incentive Plan is to encourage ownership of shares by, and to assist us
in attracting, retaining and providing incentives to, its officers, key
employees, directors and consultants whose contributions to the Company are or
will be important to the success of the Company and to align the interests of
such persons with the Company’s stockholders. The various types of incentive
awards that may be issued under the 2007 Equity Incentive Plan will enable us to
respond to changes in compensation practices, tax laws, accounting regulations
and the size and diversity of its business.




The plan
is administered by our compensation committee, or such other committee of our
board of directors as may be designated by the board to administer the plan. The
plan permits grants of options to purchase common stock, stock appreciation
rights, restricted stock, restricted stock units and unrestricted
stock.




Under the
terms of the plan, stock options and stock appreciation rights granted under the
plan will have an exercise price per common share equal to the fair market value
of a common share on the date of grant, unless otherwise determined by the plan
administrator, but in no event will the exercise price be less than the fair
market value of a common share on the date of grant. Options and stock
appreciation rights are exercisable at times and under conditions as determined
by the plan administrator, but in no event will they be exercisable later than
ten years from the date of grant.




The plan
administrator may grant shares of restricted stock and awards of restricted
stock units subject to vesting and forfeiture provisions and other terms and
conditions as determined by the plan administrator. Upon the vesting of a
restricted stock unit, the award recipient will be paid an amount equal to the
number of restricted stock units that then vest multiplied by the fair market
value of a common share on the date of vesting, which payment may be paid in the
form of cash or common shares or a combination of both, as determined by the
plan administrator. The plan administrator may grant dividend equivalents with
respect to grants of restricted stock units.




Adjustments
may be made to outstanding awards in the event of a corporate transaction or
change in capitalization or other extraordinary event. In the event of a “change
in control” (as defined in the plan), unless otherwise provided by the plan
administrator in an award agreement, awards then outstanding shall become fully
vested and exercisable in full.




The Board
may amend or terminate the plan and may amend outstanding awards, provided that
no such amendment or termination may be made that would materially impair any
rights, or materially increase any obligations, of a grantee under an
outstanding award. Stockholder approval of plan amendments may be required in
certain definitive, pre-determined circumstances if required by applicable rules
of a national securities exchange or the SEC. Unless terminated earlier by the
board of directors, the plan will expire ten years from the date on which the
plan was adopted by the board of directors.




Pursuant
to the 2007 Equity Incentive Plan, the Company issued:




·
            On
      March 31, 2008, 150,000 restricted common shares to Peter Espig, our
      Director, subject to applicable vesting of 75,000 common shares on each of
      April 1, 2008 and 2009;




·
            On
      December 3, 2007, 90,000 restricted common shares to Prokopios (Akis)
      Tsirigakis, our President and Chief Executive Officer, subject to
      applicable vesting of 30,000 common shares on each of July 1, 2008, 2009
      and 2010; and




·
            On
      December 3, 2007, 75,000 restricted common shares to George Syllantavos,
      our Chief Financial Officer and Secretary, subject to applicable vesting
      of 25,000 common shares on each of July 1, 2008, 2009 and
      2010.






55




C.
Board Practices




Our board
of directors is divided into three classes with only one class of directors
being elected in each year and following the initial term for each such class,
each class will serve a three-year term. The initial term of our board of
directors is as follows:




·
            The
      term of the Company’s Class A directors expires in
    2008;




·
            The
      term of Class B directors expires in 2009;
  and




·
            The
      term of Class C directors expires in
2010.




Corporate
Governance Practices




We have
certified to NASDAQ that our corporate governance practices are in compliance
with, and are not prohibited by, the laws of the Marshall Islands.  As a
foreign private issuer, we will be exempt from many of Nasdaq’s corporate
governance practices other than the requirements regarding the disclosure of a
going concern audit opinion, submission of a listing agreement, notification of
material noncompliance
with NASDAQ corporate governance practices and the establishment and composition
of an audit committee and a formal written audit committee charter.  We
intend to comply with Nasdaq’s corporate governance practices that are
applicable to domestic corporations, except as set forth below.  The
practices that we will follow in lieu of Nasdaq’s corporate governance rules are
as follows:




·
            Our
      board is comprised of seven directors, two of whom shall be independent
      directors.




·
            Our
      compensation committee is comprised of three members, at least two of whom
      shall be independent directors who will be responsible for establishing
      executive officers’ compensation and
benefits.




·
            Consistent
      with Marshall Islands law requirements, in lieu of obtaining an
      independent review of related party transactions for conflicts of
      interests, our amended and restated bylaws require any director who has a
      potential conflict of interest to identify and declare the nature of the
      conflict to the board of directors at the next meeting of the board of
      directors. Our amended and restated bylaws additionally provide that
      related party transactions must be approved by independent and
      disinterested directors.




·
            In
      accordance with Marshall Islands law, we will not be required to obtain
      shareholder approval if it chooses to issue additional
      securities.




·
            As
      a foreign private issuer, we are not required to solicit proxies or
      provide proxy statements to NASDAQ pursuant to NASDAQ corporate governance
      rules or Marshall Islands law.  Consistent with Marshall Islands law
      and as provided in our amended and restated bylaws, we will notify our
      shareholders of meetings between 15 and 60 days before the meeting.
       This notification will contain, among other things, information
      regarding business to be transacted at the meeting.  In addition, our
      amended and restated bylaws provide that shareholders must give between
      150 and 180 days advance notice to properly introduce any business at a
      meeting of the shareholders.




Other
than as noted above, we are in full compliance with all other applicable NASDAQ
corporate governance standards.




56


Committees
of the Board of Directors




We have
established an audit committee comprised of two independent members of our board
of directors who are responsible for reviewing our accounting controls and
recommending to the board of directors the engagement of our outside auditors.
Our audit committee is responsible for reviewing all related party transactions
for potential conflicts of interest and all related party transactions are
subject to the approval of the audit committee. We have established a
compensation committee comprised of three independent directors which is
responsible for recommending to the board of directors our senior executive
officers’ compensation and benefits. We have also established a nominating and
corporate governance committee comprised of two members which is responsible for
recommending to the board of directors nominees for director and directors for
appointment to board committees and advising the board with regard to corporate
governance practices. Shareholders may also nominate directors in accordance
with procedures set forth in our bylaws. The members of the audit, compensation
and nominating and corporate governance committees are Mr. Tom Softeland, who
also serves as the chairman of our audit committees, Mr. Koert Erhardt who also
acts as the chairman of our nominating and corporate governance committee, and
Mr. George Syllantavos who serves only on the compensation committee and acts as
its chairman.




D. Employees




As of
December 31, 2007, we had ten employees and as of June 25, 2008, 16
employees.  As of December 31, 2007, eight employees were engaged in the
day to day management of the vessels in our fleet.




E. Share
Ownership




With
respect to the total amount of common stock owned by all of our officers and
directors, individually and as a group, see Item 7 “Major Shareholders and
Related Party Transactions.”




Item
7. Major Shareholders and Related Party Transactions




A. Major
Shareholders




The
following table sets forth information regarding the owners of more than five
percent of our common stock and the amount of common stock beneficially owned by
all of our directors and executive officers as a group as of June 25,
2008:




Shares
      Beneficially Owned (1)Name
      (2)
                    
                    Number
                    
                    
                    Percentage(3)
 Petros
      Pappas
                    
                    
                    8,405,790
                    
                    
                    
                    15.4
                    %Nobu
      Su (4)
                    
                    
                    12,537,645
                    
                    
                    
                    23.0
                    %Prokopios
      (Akis) Tsirigakis
                    
                    
                    1,623,499
                    
                    
                    
                    3.0
                    %George
      Syllantavos
                    
                    
                    580,015
                    
                    
                    
                    *Koert
      Erhardt
                    
                    
                    340,269
                    
                    
                    
                    *Tom
      Søfteland
                    
                    
                    145,135
                    
                    
                    
                    *Peter
      Espig
                    
                    
                    150,000
                    
                    
                    
                    *Oceanwood
      Global Opportunities Master Fund (5)
                    
                    
                    4,240,777
                    
                    
                    
                    7.8
                    %Giovine
      Capital Group LLC (6)
                    
                    
                    5,865,017
                    
                    
                    
                    10.8
                    %Ramius
      Capital Group LLC (7)
                    
                    
                    7,545,960
                    
                    
                    
                    13.8
                    %*less
      than 1%




(1)
            Includes
      shares of common stock issuable upon exercise of warrants that are
      exercisable within 60 days.




(2)
            All
      of the Company’s major shareholders have the same voting
      rights.




(3)
            All
      percentages are calculated based on the 54,530,989 outstanding common
      shares of Star Bulk as of June 25,
2008.






57


(4)
            Star
      Bulk has agreed to issue an aggregate of 1,606,962 additional shares of
      Star Bulk’s common stock to TMT or its nominee in two
      installments.  Mr. Nobu Su, a member of our board of
      directors, exercises voting and investment control over the securities
      held of record by F5 Capital, a Cayman Islands Corporation, which is the
      nominee of TMT.


(5)
            Derived
      from a filing of a Schedule 13G on January 14, 2008 by Ocean Capital
      Management LLP and Oceanwood Global Opportunities Master Fund. Christopher
      Gate exercises voting and investment control over the securities held of
      record by Ocean Capital Management LLP and Oceanwood Global Opportunities
      Master Fund.




(6)
            Derived
      from a joint filing on Schedule 13G/A on February 5, 2008 by Giovine
      Capital Group LLC and Thomas A.
Giovine.




(7)
            Derived
      from a joint filing on Form 4 on April 21, 2008 by RCG
      Carpathia Master Fund, Ltd., RCG Crimson Partners, LP, RCG Baldwin,
      L.P., Ramius Advisors, LLC, Ramius Capital Group, L.L.C., C4S &
      Co., L.L.C., Peter A. Cohen, Morgan B. Stark, Thomas W. Strauss, and
      Jeffrey M. Solomon.




B. Related
Party Transactions




Under the
Master Agreement dated January 12, 2007, Star Bulk and Star Maritime agreed to
acquire a fleet of eight drybulk carriers with a combined cargo-carrying
capacity of approximately 692,000 dwt. from certain subsidiaries of TMT, a
company controlled by Nobu Su, a director of Star Bulk. The aggregate purchase
price specified in the Master Agreement for the initial fleet was $224.5 million
in cash and 12,537,645 shares of common stock of Star Bulk at $9.63 per share,
determined based on the average price of the Star Maritime common shares for 15
trading days prior to January 12, 2007. As additional consideration for eight
vessels, 1,606,962 shares of common stock of Star Bulk will be issued to
TMT in two installments as follows: (i) 803,481 additional shares of Star
Bulk’s common stock, no more than 10 business days following Star Bulk’s filing
of its Annual Report on Form 20-F for the fiscal year ended
December 31, 2007, and (ii) 803,481 additional shares of Star Bulk’s
common stock, no more than 10 business days following Star Bulk’s filing of its
Annual Report on Form 20-F for the fiscal year ended December 31,
2008.




Under the
Master Agreement dated January 12, 2007, Star Bulk agreed, with some limited
exceptions, to include the shares of Star Bulk’s common stock comprising the
stock consideration portion of the aggregate purchase price and the Additional
Stock (collectively the “Registrable Securities”), in Star Bulk’s registration
statement filed in connection with the Redomiciliation Merger. In addition, Star
Bulk has granted TMT (on behalf of itself or its affiliates that hold
Registrable Securities) the right, under certain definitive, pre-determined
circumstances and subject to certain restrictions, including lock-up and market
stand-off restrictions, to require Star Bulk to in the future register the
Registrable Securities under the Securities Act. Under the Master Agreement, TMT
also has the right to require Star Bulk to make available shelf registration
statements (if Star Bulk is eligible to do so) permitting sales of shares into
the market from time to time over an extended period. In addition, TMT has the
ability to exercise certain piggyback registration rights, 180 days
following the effective date of the Redomiciliation Merger. All expenses
relating to such registration will be borne by Star Bulk. TMT and/or its
affiliates own 12,537,645 shares of Star Bulk’s common stock entitled to these
registration rights and Star Bulk has agreed to issue to TMT and/or its
affiliates an additional 1,606,962 shares of Star Bulk’s common stock in two
installments, entitled to these registration rights.




Star
Gamma LLC, a wholly-owned subsidiary of Star Bulk, entered into time a
charter agreement dated, February 23, 2007, with TMT for the Star Gamma. Star
Iota Inc., a wholly-owned subsidiary of Star Bulk, entered into time
charter agreement, dated February 26, 2007, with TMT for the Star Iota. Both time charters
commenced on the date of their delivery to us, have a duration of one year and
daily charterhire rates of $28,500 and $18,000 respectively. Effective as of the
Redomiciliation Merger, Mr. Nobu Su and Mr. Peter Espig of TMT joined
Star Bulk’s board of directors.




58


Star
Maritime has used the services of Combine to conduct certain vessel inspection
services for the vessels in the initial fleet. Under an agreement dated
May 4, 2007 Star Bulk appointed Combine, a company affiliated with our
Chief Executive Officer, Mr. Tsirigakis and our directors Messrs. Pappas
and Anagnostou as interim manager of the vessels in the initial fleet. Given the
start-up nature of Star Bulk, under the agreement, Combine would provide
technical management and associated services, including legal services, to
the vessels so as to affect the smooth delivery and operation of the vessels to
Star Bulk. Such services would be provided at a lump-sum fee of $10,000 per
vessel for services leading up to and including taking delivery of each vessel
and at a daily fee of $450 per vessel from the delivery of each vessel to
Star Bulk onwards during the term of the agreement. Combine is entitled to be
reimbursed at cost by Star Bulk for any and all expenses incurred by them in the
management of the vessels but shall provide Star Bulk the full benefit of all
discounts and rebates enjoyed by them. The term of the agreement is for one year
from the date of delivery of each vessel. Either party may terminate the
agreement upon thirty days’ notice.
  During
2007, Combine has charged $91 for legal and other services, which are included
in the consolidated statement of income for the year ended December 31, 2007,
$84 related to vessel pre-delivery expenses, which represents $10 per vessel
from initial fleet plus $4 of other capitalized expenses that were capitalized
as vessel cost as of December 31, 2007 and $0 for daily management fees since
there were no vessels under its management.




Oceanbulk
Maritime, S.A., a related party, has paid for certain expenses on behalf of Star
Maritime. Star Bulk’s director Mr. Petros Pappas is also the Honorary
Chairman of Oceanbulk, a ship management company of drybulk
vessels.  Star Bulk’s Chief Executive Officer, Mr. Prokopios
(Akis) Tsirigakis, as well as its officer Mr. Christos Anagnostou had been
employees of Oceanbulk until November 30, 2007.  Included in the
consolidated statement of income for December 31, 2007 are legal and office
support expenses paid to Oceanbulk Maritime S.A. in the amount of
$196.  There were no expenses incurred or charged by Oceanbulk
Maritime S.A. during the years ended December 31, 2005 and 2006.  As
of December 31, 2007 and 2006, Star Bulk had no outstanding balance with
Oceanbulk Maritime S.A.




On
December 3, 2007, we entered into an agreement with TMT, a company affiliated
with Nobu Su, one of our directors, to acquire, Star Kappa, a 2001 built
Supramax drybulk carrier for the aggregate purchase price of $72.0 million with
a cargo carrying capacity of approximately 52,055 dwt.




On March
24, 2008, Mr. Tsirigakis, our President and Chief Executive Officer transferred
in a private transaction an aggregate of 2,473,893 of his shares and 300,000 of
his warrants to Mr. Petros Pappas, the Company’s Chairman.




On March
24, 2008, Mr. George Syllantavos, our Chief Financial Officer and Secretary
transferred in a private transaction an aggregate of 981,524 of his shares and
102,500 of his warrants to Mr. Petros Pappas, the Company’s
Chairman.




On
October 6, 2008, Star Bulk entered into separate employment agreements with each
of Mr. Tsirigakis and Mr. Syllantavos to employ them in their capacities as
Chief Executive Officer and President, and Chief Financial Officer and
Secretary, respectively.  Each of these agreements will have a term of
three years unless terminated earlier in accordance with the terms of such
agreements. Under the employment agreements, each of Mr. Tsirigakis and Mr.
Syllantavos is expected to receive an annual salary of €80,000, or approximately
$115,000 and €70,000, or approximately $100,000, respectively. Mr. Tsirigakis
and Mr. Syllantavos will also receive additional incentive compensation as
determined annually by the compensation committee of our board of
directors.
  The
related expenses for 2007 were $659 and are included in general and
administrative expenses in the consolidated statement of income.
  Mr.
Tsirigakis and Mr. Syllantavos are also be subject to non-competition and
non-solicitation covenants during the term of the agreement and for a period of
three months following termination for any reason.




Star Bulk
entered into separate consulting agreements with companies owned and controlled
by Mr. Tsirigakis and Mr. Syllantavos respectively. Each of these
agreements will have a term of three years unless terminated earlier in
accordance with the terms of such agreements. Under the consulting agreements,
each company controlled by Mr. Tsirigakis and Mr. Syllantavos
respectively, is expected to receive an annual consulting fee of €370,000, or
approximately $541,000 and €250,000, or approximately $365,000.
Mr. Tsirigakis and Mr. Syllantavos will also receive a discretionary
bonus and additional incentive compensation as determined annually by the
compensation committee of our board of directors.




Mr. Tsirigakis
and Mr. Syllantavos are also entitled to receive benefits under each of
their consultancy agreements with Star Bulk, amongst others: (i) each is
entitled to receive an annual discretionary bonus, to be determined by Star
Bulk’s board of directors in its sole discretion; (ii) was entitled
received payment of a one-time sign-on bonus in the amount of € 200,000, or
approximately $292,000.




All
ongoing and future transactions between Star Bulk and any of its officers and
directors or their respective affiliates, including loans by Star Bulk’s
officers and directors, if any, will be on terms believed by Star Bulk to be no
less favorable than are available from unaffiliated third parties, and such
transactions or loans, including any forgiveness of loans, will require prior
approval, in each instance by a majority of Star Bulk’s uninterested
“independent” directors or the members of Star Bulk’s board who do not have an
interest in the transaction, in either case who had access, at Star Bulk’s
expense, to its attorneys or independent legal counsel.




C. Interests
of Experts and Counsel




Not
Applicable.






59




Item
8. Financial Information




A.
Consolidated statements and other financial information.




See Item
18 “Financial Statements.”


Legal
Proceedings




We have
not been involved in any legal proceedings which may have, or have had, a
significant effect on our business, financial position, results of operations or
liquidity, nor are we aware of any proceedings that are pending or threatened
which may have a significant effect on our business, financial position, results
of operations or liquidity. From time to time, we may be subject to legal
proceedings and claims in the ordinary course of business, principally personal
injury and property casualty claims. We expect that these claims would be
covered by insurance, subject to customary deductibles. Those claims, even if
lacking merit, could result in the expenditure of significant financial and
managerial resources.




Dividend
Policy




Based
upon and subject to the assumptions contained in this section, we currently
intend to pay quarterly dividends to the holders of our common shares, in
February, May, August and November, in amounts that will allow us to retain a
portion of our cash flows to fund vessel or fleet acquisitions, and for debt
repayment and other corporate purposes, as determined by our management and
board of directors. The payment of dividends is not guaranteed or assured and
may be discontinued at the sole discretion of our board of directors and may not
be paid in the anticipated amounts and frequency set forth in this annual
report. Our board of directors will continually review its dividend policy and
make adjustments that it believes appropriate.




The
timing and amount of dividend payments will be dependent upon our earnings,
financial condition, cash requirements and availability, fleet renewal and
expansion, restrictions in its credit facility, the provisions of Marshall
Islands law affecting the payment of distributions to stockholders and other
factors. Our ability to pay dividends will be limited by the amount of cash it
can generate from operations, primarily the charterhire, net of commissions,
received by the Company under the charters for its vessels during the preceding
calendar quarter, less expenses for that quarter, consisting primarily of vessel
operating expenses (including management fees), general and administrative
expenses, debt service, maintenance expenses and the establishment of any
reserves as well as additional factors unrelated to its profitability. These
reserves may cover, among other things, future dry-docking, repairs, claims,
liabilities and other obligations, interest expense and debt amortization,
acquisitions of additional assets and working capital.




Because
we are a holding company with no material assets other than the shares of our
subsidiaries which directly own the vessels in our fleet, our ability to pay
dividends depends on the earnings and cash flow of our subsidiaries and their
ability to pay dividends to us. We cannot assure you that, after the expiration
or earlier termination of its charters, we will have any sources of income from
which dividends may be paid. If there is a substantial decline in the charter
market, this would negatively affect Star Bulk’s earnings and limit its ability
to pay dividends. In particular, our ability to pay dividends is subject to our
ability to satisfy certain financial covenants that are contained in our credit
facility.




We
believe that, under current law, our dividend payments from earnings and profits
will constitute “qualified dividend income” and as such will generally be
subject to a 15% United States federal income tax rate with respect to
non-corporate individual stockholders. Distributions in excess of our earnings
and profits will be treated first as a non-taxable return of capital to the
extent of a United States stockholder’s tax basis in its common stock on a
dollar-for-dollar basis and thereafter as capital gain. Please see Item 10
“Additional Information—Taxation” for additional information relating to the tax
treatment of our dividend payments.




On
February 14, and April 16, 2008, the Company declared dividends amounting to
approximately $4.6 million ($0.10 per share, paid on February 28, 2008 to the
stockholders of record on February 25, 2008) and $18.8 million ($0.35 per share,
paid on May 23, 2008 to the shareholders of record on May 16, 2008),
respectively.




B. Significant
Changes




Not
Applicable.




60


Item
9. The Offer and Listing




A. Offer
and Listing Details




The
Company’s common stock and warrants are traded on the NASDAQ Global Market
under the symbols “SBLK” and “SBLKW,” respectively. Since the Redomiciliation
Merger on November 30, 2007, the price history of our common stock and warrants
was as follows:




COMMON STOCK




2008
            
            High
            
            
            Low1st
      Quarter ended March 31, 2008
            
            $
            12.37
            
            
            $
            9.36January
      2008
            
            $
            12.22
            
            
            $
            9.36February
      2008
            
            $
            12.37
            
            
            $
            10.60March
      2008
            
            $
            11.93
            
            
            $
            10.78April
      2008
            
            $
            12.78
            
            
            $
            11.39May
      2008
            
            $
            14.10
            
            
            $
            12.66June
      2008*
            
            $
            14.34
            
            
            $
            11.912007
            
            High
            
            
            LowDecember
      3, 2007 to December 31, 2007
            
            $
            15.40
            
            
            $
            12.45*  Through June 27, 2008.




WARRANTS
 2008
              
              High
              
              
              Low1st
      Quarter ended March 31, 2008
              
              $
              4.46
              
              
              $
              1.99January
      2008
              
              $
              4.11
              
              
              $
              1.99February
      2008
              
              $
              4.25
              
              
              $
              3.20March
      2008
              
              $
              4.46
              
              
              $
              3.11April
      2008
              
              $
              4.68
              
              
              $
              3.70May
      2008
              
              $
              6.10
              
              
              $
              4.68June
      2008*
              
              $
              6.40
              
              
              $
              3.952007
              
              High
              
              
              LowDecember
      3, 2007 to December 31, 2007
              
              $
              7.03
              
              
              $
              0.72*  Through June 27, 2008.


61
 Until
November 30, 2007, Star Maritime's common stock and warrants traded on the
American Stock Exchange under the symbols “SEA” and “SEA.WS,”
respectively.  Since Star Maritime’s initial public offering in December
2005, the price history of its common stock and warrants was as
follows:




COMMON STOCK


2007
            
            High
            
            
            Low1st
      Quarter ended March 31, 2007
            
            $
            10.30
            
            
            $
            9.862nd
      Quarter ended June 30, 2007
            
            $
            12.31
            
            
            $
            10.34Six
      months ended June 30, 2007
            
            $
            12.39
            
            
            $
            9.963rd
      Quarter ended September 30, 2007
            
            $
            14.03
            
            
            $
            11.304th
      Quarter ended December 31, 2007
            
            $
            14.05
            
            
            $
            13.34Six
      months ended December 31, 2007
            
            $
            14.05
            
            
            $
            11.30For
      the year ended December 31, 2007
            
            $
            14.05
            
            
            $
            9.86




2006
            
            High
            
            
            Low1st
      Quarter ended March 31, 2006
            
            $
            9.92
            
            
            $
            9.622nd
      Quarter ended June 30, 2006
            
            $
            10.16
            
            
            $
            9.47Six
      months ended June 30, 2006
            
            $
            10.16
            
            
            $
            11.703rd
      Quarter ended September 30, 2006
            
            $
            9.74
            
            
            $
            9.454th
      Quarter ended December 31, 2006
            
            $
            9.90
            
            
            $
            9.60Six
      months ended December 31, 2006
            
            $
            9.90
            
            
            $
            9.45For the
      year ended December 31, 2006
            
            $
            10.16
            
            
            $
            9.45




2005
            
            High
            
            
            LowDecember
      15, 2005 to December 31, 2005
            
            
            N/A
            
            
            
            N/A




WARRANTS


2007
              
              High
              
              
              Low1st
      Quarter ended March 31, 2007
              
              $
              2.15
              
              
              $
              0.722nd
      Quarter ended June 30, 2007
              
              $
              4.25
              
              
              $
              2.18Six
      months ended June 30, 2007
              
              $
              4.25
              
              
              $
              0.723rd
      Quarter ended September 30, 2007
              
              $
              5.85
              
              
              $
              3.104th
      Quarter ended December 31, 2007
              
              $
              7.03
              
              
              $
              4.36Six
      months ended December 31, 2007
              
              $
              7.03
              
              
              $
              3.10For
      the year ended December 31, 2007
              
              $
              7.03
              
              
              $
              0.72
  2006
              
              High
              
              
              Low1st
      Quarter ended March 31, 2006
              
              $
              1.25
              
              
              $
              0.872nd
      Quarter ended June 30, 2006
              
              $
              1.20
              
              
              $
              0.87Six
      months ended June 30, 2006
              
              $
              1.25
              
              
              $
              0.873rd
      Quarter ended September 30, 2006
              
              $
              1.06
              
              
              $
              0.704th
      Quarter ended December 31, 2006
              
              $
              0.84
              
              
              $
              0.55Six
      months ended December 31, 2006
              
              $
              1.06
              
              
              $
              0.55For the
      year ended December 31, 2006
              
              $
              1.25
              
              
              $
              0.55
  2005
              
              High
              
              
              LowDecember
      15, 2005 to December 31, 2005
              
              
              N/A
              
              
              
              N/A


Item
10. Additional Information




A. Share
Capital




Not
Applicable.




62


B. Memorandum
and Articles of Association




Directors




Our
directors are elected by a majority of the votes cast by stockholders entitled
to vote in an election. Our amended and restated articles of incorporation
provide that cumulative voting shall not be used to elect directors. Our board
of directors must consist of at least three members. The exact number of
directors is fixed by a vote of at least 66 2/3% of the entire board. Our
amended and restated articles of incorporation provide for a staggered board of
directors whereby directors shall be divided into three classes: Class A, Class
B and Class C which shall be as nearly equal in number as possible.
Shareholders, acting as at a duly constituted meeting, or by unanimous written
consent of all shareholders, initially designated directors as Class A, Class B
or Class C with only one class of directors being elected in each year and
following the initial term for each such class, each class will serve a
three-year term. The initial term of our board of directors is as follows: (i)
the term of the Company’s Class A directors expires in 2008; (ii) the term
of Class B directors expires in 2009; and (iii) the term of Class C
directors expires in 2010. Each director serves his respective term of office
until his successor has been elected and qualified, except in the event of his
death, resignation, removal or the earlier termination of his term of office.
Our board of directors has the authority to fix the amounts which shall be
payable to the members of the board of directors for attendance at any meeting
or for services rendered to us.




Stockholder
Meetings




Under our
amended and restated bylaws, annual stockholder meetings will be held at a time
and place selected by our board of directors. The meetings may be held in or
outside of the Marshall Islands. Special meetings may be called by the board of
directors, chairman of the board or by the president. Our board of directors may
set a record date between 10 and 60 days before the date of any meeting to
determine the stockholders that will be eligible to receive notice and vote at
the meeting.




Dissenters’
Rights of Appraisal and Payment




Under the
BCA, our stockholders have the right to dissent from various corporate actions,
including any merger or consolidation, sale of all or substantially all of our
assets not made in the usual course of our business, and receive payment of the
fair value of their shares. In the event of any further amendment of our amended
and restated articles of incorporation, a stockholder also has the right to
dissent and receive payment for his or her shares if the amendment alters
certain rights in respect of those shares. The dissenting stockholder must
follow the procedures set forth in the BCA to receive payment. In the event that
we and any dissenting stockholder fail to agree on a price for the shares, the
BCA procedures involve, among other things, the institution of proceedings in
the high court of the Republic of the Marshall Islands or in any appropriate
court in any jurisdiction in which the Company’s shares are primarily traded on
a local or national securities exchange.




Stockholders’
Derivative Actions




Under the
BCA, any of our stockholders may bring an action in our name to procure a
judgment in our favor, also known as a derivative action, provided that the
stockholder bringing the action is a holder of common stock both at the time the
derivative action is commenced and at the time of the transaction to which the
action relates.




Indemnification
of Officers and Directors




Our
amended and restated bylaws includes a provision that entitles any director or
officer of the Company to be indemnified by the Company upon the same terms,
under the same conditions and to the same extent as authorized by the BCA if he
acted in good faith and in a manner reasonably believed to be in and not opposed
to the best interests of the Company, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.






63




We are
also authorized to carry directors’ and officers’ insurance as a protection
against any liability asserted against our directors and officers acting in
their capacity as directors and officers regardless of whether the Company would
have the power to indemnify such director or officer against such liability
bylaw or under the provisions of our bylaws. We believe that these
indemnification provisions and insurance are useful to attract and retain
qualified directors and executive officers.




The
indemnification provisions in our amended and restated bylaws may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty. These provisions may also have the effect of reducing the
likelihood of derivative litigation against directors and officers, even though
such an action, if successful, might otherwise benefit us and our stockholders.
There is currently no pending material litigation or proceeding involving any of
our directors, officers or employees for which indemnification is
sought.




Anti-takeover
Provisions of our Charter Documents




Several
provisions of our amended and restated articles of incorporation and bylaws may
have anti-takeover effects. These provisions are intended to avoid costly
takeover battles, lessen our vulnerability to a hostile change of control and
enhance the ability of our board of directors to maximize stockholder value in
connection with any unsolicited offer to acquire us. However, these anti
-takeover provisions, which are summarized below, could also discourage, delay
or prevent (1) the merger or acquisition of our company by means of a tender
offer, a proxy contest or otherwise, that a stockholder may consider in its best
interest and (2) the removal of incumbent officers and directors.




Blank
Check Preferred Stock




Under the
terms of our amended and restated articles of incorporation, our board of
directors has authority, without any further vote or action by our stockholders,
to issue up to 25.0 million shares of blank check preferred stock. Our board of
directors may issue shares of preferred stock on terms calculated to discourage,
delay or prevent a change of control of our company or the removal of our
management.




Classified
Board of Directors




Our
amended and restated articles of incorporation provide for a board of directors
serving staggered, three-year terms. Approximately one-third of our board of
directors will be elected each year. The classified board provision could
discourage a third party from making a tender offer for our shares or attempting
to obtain control of our company. It could also delay stockholders who do
not agree with the policies of the board of directors from removing a majority
of the board of directors for two years.




Election
and Removal of Directors




Our
amended and restated articles of incorporation prohibit cumulative voting in the
election of directors. Our articles of incorporation also require shareholders
to give advance written notice of nominations for the election of directors. Our
articles of incorporation further provide that our directors may be removed only
for cause and only upon affirmative vote of the holders of at least 70% of the
outstanding voting shares of the Company. These provisions may discourage, delay
or prevent the removal of incumbent officers and directors.




Limited
Actions by Stockholders




Our
bylaws provide that if a quorum is present, and except as otherwise expressly
provided by law, the affirmative vote of a majority of the shares of stock
represented at the meeting shall be the act of the shareholders. Shareholders
may act by way of written consent in accordance with the provisions of Section
67 of the BCA.




64


Advance
Notice Requirements for Shareholder Proposals and Director
Nominations




Our
amended and restated articles of incorporation provide that shareholders seeking
to nominate candidates for election as directors or to bring business before an
annual meeting of shareholders must provide timely notice of their proposal in
writing to the corporate secretary. Generally, to be timely, a shareholder’s
notice must be received at our principal executive offices not less than 120
days nor more than 180 days prior to the one year anniversary of the preceding
year’s annual meeting. Our articles of incorporation also specify requirements
as to the form and content of a shareholder’s notice. These provisions may
impede shareholders’ ability to bring matters before an annual meeting of
shareholders or make nominations for directors at an annual meeting of
shareholders.




C. Material
Contracts




We have
entered into a credit facility with Commerzbank A.G. and Piraeus Bank A.F. For a
discussion of our term loan facilities, please see the section of this annual
report entitled “Operating and Financial Review and Prospects—Liquidity and
Capital Resources.”  We have no other material contracts, other than
contracts entered into in the ordinary course of business, to which the Company
or any member of the group is a party.




D. Exchange
Controls




Under
Marshall Islands and Greek law, there are currently no restrictions on the
export or import of capital, including foreign exchange controls or restrictions
that affect the remittance of dividends, interest or other payments to
non-resident holders of our common stock.




E. Taxation




United
States Taxation




The
following discussion is based upon the provisions of the U.S. Internal Revenue
Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury
Department regulations, administrative rulings, pronouncements and judicial
decisions, all as of the date of this Annual Report. This
discussion assumes that decisions, all as of the date of this Annual
Report. This discussion assumes that we do not have an office or other fixed
place of business in the United States.




Tax
Classification of the Company




Star
Maritime was a Delaware corporation which merged into the Company pursuant to
the Redomiciliation Merger as more specifically described above.




Section
7874(b) of the Code (“Section 7874(b)”) provides that a corporation organized
outside the United States, such as the Company, which acquires (pursuant to a
“plan” or a “series of related transactions”) substantially all of the assets of
a corporation organized in the United States, such as Star Maritime, will be
treated as a U.S. domestic corporation for U.S. federal income tax purposes if
shareholders of the U.S. corporation whose assets are being acquired own at
least 80 percent of the non-U.S. acquiring corporation after the acquisition. If
Section 7874(b) were to apply to Star Maritime and the Redomiciliation Merger,
then the Company, as the surviving entity of the Redomiciliation Merger, would
be subject to U.S. federal income tax as a U.S. domestic corporation on its
worldwide income after the Redomiciliation Merger. In addition, as a domestic
corporation, any dividends paid by the Company to a Non-U.S. Holder, as defined
below, would be subject to a U.S. federal income tax withholding at the rate of
30 percent or such lower rate as provided by applicable tax treaty.




65


After the
completion of the Redomiciliation Merger, the shareholders of Star Maritime
owned less than 80 percent of the Company. Star Maritime received an opinion of
its counsel, Seward & Kissel LLP, that Star Bulk should not be subject to
Section 7874(b) after the Redomiciliation Merger. Based on the structure of the
Redomiciliation Merger, the Company believes that it is not subject to U.S.
federal income tax as a U.S. domestic corporation on its worldwide income for
taxable years after the Redomiciliation Merger. However, there is no authority
directly addressing the application of Section 7874(b) to a transaction such as
the Redomiciliation Merger where shares in a foreign corporation such as the
Company are issued concurrently with (or shortly after) a merger. In particular,
since there is no authority directly applying the “series of related
transactions” or “plan” provisions to the post-acquisition stock ownership
requirements of Section 7874(b), there is no assurance that the IRS will agree
with Seward & Kissel’s opinion on this matter. Moreover, Star Maritime has
not sought a ruling from the IRS on this point. Therefore, there is no assurance
that the IRS would not seek to assert that the Company is subject to U.S.
federal income tax on its worldwide income after the Redomiciliation Merger,
although the Company believes that such an assertion should not be
successful.




The
remainder of this discussion assumes that the Company will not be treated as a
U.S. domestic corporation for any taxable year.




Taxation
of the Company’s Shipping Income




The
Company anticipates that it will derive substantially all of its gross income
from the use and operation of vessels in international commerce and that this
income will principally consist of freights from the transportation of cargoes,
hire or lease from time or voyage charters and the performance of services
directly related thereto, which the Company refers to as “shipping
income.”




Shipping
income that is attributable to transportation that begins or ends, but that does
not both begin and end, in the United States will be considered to be 50%
derived from sources within the United States. Shipping income attributable to
transportation that both begins and ends in the United States will be considered
to be 100% derived from sources within the United States. The Company is not
permitted by law to engage in transportation that gives rise to 100% U.S. source
income. Shipping income attributable to transportation exclusively between
non-U.S. ports will be considered to be 100% derived from sources outside the
United States. Shipping Income derived from sources outside the United States
will not be subject to U.S. federal income tax.




Based
upon the Company’s anticipated shipping operations, the Company’s vessels will
operate in various parts of the world, including to or from U.S. ports. Unless
exempt from U.S. taxation under Section 883 of the Code, the Company will be
subject to U.S. federal income taxation, in the manner discussed below, to the
extent its shipping income is considered derived from sources within the United
States.




Application
of Code Section 883




Under the
relevant provisions of Section 883 of the Code and the final regulations
interpreting Section 883, as promulgated by the U.S. Treasury Department, the
Company will be exempt from U.S. taxation on its U.S. source shipping income
if:




(i) It is
organized in a “qualified foreign country” which is one that grants an
equivalent exemption from tax to corporations organized in the United States in
respect of each category of shipping income for which exemption is being claimed
under Section 883 and which the Company refers to as the “country of
organization requirement”; and




(ii) It
can satisfy any one of the following two (2) stock ownership
requirements:




·
            more
      than 50% of the Company’s stock, in terms of value, is beneficially owned
      by individuals who are residents of a qualified foreign country, which the
      Company refers to as the “50% Ownership Test”;
  or




·
            the
      Company’s stock is “primarily and regularly” traded on an established
      securities market located in the United States or in a qualified foreign
      country, which the Company refers to as the “Publicly Traded
      Test”.






66




The U.S.
Treasury Department has recognized the Marshall Islands, the country of
incorporation of the Company and of nine of its ship-owning subsidiaries
as qualified foreign countries. Accordingly, the Company and its
subsidiaries satisfy the country of organization requirement.




Therefore,
the Company’s eligibility to qualify for exemption under Section 883 is wholly
dependent upon being able to satisfy one of the stock ownership requirements.
For the 2007 taxable year, the Company believes that it satisfied the
Publicly-Traded Test since, for more than half the days of the Company’s 2007
taxable year, the Company’s stock was “primarily and regularly traded” on the
NASDAQ Global Market which is an “established securities market” in the United
States within the meaning of the Section 883 regulations and intends to take
this position on its 2007 United States income tax return.




Taxation
in Absence of Internal Revenue Code Section 883 Exemption




To the
extent the benefits of Section 883 are unavailable with respect to any item of
U.S. source income, the Company’s U.S. source shipping income, would be subject
to a 4% tax imposed by Section 887 of the Code on a gross basis, without the
benefit of deductions. Since under the sourcing rules described above, no more
than 50% of the Company’s shipping income would be treated as being derived from
U.S. sources, the maximum effective rate of U.S. federal income tax on the
Company’s shipping income would never exceed 2% under the 4% gross basis tax
regime.




Based on
the U.S. source Shipping Income for 2007, the Company would be subject to U.S.
federal income tax of approximately $16,800 under Section 887 in the absence of
an exemption under Section 883.




Gain
on Sale of Vessels




Regardless
of whether we qualify for exemption under Section 883, we will not be subject to
United States federal income taxation with respect to gain realized on a sale of
a vessel, provided the sale is considered to occur outside of the United States
under U.S. federal income tax principles. In general, a sale of a vessel will be
considered to occur outside of the United States for this purpose if title to
the vessel, and risk of loss with respect to the vessel, pass to the buyer
outside of the United States. It is expected that any sale of a vessel by us
will be considered to occur outside of the United States.




United
States Federal Income Taxation of Holders of Common Stock




The
following is a discussion of the material United States federal income tax
consequences applicable to a U.S. Holder and a Non-U.S. Holder, each as defined
below, of our common stock. This discussion does not purport to deal with the
tax consequences of owning common stock to all categories of investors, some of
which, such as dealers in securities, investors whose functional currency is not
the United States dollar and investors that own, actually or under applicable
constructive ownership rules, 10% or more of our common stock, may be subject to
special rules. This discussion deals only with holders who hold the common stock
as a capital asset. Shareholders are encouraged to consult their own tax
advisors concerning the overall tax consequences arising in their particular
situation under United States federal, state, local or foreign law of the
ownership of common stock.




United
States Federal Income Taxation of U.S. Holders




As used
herein, the term “U.S. Holder” means a beneficial owner of common stock that is
a United States citizen or resident, United States corporation or other United
States entity taxable as a corporation, an estate the income of which is subject
to United States federal income taxation regardless of its source, or a trust if
a court within the United States is able to exercise primary jurisdiction over
the administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust.




If a
partnership holds our common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding our common stock, you
are encouraged to consult your tax advisor.






67




Distributions




Subject
to the discussion of passive foreign investment companies below, any
distributions made by us with respect to our common stock to a U.S. Holder will
generally constitute dividends, which may be taxable as ordinary income or
“qualified dividend income” as described in more detail below, to the extent of
our current or accumulated earnings and profits, as determined under United
States federal income tax principles. Distributions in excess of our earnings
and profits will be treated first as a nontaxable return of capital to the
extent of the U.S. Holder’s tax basis in his common stock on a dollar-for-dollar
basis and thereafter as capital gain. Because we are not a United States
corporation, U.S. Holders that are corporations will not be entitled to claim a
dividends received deduction with respect to any distributions they receive from
us. Dividends paid with respect to our common stock will generally be treated as
“passive category income” or, in the case of certain types of U.S. Holders,
“general category income” for purposes of computing allowable foreign tax
credits for United States foreign tax credit purposes.




Dividends
paid on our common stock to a U.S. Holder who is an individual, trust or estate
(a “U.S. Individual Holder”) will generally be treated as “qualified dividend
income” that is taxable to such U.S. Individual Holders at preferential tax
rates (through 2010) provided that (1) the common stock is readily tradable
on an established securities market in the United States (such as the NASDAQ
Global Market, on which our common stock will be listed); (2) we are not a
passive foreign investment company for the taxable year during which the
dividend is paid or the immediately preceding taxable year (which we do not
believe we are, have been or will be); and (3) the U.S. Individual Holder
has owned the common stock for more than 60 days in the 121-day period
beginning 60 days before the date on which the common stock becomes
ex-dividend. There is no assurance that any dividends paid on our common stock
will be eligible for these preferential rates in the hands of a U.S. Individual
Holder. Legislation has been recently introduced in the U.S. Congress which, if
enacted in its present form, would preclude our dividends from qualifying for
such preferential rates prospectively from the date of the enactment. Any
dividends paid by the Company which are not eligible for these preferential
rates will be taxed as ordinary income to a U.S. Holder.




Special
rules may apply to any “extraordinary dividend” generally, a dividend in an
amount which is equal to or in excess of ten percent of a stockholder’s adjusted
basis (or fair market value in certain circumstances) in a share of common stock
paid by us. If we pay an “extraordinary dividend” on our common stock that is
treated as “qualified dividend income,” then any loss derived by a U.S.
Individual Holder from the sale or exchange of such common stock will be treated
as long-term capital loss to the extent of such dividend.




Sale,
Exchange or other Disposition of Common Stock




Assuming
we do not constitute a passive foreign investment company for any taxable year,
a U.S. Holder generally will recognize taxable gain or loss upon a sale,
exchange or other disposition of our common stock in an amount equal to the
difference between the amount realized by the U.S. Holder from such sale,
exchange or other disposition and the U.S. Holder’s tax basis in such stock.
Such gain or loss will be treated as long-term capital gain or loss if the U.S.
Holder’s holding period is greater than one year at the time of the sale,
exchange or other disposition. Such capital gain or loss will generally be
treated as U.S.-source income or loss, as applicable, for U.S. foreign tax
credit purposes. A U.S. Holder’s ability to deduct capital losses is subject to
certain limitations.




Passive
Foreign Investment Company Status and Significant Tax Consequences




Special
United States federal income tax rules apply to a U.S. Holder that holds stock
in a foreign corporation classified as a passive foreign investment company for
United States federal income tax purposes. In general, we will be treated as a
passive foreign investment company with respect to a U.S. Holder if, for any
taxable year in which such holder held our common stock, either:




·
            at
      least 75% of our gross income for such taxable year consists of passive
      income (e.g., dividends, interest, capital gains and rents derived other
      than in the active conduct of a rental business);
  or




·
            at
      least 50% of the average value of the assets held by the corporation
      during such taxable year produce, or are held for the production of,
      passive income.






68




For
purposes of determining whether we are a passive foreign investment company, we
will be treated as earning and owning our proportionate share of the income and
assets, respectively, of any of our subsidiary corporations in which we own at
least 25 percent of the value of the subsidiary’s stock. Income earned, or
deemed earned, by us in connection with the performance of services would not
constitute passive income. By contrast, rental income would generally constitute
“passive income” unless we were treated under specific rules as deriving our
rental income in the active conduct of a trade or business.




Based on
our current operations and future projections, we do not believe that we are,
nor do we expect to become, a passive foreign investment company with respect to
any taxable year. Although there is no legal authority directly on point, and we
are not relying upon an opinion of counsel on this issue, our belief is based
principally on the position that, for purposes of determining whether we are a
passive foreign investment company, the gross income we derive or are deemed to
derive from the time chartering and voyage chartering activities of our
wholly-owned subsidiaries should constitute services income, rather than rental
income. Correspondingly, such income should not constitute passive income, and
the assets that we or our wholly-owned subsidiaries own and operate in
connection with the production of such income, in particular, the tankers,
should not constitute passive assets for purposes of determining whether we are
a passive foreign investment company. We believe there is substantial legal
authority supporting our position consisting of case law and Internal Revenue
Service pronouncements concerning the characterization of income derived from
time charters and voyage charters as services income for other tax purposes.
However, in the absence of any legal authority specifically relating to the
statutory provisions governing passive foreign investment companies, the
Internal Revenue Service or a court could disagree with our position. In
addition, although we intend to conduct our affairs in a manner to avoid being
classified as a passive foreign investment company with respect to any taxable
year, we cannot assure you that the nature of our operations will not change in
the future.




As
discussed more fully below, if we were to be treated as a passive foreign
investment company for any taxable year, a U.S. Holder would be subject to
different taxation rules depending on whether the U.S. Holder makes an election
to treat us as a “Qualified Electing Fund,” which election we refer to as a “QEF
election.” As an alternative to making a QEF election, a U.S. Holder should be
able to make a “mark-to-market” election with respect to our common stock, as
discussed below.




Taxation
of U.S. Holders Making a Timely QEF Election




If a U.S.
Holder makes a timely QEF election, which U.S. Holder we refer to as an
“Electing Holder,” the Electing Holder must report each year for United States
federal income tax purposes his pro rata share of our ordinary earnings and our
net capital gain, if any, for our taxable year that ends with or within the
taxable year of the Electing Holder, regardless of whether or not distributions
were received from us by the Electing Holder. The Electing Holder’s adjusted tax
basis in the common stock will be increased to reflect taxed but undistributed
earnings and profits. Distributions of earnings and profits that had been
previously taxed will result in a corresponding reduction in the adjusted tax
basis in the common stock and will not be taxed again once distributed. An
Electing Holder would generally recognize capital gain or loss on the sale,
exchange or other disposition of our common stock. A U.S. Holder would make a
QEF election with respect to any year that our company is a passive foreign
investment company by filing IRS Form 8621 with his United States federal
income tax return. If we were aware that we were to be treated as a passive
foreign investment company for any taxable year, we would provide each U.S.
Holder with all necessary information in order to make the QEF election
described above.






69




Taxation
of U.S. Holders Making a “Mark-to-Market” Election




Alternatively,
if we were to be treated as a passive foreign investment company for any taxable
year and, as we anticipate, our stock is treated as “marketable stock,” a U.S.
Holder would be allowed to make a “mark-to-market” election with respect to our
common stock, provided the U.S. Holder completes and files IRS Form 8621 in
accordance with the relevant instructions and related Treasury Regulations. If
that election is made, the U.S. Holder generally would include as ordinary
income in each taxable year the excess, if any, of the fair market value of the
common stock at the end of the taxable year over such holder’s adjusted tax
basis in the common stock. The U.S. Holder would also be permitted an ordinary
loss in respect of the excess, if any, of the U.S. Holder’s adjusted tax basis
in the common stock over its fair market value at the end of the taxable year,
but only to the extent of the net amount previously included in income as a
result of the mark-to-market election. A U.S. Holder’s tax basis in his common
stock would be adjusted to reflect any such income or loss amount. Gain realized
on the sale, exchange or other disposition of our common stock would be treated
as ordinary income, and any loss realized on the sale, exchange or other
disposition of the common stock would be treated as ordinary loss to the extent
that such loss does not exceed the net mark-to-market gains previously included
by the U.S. Holder.




Taxation
of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election




Finally,
if we were to be treated as a passive foreign investment company for any taxable
year, a U.S. Holder who does not make either a QEF election or a
“mark-to-market” election for that year, whom we refer to as a “Non-Electing
Holder,” would be subject to special rules with respect to (1) any excess
distribution (i.e., the portion of any distributions received by the
Non-Electing Holder on our common stock in a taxable year in excess of
125 percent of the average annual distributions received by the
Non-Electing Holder in the three preceding taxable years, or, if shorter, the
Non-Electing Holder’s holding period for the common stock), and (2) any
gain realized on the sale, exchange or other disposition of our common stock.
Under these special rules:




·
            the
      excess distribution or gain would be allocated ratably over the
      Non-Electing Holders’ aggregate holding period for the common
      stock;




·
            the
      amount allocated to the current taxable year and any taxable year before
      we became a passive foreign investment company would be taxed as ordinary
      income; and




·
            the
      amount allocated to each of the other taxable years would be subject to
      tax at the highest rate of tax in effect for the applicable class of
      taxpayer for that year, and an interest charge for the deemed deferral
      benefit would be imposed with respect to the resulting tax attributable to
      each such other taxable year.




These
penalties would not apply to a pension or profit sharing trust or other
tax-exempt organization that did not borrow funds or otherwise utilize leverage
in connection with its acquisition of our common stock. If a Non-Electing Holder
who is an individual dies while owning our common stock, such holder’s successor
generally would not receive a step-up in tax basis with respect to such
stock.




United
States Federal Income Taxation of “Non-U.S. Holders”




A
beneficial owner of common stock (other than a partnership) that is not a U.S.
Holder is referred to herein as a “Non-U.S. Holder.”




70


Dividends
on Common Stock




Non-U.S.
Holders generally will not be subject to United States federal income tax or
withholding tax on dividends received from us with respect to our common stock,
unless that income is effectively connected with the Non-U.S. Holder’s conduct
of a trade or business in the United States. If the Non-U.S. Holder is entitled
to the benefits of a United States income tax treaty with respect to those
dividends, that income is taxable only if it is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United
States.




Sale,
Exchange or Other Disposition of Common Stock




Non-U.S.
Holders generally will not be subject to United States federal income tax or
withholding tax on any gain realized upon the sale, exchange or other
disposition of our common stock, unless:




·
            the
      gain is effectively connected with the Non-U.S. Holder’s conduct of a
      trade or business in the United States. If the Non-U.S. Holder is entitled
      to the benefits of an income tax treaty with respect to that gain, that
      gain is taxable only if it is attributable to a permanent establishment
      maintained by the Non-U.S. Holder in the United States;
  or




·
            the
      Non-U.S. Holder is an individual who is present in the United States for
      183 days or more during the taxable year of disposition and other
      conditions are met.




If the
Non-U.S. Holder is engaged in a United States trade or business for United
States federal income tax purposes, the income from the common stock, including
dividends and the gain from the sale, exchange or other disposition of the stock
that is effectively connected with the conduct of that trade or business will
generally be subject to regular United States federal income tax in the same
manner as discussed in the previous section relating to the taxation of U.S.
Holders. In addition, if you are a corporate Non-U.S. Holder, your earnings and
profits that are attributable to the effectively connected income, which are
subject to certain adjustments, may be subject to an additional branch profits
tax at a rate of 30%, or at a lower rate as may be specified by an applicable
income tax treaty.




Backup
Withholding and Information Reporting




In
general, dividend payments, or other taxable distributions, made within the
United States to you will be subject to information reporting requirements. Such
payments will also be subject to backup withholding tax if you are a
non-corporate U.S. Holder and you:




·
            fail
      to provide an accurate taxpayer identification
  number;




·
            are
      notified by the Internal Revenue Service that you have failed to report
      all interest or dividends required to be shown on your federal income tax
      returns; or




·
            in
      certain circumstances, fail to comply with applicable certification
      requirements.




Non-U.S.
Holders may be required to establish their exemption from information reporting
and backup withholding by certifying their status on Internal Revenue Service
Form W-8BEN, W-8ECI or W-8IMY, as applicable.




If you
sell your common stock to or through a United States office or broker, the
payment of the proceeds is subject to both United States backup withholding and
information reporting unless you certify that you are a non-U.S. person, under
penalties of perjury, or you otherwise establish an exemption. If you sell your
common stock through a non-United States office of a non-United States broker
and the sales proceeds are paid to you outside the United States then
information reporting and backup withholding generally will not apply to that
payment. However, United States information reporting requirements, but not
backup withholding, will apply to a payment of sales proceeds, even if that
payment is made to you outside the United States, if you sell your common stock
through a non-United States office of a broker that is a United States person or
has some other contacts with the United States.






71




Backup
withholding tax is not an additional tax. Rather, you generally may obtain a
refund of any amounts withheld under backup withholding rules that exceed your
income tax liability by filing a refund claim with the Internal Revenue
Service.




Marshall
Islands Tax Consequences




We are
incorporated in the Marshall Islands. Under current Marshall Islands law, we are
not subject to tax on income or capital gains, and no Marshall Islands
withholding tax will be imposed upon payments of dividends by us to our
stockholders.




F. Dividends
and paying agents




Not
Applicable.




G. Statement
by experts




Not
Applicable.




H. Documents
on display




We file
reports and other information with the SEC. These materials, including this
annual report and the accompanying exhibits, may be inspected and copied at the
public reference facilities maintained by the Commission at 100 F Street, N.E.,
Washington, D.C. 20549, or from the SEC’s website http://www.sec.gov. You may
obtain information on the operation of the public reference room by calling 1
(800) SEC-0330 and you may obtain copies at prescribed rates.




I. Subsidiary
information




Not
Applicable.




Item
11. Quantitative and Qualitative Disclosures about Market Risk




Interest
Rates




The
international drybulk industry is a capital intensive industry, requiring
significant amounts of investment. Much of this investment is provided in the
form of long term debt. Our debt usually contains interest rates that fluctuate
with LIBOR. Increasing interest rates could adversely impact future
earnings.




During
2007, we had no outstanding borrowings under our credit facility and did not
make any interest payments. Under our term loan with Commerzebank AG we pay an
interest rate of LIBOR plus a margin of up to 1.25%. Under our term loan with
Piraeus Bank A.E.we pay an interest rate of LIBOR plus a margin of 1.25%. As of
June 25, 2008, we had $120.0 million outstanding under our term loan with
Commerzebank AG and $85.0 million outstanding under our term loan with Piraeus
Bank A.E.




Our
estimated interest expense for the year ended December 31, 2008 is $7.9
million.  Our interest expense estimate is based on the amount of our
outstanding borrowings under our term loan facilities as at June 25, 2008 and
the average interest rate of our term loan facilities for the the three months
ended March 31, 2008, in the amount of 4.4%.




Our
interest expense is affected by changes in the general level of interest rates.
As an indication of the extent of our sensitivity to interest rate changes, an
increase of 100 basis points will increase our income expense for the year ended
December 31, 2008 by $1.4 million assuming the same debt profile throughout the
year.






72




The
following table sets forth the sensitivity of loans in millions of U.S. dollars
to a 100 basis points increase in LIBOR during the next five years:





For
      the year
              ended
              December
      31,
            
            Estimated
      amount
              of
      interest expense
            
            
            Estimated
      amount
              of
      interest expense after an increase of 100 basis points
            
            
            Sensitivity2008
            
            
            7.9
            
            
            
            9.3
            
            
            
            1.42009
            
            
            7.0
            
            
            
            7.4
            
            
            
            0.42010
            
            
            5.1
            
            
            
            6.3
            
            
            
            1.22011
            
            
            4.1
            
            
            
            5.0
            
            
            
            0.92012
            
            
            3.6
            
            
            
            4.4
            
            
            
            0.827.7
            
            
            
            32.4
            
            
            
            4.7




Currency
and Exchange Rates




We
generate all of our revenues in dollars and there were no operating expenses in
currencies other than the U.S. dollar. However, 10% of our general and
administrative expenses including consulting fees, salaries and traveling
expenses were incurred in Euros. For accounting purposes, expenses incurred in
Euros are converted into Dollars at the exchange rate prevailing on the date of
each transaction. Because a significant portion of our expenses are incurred in
currencies other than the U.S. dollar, our expenses may from time to time
increase relative to our revenues as a result of fluctuations in exchange rates,
particularly between the U.S. dollar and the Euro, which could affect the amount
of net income that we report in future periods. As of December 31, 2007, the
effect of a 1% adverse movement in U.S. dollar/Euro exchange rates would have
resulted in an increase of $7,756 in our general and administrative expense.
While we historically have not mitigated the risk associated with exchange rate
fluctuations through the use of financial derivatives, we may determine to
employ such instruments from time to time in the future in order to minimize
this risk. Our use of financial derivatives, including interest rate swaps,
would involve certain risks, including the risk that losses on a hedged position
could exceed the nominal amount invested in the instrument and the risk that the
counterparty to the derivative transaction may be unable or unwilling to satisfy
its contractual obligations, which could have an adverse effect on our
results.




Item
12. Description of Securities Other than Equity Securities




A. Debt
securities




Not
Applicable.




B. Warrants
and rights




Not
Applicable.




C. Other
securities




Not
Applicable.




D. American
depository shares




Not
Applicable.




PART
II




Item
13. Defaults, Dividend Arrearages and Delinquencies




None.






73




Item
14. Material Modifications to the Rights of Security Holders and Use of Proceeds




None.




Item
15. Controls and Procedures




(a)  Disclosure Controls and
Procedures




The
Company’s Chief Executive Officer and Chief Financial Officer have conducted an
evaluation of the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2007.
The Company’s disclosure controls and procedures are designed to ensure that
information required to be disclosed in the reports the Company files under the
Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms,
and that such information is accumulated and communicated to the Company’s
management, including the Company’s Chief Executive Officer and Chief Financial
Officer, to allow for timely decisions regarding required
disclosures.




Based on
this evaluation, the Company’s Chief Executive Officer and Chief Financial
Officer concluded that, as of December 31, 2007, the Company’s disclosure
controls and procedures were not effective because of the material weaknesses in
internal control over financial reporting described below.




(b)  Management’s
Annual Report on Internal Control Over Financial Reporting




Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities and Exchange Act of 1934, as amended. The Company’s internal control
over financial reporting is a process designed under the supervision of the
Company’s Chief Executive Officer and Chief Financial Officer, and carried out
by the Company’s Board of Directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of the Company’s financial
reporting and the preparation of the Company’s consolidated financial statements
for external reporting purposes in accordance with U.S. GAAP. The Company’s
internal control over financial reporting includes policies and procedures
that:




·
            Pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect transactions and dispositions of assets of the
      Company;




·
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of consolidated financial statements in accordance with U.S.
      GAAP, and that receipts and expenditures are being made only in accordance
      with authorizations of management and directors of the Company;
      and




·
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of the Company’s assets that
      could have a material effect on the consolidated financial
      statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




As
defined in Exchange Act Rule 12b-2, a material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement of the
registrant’s annual or interim financial statements will not be prevented or
detected on a timely basis by the company’s internal control over financial
reporting.






74




Star
Maritime was previously a blank check company formed in Delaware on May 13, 2005
to serve as a vehicle for the acquisition, through merger, capital stock
acquisition, asset acquisition or similar business combinations with one or more
businesses in the shipping industry. On November 27, 2007, the shareholders
approved a merger transaction between Star Bulk and Star Maritime which resulted
in Star Bulk as the surviving entity.  Star Bulk commenced operations
on December 3, 2007 by taking delivery of the first vessel from TMT and at
December 31, 2007, the Company operated three vessels.  Prior to the
merger, Star Maritime’s financial reporting processes, systems and internal
controls were designed to support the existing business model. Upon the merger,
Star Bulk required sufficient changes to existing financial processes, systems,
and controls and undertook an initiative to design and implement internal
controls over financial reporting relevant to Star Bulk’s operations as a
shipping company.




Management
has assessed the effectiveness of the Company’s internal control over financial
reporting at December 31, 2007, based on the framework established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on the aforementioned assessment, management
concluded that internal control over financial reporting was not effective due
to material weaknesses identified in the Company’s internal control over
financial reporting.




Star Bulk
took delivery of its first vessel in December 2007 and as a result,
Management began the process to replace the internal controls over financial
reporting which previously existed while the Company was a blank check company
with those of a company that owns and operates vessels.  Although
progress was made,  the Company did not have sufficient time to
complete designing and implementing a comprehensive system of internal controls
over financial reporting that would prevent or timely detect material
adjustments and identify financial statement disclosure
requirements.  Consequently, adjustments and disclosures that were
material in the aggregate to the consolidated financial statements and
necessary to present the consolidated financial statements for the year ended
December 31, 2007 in accordance with U.S. GAAP were made by the Company
after being identified by the Company’s independent registered public accounting
firm.  Specifically, we did not have in place adequate internal
controls over our financial closing and reporting processes and we lacked
sufficient accounting personnel with the necessary level of US GAAP expertise
which resulted in the Company not being able to:




·
            Properly
      evaluate and account for non-routine or complex transactions, including
      the determination of the purchase price of the vessels, fair value of time
      charter agreements acquired, the application of SFAS 123(R), the
      classification of expenses related to the target acquisition process, and
      the completeness of the accrual of general and administrative
      expenses




·
            Properly
      identify all financial statement disclosure requirements in accordance
      with U.S. GAAP including disclosure surrounding related party
      transactions.




We have
determined that these adjustments were not prevented or detected due
to material weaknesseses in our controls due to the absence of
sufficient time for management to (1) design and implement a comprehensive
system of internal controls and (2) hire sufficient accounting personnel with
the requisite US GAAP expertise that are required to support our operation as a
shipping company. However, management has made the necessary adjustments to
present the annual consolidated financial statements for the year ended December
31, 2007 in accordance with U.S. GAAP.






75




(c)
Attestation Report of the Independent Registered Public Accounting
Firm




Deloitte,
Hadjipavlou Sofianos & Cambanis S.A., our independent registered public
accounting firm, as auditors of the consolidated financial statements of the
Company for the year ended December 31, 2007, has also audited the
effectiveness of the Company’s internal control over financial reporting as
stated in their audit report which is included below.


(d)  Change
in Internal Control over Financial Reporting




The
following changes were made to the Company’s internal control over financial
reporting during the year ended December 31, 2007 that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting:
 
 Upon the
effectiveness of the Redomiciliation Merger, the Company made significant
changes to existing financial processes, systems, and controls and undertook an
initiative to design and implement internal controls over financial reporting
relevant to Star Bulk’s operations as a shipping company. The Company’s existing
financial reporting processes were all replaced or enhanced. The previously
outsourced accounting function was replaced with the Company’s own accounting
personnel and new operational functions.
 
 In
addition, a newly-formed Board of Directors was appointed, composed of seven
members (two of whom were new members representing TMT, the seller of the
vessels to the Company), the committees of the Board of Directors were
reconstituted, a new audit committee charter and other board committee charters
were adopted and various corporate governance policies were
implemented.
 
 The
Company also implemented significant business processes, which are designed to
address financial reporting and closing processes.




(e)  Remediation
efforts and/or plans for the remediation




We are in
the process of implementing a remediation plan to address the material
weaknesses described above and a number of steps have already been taken to
improve our financial close and reporting and our disclosure controls and
procedures.
  Specifically,
since the beginning of 2008, the following actions have been
taken:




·
            We
      have appointed external consultants (one of the 4 largest consulting
      companies) to assist us with completing our implementation of a
      comprehensive system of internal controls over financial closing and
      reporting.  In addition, the consultants will be assisting us
      with documenting and evaluating the adequacy and operating effectiveness
      of our company’s internal control
environment.




·
            We
      have hired two senior accounting staff with US GAAP expertise and
      significant professional experience in the shipping industry and in
      particular in other US listed companies, to cover the positions of
      company’s Financial Controller as well as the Financial Reporting
      Manager.




·
            We
      are in the process of establishing a policy for the training of our
      accounting personnel in US GAAP.




The Audit
Committee of the Board of Directors has been informed of the material weaknesses
in financial reporting and closing process and over the application of U.S.
GAAP. They are being updated as to the Company’s remediation progress, and we
would expect this communication to continue until all control deficiency issues
are addressed and remediated to their satisfaction.




Inherent
Limitations Over Controls




Our
management recognizes that any controls and procedures no matter how well
designed or operated, can only provide reasonable assurance that the objectives
of the control system are met. Further, 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.  Our disclosure
controls and procedures have been designed to provide reasonable assurance of
achieving their objectives.  However, because of the inherent limitations
in all control systems, even after the remediation efforts described above, no
evaluation of controls can provide absolute assurance that all control issues,
if any, within the Company, have been detected.




76




To the
Board of Directors and Stockholders of


Star Bulk
Carriers Corp.


Marshall
Islands




We have
audited Star Bulk Carriers Corp. (formerly Star Maritime Acquisition
Corp.)  and subsidiaries (the “Company's”) internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.  The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control over
Financial Reporting.  Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our
audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects.  Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on that risk, and performing such other procedures as
we considered necessary in the circumstances.  We believe that our audit
provides a reasonable basis for our opinion.




A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.




Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis.  Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.




A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis.  The
following material weaknesses have been identified and included in management's
assessment:




As of
December 31, 2007, the Company did not maintain effective internal control over
financial closing and reporting process and lacked sufficient accounting
personnel with the necessary level of US GAAP expertise which resulted in the
Company not being able to:




·
            Properly
      evaluate and account for non-routine or complex transactions, including
      the determination of the purchase price of the vessels, fair value of time
      charter agreements acquired, the application of SFAS 123(R), the
      classification of expenses related to the target acquisition process, and
      the completeness of the accrual of general and administrative
      expenses





·
            Properly
      identify all financial statement disclosure requirements in accordance
      with U.S. GAAP including disclosure surrounding related party
      transactions.






77




These
material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the consolidated financial
statements as of and for the year ended December 31, 2007, of the Company and
this report does not affect our report on such financial
statements.




In our
opinion, because of the effect of the material weaknesses identified above on
the achievement of the objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting as of December
31, 2007, based on the criteria established in Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.




We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2007, of the Company and our report dated June
27, 2008 expressed an unqualified opinion on those financial
statements.






/s/
Deloitte
  Hadjipavlou
Sofianos & Cambanis S.A.




Athens,
Greece


June 27,
2008






Item
16A. Audit Committee Financial Expert




The Board
of Directors of the Company has determined that Mr. [Erhart/Softeland], whose
biographical details are included in Item 6 “Directors and Senior Management,” a
member of our Audit Committee qualifies as a financial expert and is considered
to be independent according to the SEC rules.




Item
16B. Code of Ethics




The
Company has adopted a code of ethics that applies to its directors, officers and
employees. A copy of our code of ethics is posted in the “Investor Relations”
section of the Star Bulk Carriers Corp. website, and may be viewed at http://www.starbulk.com.
Shareholders may be direct their requests to the attention of Investor
Relations, Star Bulk Carriers Corp., 40 Ag. Konstantinou Avenue, Aethrion
Center, Suite B34, Maroussi 15124 Athens, Greece.




Item
16C. Principal Accountant Fees and Services




Deloitte,
Hadjipavlou, Sofianos & Cambanis S.A., Certified Auditors Accountants
S.A, or Deloitte, have audited our annual consolidated financial statements
acting as our Independent Registered Public Accounting Firm for the fiscal years
ended December 31, 2007.




The table
below sets forth the total fees for the services performed by Deloitte in 2007
and Goldstein Golub Kessler LLP in 2005, 2006 and 2007 and breaks these amounts
by category of services.




(Stated
      in thousands of dollars)
            
            2005
            
            
            2006
            
            
            2007Audit
      fees
            
            
            59
            
            
            
            53
            
            
            
            748Audit-related
      fees -­
            
            
            -
            
            
            
            -
            
            
            
            -Tax
      fees
            
            
            -
            
            
            
            -
            
            
            
            -All
      other feesTotal
      fees
            
            
            59
            
            
            
            53
            
            
            
            748





The Audit
Committee is responsible for the appointment, replacement, compensation,
evaluation and oversight of the work of the independent auditors. As part of
this responsibility, the Audit Committee pre-approves the audit and non-audit
services performed by the independent auditors in order to assure that they do
not impair the auditor’s independence from the Company. The Audit Committee has
adopted a policy which sets forth the procedures and the conditions pursuant to
which services proposed to be performed by the independent auditors may be
pre-approved.




78






Item
16D. Exemptions from the Listing Standards for Audit Committees




Not
Applicable.




Item
16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers




The
Company did not repurchase any shares or warrants in the year ended December 31,
2007. For a description of our share and warrant repurchase program commenced in
January 2008, please see Item 4. “Information on the Company—Business
Overview—Other Significant Transactions.”




PART
III




Item
17. Financial Statements




See Item
18 “Financial Statements.”




Item
18. Financial Statements




The
following consolidated financial statements, beginning on page F-1,
together with the report of Deloitte thereon, are filed as a part of this
report.




79


Item
19. Exhibits




Number
            Description
      of Exhibition1.1
            Amended
      and Restated Articles of Incorporation of Star Bulk Carriers Corp. (1)1.2
            Amended
      and Restated bylaws of the Company (2)2.1
            Form
      of Share Certificate (3)2.2
            Form
      of Warrant Certificate (4)2.3
            Form
      of 2007 Equity Incentive Plan (5)2.4
            Stock
      Escrow Agreement (6)2.5
            Form
      of Warrant Agreement between American Stock Transfer & Trust Company
      and the Registrant (7)2.6
            Registration
      Rights Agreement (8)4.1
            Management
      Agreement with Combine Marine Inc.(9)4.2
            Agreement
      and Plan of Merger (10)4.3
            Master
      Agreement, as amended (11)4.4
            Supplemental
      Agreement (12)4.5
            Loan
      Agreement with Commerzbank AG dated December 27, 20074.6
            Loan
      Agreement with Piraeus Bank A.E. dated April 14, 20084.7
            Addendum
      No. 1 to Loan Agreement with Piraeus Bank A.E. dated April 17,
      20088.1
            Subsidiaries
      of the Company12.1
            Certification
      of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule
      15d-14(a) of the Securities Exchange Act, as amended.12.2
            Certification
      of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule
      15d-14(a) of the Securities Exchange Act, as amended.13.1
            Certification
      of the Principal Executive Officer pursuant to 18 USC Section 1350, as
      adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.13.2
            Certification
      of the Principal Financial Officer pursuant to 18 USC Section 1350, as
      adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.


________________________


(1)
            Filed as
      Exhibit 3.1 to the Company’s Joint Proxy/Registration Statement (File No.
      333-141296) on March 14, 2007.(2)
            Filed as Exhibit 3.2
      to the Company’s Joint Proxy/Registration Statement (File No. 333-141296)
      on March 14, 2007.(3)
            Filed as Exhibit 4.1
      to the Company’s Joint Proxy/Registration Statement (File No. 333-141296)
      on March 14, 2007.(4)
            Filed as Exhibit 4.3
      to Star Maritime’s Registration Statement (File No. 333-125662) on October
      26, 2005.(5)
            Filed as Exhibit
      10.2 to the Company’s Joint Proxy/Registration Statement (File No.
      333-141296) on March 14, 2007.(6)
            Filed as Exhibit
      10.9 to Star Maritime’s Registration Statement (File No. 333-125662) on
      June 9, 2005.(7)
            Filed as Exhibit 4.4
      to Star Maritime’s Registration Statement (File No. 333-125662) on June 9,
      2005.(8)
            Filed as Exhibit
      10.13 to Star Maritime’s Registration Statement (File No. 333-125662) on
      June 9, 2005.(9)
            Filed as Exhibit
      10.16 to the Company’s Joint Proxy/Registration Statement (File No.
      333-141296) on May 24, 2007.(10)
            Filed as Exhibit 1.1
      to the Company’s Joint Proxy/Registration Statement (File No. 333-141296)
      on March 14, 2007.(11)
            Filed as Exhibit
      10.19 to the Company’s Joint Proxy/Registration Statement (File No.
      333-141296) on October 12, 2007.(12)
            Filed as Exhibit
      10.11 to the Company’s Joint Proxy/Registration Statement (File No.
      333-141296) on March 14, 2007.




80


STAR BULK
CARRIERS CORP.


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS




Star
      Bulk Carriers Corp.
            
            PageReport
      of Independent Registered Public Accounting Firm (Goldstein Golub Kessler
      LLP)
            
            F-2Report
      of Independent Registered Public Accounting Firm (Deloitte, Hadjipavlou
      Sofianos & Cambanis S.A.)
            
            F-3Consolidated
      Balance Sheets as of December 31, 2006 and 2007
            
            F-4Consolidated
      Statements of Income for the period from May 13, 2005 (date of inception)
      to December 31, 2005 and for the years ended December 31, 2006 and
      2007
            
            F-5Consolidated
      Statements of Stockholders’ Equity for the period from May 13, 2005 (date
      of inception) to December 31, 2005 and for the years ended December 31,
      2006 and 2007
            
            F-6Consolidated
      Statements of Cash Flows for the period from May 13, 2005 (date of
      inception) to December 31, 2005 and for the years ended December 31, 2006
      and 2007
            
            F-7Notes
      to Consolidated Financial Statements
            
            F-8





F-1


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To
the Board of Directors
 Star
Bulk Carriers Corp.
  We
have audited the accompanying consolidated balance sheet of Star Bulk Carriers
Corp. (formerly Star Maritime Acquisition Corp.) (a corporation in the
development stage) as of December 31, 2006 and the related consolidated
statements of income, stockholders’ equity and cash flows for the year ended
December 31, 2006 and for the period from May 13, 2005 (date of inception) to
December 31, 2005. These consolidated financial statements are the
responsibility of the company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The audits include
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. The audits also include assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
  In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Star Bulk Carriers
Corp. as of December 31, 2006 and the results of its operations and its cash
flows for the year ended December 31, 2006 and for the period from May 13, 2005
(date of inception) to December 31, 2005 in conformity with United States
generally accepted accounting principles.
   /s/
GOLDSTEIN GOLUB KESSLER LLP
  GOLDSTEIN
GOLUB KESSLER LLP
  New
York, New York
 March
10, 2007
  F-2


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






To the
Board of Directors and Stockholders of


Star Bulk
Carriers Corp.


Marshall
Islands






We have
audited the accompanying consolidated balance sheet of Star
Bulk Carriers Corp. (formerly Star Maritime Acquisition Corp.) and subsidiaries
(the “Company”) as of December 31, 2007, and the related consolidated statements
of income, stockholders’ equity, and cash flows for the year then ended. 
These consolidated financial statements are the responsibility ofthe Company’s management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis for
our opinion.




In our
opinion, such 2007 consolidated financial statements present fairly, in all
material respects, the financial position of Star Bulk Carriers Corp. and
subsidiaries at December 31, 2007, and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.




We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated June 27, 2008 expressed an adverse
opinion on the Company’s internal control over financial reporting because of
the material weaknesses.






/s/
Deloitte
  Hadjipavlou
Sofianos & Cambanis S.A.


Athens,
Greece


June 27,
2008




F-3




STAR
      BULK CARRIERS CORP.Consolidated
      Balance SheetsDecember
      31, 2006 and 2007(Expressed
      in thousands of U.S. dollars except for share and per share
      data)2006
            
            
            2007ASSETSCurrent
      AssetsCash
      and cash equivalents
            
            
            2,118
            
            
            
            18,985Investments
      in trust account
            
            
            192,915
            
            
            
            -Inventories
      (Note 4)
            
            
            -
            
            
            
            598Prepaid
      expenses and other receivables
            
            
            150
            
            
            
            299Total
      Current Assets
            
            
            195,183
            
            
            
            19,882FIXED
      ASSETSAdvances
      for vessels to be acquired  (Note 5)
            
            
            -
            
            
            
            118,242Vessels,
      net (Note 6)
            
            
            -
            
            
            
            262,855Office
      furniture and equipment, net
            
            
            3
            
            
            
            91Total
      Fixed Assets
            
            
            3
            
            
            
            381,188OTHER
      NON-CURRENT ASSETSDeferred
      finance charges (Note 7)
            
            
            -
            
            
            
            600Due
      from managers
            
            
            -
            
            
            
            120Fair
      value of above market acquired time charter agreements (Note
      8)
            
            
            -
            
            
            
            1,952TOTAL
      ASSETS
            
            
            195,186
            
            
            
            403,742LIABILITIES
      & STOCKHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      payable
            
            
            199
            
            
            
            168Due
      to related party (Note 3)
            
            
            -
            
            
            
            480Accrued
      liabilities (Note 9)
            
            
            404
            
            
            
            1,493Income
      taxes payable
            
            
            207
            
            
            
            -Deferred
      revenue
            
            
            -
            
            
            
            916Deferred
      interest on investments (Note 1)
            
            
            2,163
            
            
            
            -Deferred
      underwriting fees
            
            
            4,000
            
            
            
            -Total
      Current Liabilities
            
            
            6,973
            
            
            
            3,057NON
      CURRENT LIABILITIESFair
      value of below market acquired time charter agreements (Note
      8)
            
            
            -
            
            
            
            25,307Common
      Stock, $.0001 par value, 6,599,999 shares subject to possible redemption,
      at redemption value of $9.80 per share (Note 1)
            
            
            64,680
            
            
            
            -Commitments
      and contingencies (Note 15)
            
            
            -
            
            
            
            -Stockholders’
      EquityPreferred
      Stock; $0.0001 par value authorized, 1,000,000 shares ; none issued or
      outstanding  at December 31, 2006 and $0.01 par value,
      authorized, 25,000,000 shares ; none issued or outstanding at December 31,
      2007 (Note 11)
            
            
            -
            
            
            
            -Common
      Stock, $0.0001 par
      value, 100,000,000 shares authorized at December 31, 2006
      and  $0.01 par value, 100,000,000 shares authorized at December
      31, 2007; 29,026,924 and 42,516,433 shares issued and outstanding at
      December 31, 2006 and 2007, respectively (Note 11)
            
            
            3
            
            
            
            425Additional
      paid in capital  (Note 11)
            
            
            120,442
            
            
            
            368,454Retained
      earnings
            
            
            3,088
            
            
            
            6,499Total
      Stockholders’ Equity
            
            
            123,533
            
            
            
            375,378TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            
            195,186
            
            
            
            403,742The
      accompanying notes are an integral part of these consolidated financial
      statements




F-4





STAR
      BULK CARRIERS CORP.Consolidated
      Statements of IncomeFor
      the period from May 13, 2005 to December 31, 2005 and
              for
      the years ended December 31, 2006 and 2007(Expressed
      in thousands of U.S. dollars except for share and per share
      data)May
      13, 2005 (date of inception) to
              December
      31,
            
            
            Year
      ended December 31,
            
            
            Year
      Ended December 31,2005
            
            
            2006
            
            
            2007REVENUES:Voyage
      revenues (Note 2)
            
            
            -
            
            
            
            -
            
            
            
            3,633EXPENSES:Voyage
      expenses (Note 16)
            
            
            -
            
            
            
            -
            
            
            
            43Vessel
      operating expenses (Note 16)
            
            
            -
            
            
            
            -
            
            
            
            645Depreciation
      (Note 6)
            
            
            -
            
            
            
            1
            
            
            
            745General
      and administrative expenses
            
            
            50
            
            
            
            1,210
            
            
            
            7,75650
            
            
            
            1,211
            
            
            
            9,189Operating
      loss
            
            
            (50
            )
            
            
            (1,211
            )
            
            
            (5,556
            )OTHER
      INCOME (EXPENSES):Finance
      costs
            
            
            -
            
            
            
            -
            
            
            
            (45
            )Interest
      income
            
            
            183
            
            
            
            4,396
            
            
            
            9,021Total
      other income, net
            
            
            183
            
            
            
            4,396
            
            
            
            8,976Net
      income, before taxes
            
            
            133
            
            
            
            3,185
            
            
            
            3,420US
      Source Income taxes (Note 14)
            
            
            (23
            )
            
            
            (207
            )
            
            
            (9
            )Net
      income
            
            
            110
            
            
            
            2,978
            
            
            
            3,411Earnings
      per share, basic (Note 12)
            
            
            0.01
            
            
            
            0.10
            
            
            
            0.11Earnings
      per share, diluted (Note 12)
            
            
            0.01
            
            
            
            0.10
            
            
            
            0.09Weighted
      average number of shares outstanding, basic
            
            
            9,918,282
            
            
            
            29,026,924
            
            
            
            30,065,923Weighted
      average number of shares outstanding, diluted
            
            
            9,918,282
            
            
            
            29,026,924
            
            
            
            36,817,616The
      accompanying notes are an integral part of these consolidated financial
      statements


F-5


STAR
BULK CARRIERS CORP.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY




For
the period from May 13, 2005 to December 31, 2005 and for the years ended
December 31, 2006 and 2007
 (Expressed
in thousands of U.S. dollars except for share and per share
data)


Earningsaccumulatedin
      thedevelopmentAdditional
            
            
            stage
      and
            
            
            TotalCommon
      Stock
            
            
            Paid-in
            
            
            retained
            
            
            stockholders’# of Shares
            
            
            Par Value
            
            
            Capital
            
            
            earnings
            
            
            equityNet
      income May
      13, 2005 (Date of Inception) to December 2005
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            110
            
            
            
            110Stock
      Issuance on May 17, 2005 at $.003 per share
            
            
            
            $
            9,026,924
            
            
            $
            1
            
            
            $
            24
            
            
            $
            -
            
            
            $
            25Private
      placement issued December 15, 2005 at $10 per share
            
            
            
            
            1,132,500
            
            
            
            0
            
            
            
            11,325
            
            
            
            -
            
            
            
            11,325Common
      shares issued December 21, 2005 at $10 per share
            
            
            
            
            18,867,500
            
            
            
            2
            
            
            
            188,673
            
            
            
            -
            
            
            
            188,675Expenses
      of offerings
            
            
            
            
            -
            
            
            
            -
            
            
            
            (14,900
            )
            
            
            -
            
            
            
            (14,900
            )Proceeds
      subject to possible redemption of 6,599,999 shares
            
            
            
            
            -
            
            
            
            -
            
            
            
            (64,680
            )
            
            
            -
            
            
            
            (64,680
            )BALANCE,
      December 31, 2005
            
            
            
            $
            29,026,924
            
            
            $
            3
            
            
            $
            120,442
            
            
            $
            110
            
            
            $
            120,555Net
      Income
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,978
            
            
            
            2,978BALANCE,
      December 31, 2006
            
            
            
            
            29,026,924
            
            
            $
            3
            
            
            $
            120,442
            
            
            $
            3,088
            
            
            $
            123,533Net
      income
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,411
            
            
            
            3,411Redomiciliation
      Merger common stock par value change
            
            
            
            
            -
            
            
            
            287
            
            
            
            (287
            )
            
            
            -
            
            
            
            -Issuance
      of common stock to TMT
            
            
            
            
            12,537,645
            
            
            
            125
            
            
            
            175,830
            
            
            
            -
            
            
            
            175,955Warrants
      exercised
            
            
            
            
            951,864
            
            
            
            10
            
            
            
            7,605
            
            
            
            -
            
            
            
            7,615Reclassification
      of common stock subject to redemption
            
            
            
            
            -
            
            
            
            -
            
            
            
            64,680
            
            
            
            -
            
            
            
            64,680Stock-based
      compensation
            
            
            
            
            -
            
            
            
            -
            
            
            
            184
            
            
            
            -
            
            
            
            184BALANCE,
      December 31, 2007
            
            
            
            $
            42,516,433
            
            
            $
            425
            
            
            $
            368,454
            
            
            $
            6,499
            
            
            $
            375,378The
      accompanying notes are an integral part of these consolidated financial
      statements


F-6


STAR
      BULK CARRIERS CORP.CONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the period from May 13, 2005 to December 31, 2005 and for the years ended
      December 31, 2006 and 2007(Expressed
      in thousands of U.S. dollars)May
      13, 2005 (date of inception) to
            
            Year
      ended
            
            Year
      endedDecember
      31,
            
            December
      31,
            
            December
      31,2005
            
            2006
            
            
            2007Cash
      Flows from Operating Activities:Net
      income
            
            
            110
            
            
            
            2,978
            
            
            
            3,411Adjustments
      to reconcile net income to net cash provided by/(used in) operating
      activities:Depreciation
            
            
            -
            
            
            
            1
            
            
            
            745Amortization
      of  fair value of above market
              acquired
      time charter
            
            
            -
            
            
            
            -
            
            
            
            28Amortization
      of  fair value of below market
              acquired
      time charter
            
            
            -
            
            
            
            -
            
            
            
            (1,465
            )Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            184Deferred
      interest
            
            
            -
            
            
            
            -
            
            
            
            (2,163
            )Changes
      in operating assets and liabilities:(Increase)/Decrease
      in:Increase
      in fair value of trust account
            
            
            (183
            )
            
            
            (4,057
            )
            
            
            (1,179
            )Inventories
            
            
            -
            
            
            
            -
            
            
            
            (598
            )Prepaid
      expenses and other receivables
            
            
            (119
            )
            
            
            (31
            )
            
            
            (68
            )Due
      from managers
            
            
            -
            
            
            
            -
            
            
            
            (120
            )Deferred
      tax asset
            
            
            (9
            )
            
            
            9
            
            
            
            -Increase/(Decrease)
      in:Accounts
      payable
            
            
            174
            
            
            
            93
            
            
            
            (31
            )Due
      to related party
            
            
            -
            
            
            
            -
            
            
            
            480Accrued
      liabilities
            
            
            -
            
            
            
            336
            
            
            
            437Income
      taxes payable
            
            
            -
            
            
            
            207
            
            
            
            (207
            )Deferred
      revenue
            
            
            -
            
            
            
            -
            
            
            
            916Deferred
      interest
            
            
            -
            
            
            
            2,163
            
            
            
            -Net
      Cash provided by/(used in) Operating
              Activities
            
            
            (27
            )
            
            
            1,699
            
            
            
            370Cash
      Flows from Investing Activities:Cash
      (contribution to) / disbursements from trust
              account
            
            
            (188,675
            )
            
            
            -
            
            
            
            194,094Advances
      for vessels to be acquired
            
            
            -
            
            
            
            -
            
            
            
            (83,444
            )Additions
      to vessel cost
            
            
            -
            
            
            
            -
            
            
            
            (95,604
            )Cash
      paid for above market acquired time charter
            
            
            -
            
            
            
            -
            
            
            
            (1,980
            )Purchases
      of office equipment
            
            
            
            
            
            
            (4
            )
            
            
            (103
            )Net
      cash provided by/(used in) Investing
              Activities
            
            
            (188,675
            )
            
            
            (4
            )
            
            
            12,963Cash
      Flows from Financing Activities:Gross
      proceeds from public offering
            
            
            188,675
            
            
            
            -
            
            
            
            -Gross
      proceeds from private placement
            
            
            11,325
            
            
            
            -
            
            
            
            -Proceeds
      of note payable to stockholder
            
            
            590
            
            
            
            -
            
            
            
            -Repayment
      of note payable to stockholder
            
            
            (590
            )
            
            
            -
            
            
            
            -Proceeds
      from exercise of warrants
            
            
            -
            
            
            
            -
            
            
            
            7,534Deferred
      underwriting fees paid
            
            
            -
            
            
            
            -
            
            
            
            (4,000
            )Proceeds
      from sales of shares of common stock
            
            
            25
            
            
            
            -
            
            
            
            -Payment
      of offering costs
            
            
            (10,730
            )
            
            
            (170
            )
            
            
            -Net
      cash provided by/(used in) Financing
              Activities
            
            
            189,295
            
            
            
            (170
            )
            
            
            3,534Net
      increase in cash and cash equivalents
            
            
            593
            
            
            
            1,525
            
            
            
            16,867Cash
      and cash equivalents at beginning of year
            
            
            -
            
            
            
            593
            
            
            
            2,118Cash
      and cash equivalents at end of the year
            
            
            593
            
            
            
            2,118
            
            
            
            18,985SUPPLEMENTAL
      CASH FLOW INFORMATIONCash
      paid during the period forInterest
            
            
            9
            
            
            
            -
            
            
            
            -Income
      taxes
            
            
            -
            
            
            
            -
            
            
            
            216Non-cash
      items:Issue
      of common stock at fair value for delivery of
              vessels
            
            
            -
            
            
            
            -
            
            
            
            175,955Receivable
      from exercise of warrants
            
            
            
            
            
            
            
            
            
            
            81Deferred
      finance charges
            
            
            
            
            
            
            
            
            
            
            600Amount
      owed for capital expenditures
            
            
            -
            
            
            
            -
            
            
            
            52Accrual
      of offering costs
            
            
            171
            
            
            
            -
            
            
            
            -Accrual
      of deferred underwriting fees
            
            
            4,000
            
            
            
            -
            
            
            
            -Fair
      value of below market acquired time charter
            
            
            
            
            
            
            
            
            
            
            26,772The
      accompanying notes are an integral part of these consolidated financial
      statements


F-7


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





1.      Basis
of Presentation and General Information:




On November 30, 2007,Star Maritime Acquisition Corp. (“Star Maritime”) incorporated in the
state of Delaware, merged into its wholly-owned subsidiary at the time, Star
Bulk Carriers Corp. (“Star Bulk”) a company incorporated in Marshall Islands,
with Star Bulk being the surviving entity (collectively, the
“Company,” “we” or “us”).  This merger is referred to as
the “Redomiciliation Merger” or just the “Merger.”


The
accompanying consolidated financial statements as of and for the year ended
December 31, 2007 include the accounts of Star Bulk and its wholly owned
subsidiaries.  The accompanying consolidated financial statements as
of December 31, 2006 and for the period from May 13, 2005 (date of inception)
through December 31, 2005, for the year ended December 31, 2006, and for the
period from January 1, 2007 to November 30, 2007 (date of Redomiciliation
Merger) include the accounts of Star Maritime.




Star Bulk
was incorporated on December 13, 2006 under the laws of the Marshall Islands and
is the sole owner of all of the outstanding shares of Star Bulk Management Inc.
and the ship-owning subsidiaries as set forth below.








F-8


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





1.      Basis
of Presentation and General Information-(continued):




On
January 12, 2007, Star Maritime and Star Bulk entered into definitive agreements
(the “Master Agreement”) to acquire a fleet of eight drybulk carriers (the
“Transaction”) from certain subsidiaries of TMT Co. Ltd. (“TMT”), a shipping
company headquartered in Taiwan. These eight drybulk carriers are referred to as
the initial fleet, or initial vessels.  The aggregate purchase price
specified in the Master Agreement for the initial fleet was $224,500 in cash and
12,537,645




On
November 27, 2007 the Company obtained shareholder approval for the
acquisition of the initial fleet and for effecting the Redomiciliation Merger,
which
became effective on November 30, 2007. The shares of Star Maritime were
exchanged on one-for-one basis with shares of Star Bulk and Star Bulk assumed
the outstanding warrants of Star Maritime.  Subsequently, Star
Maritime shares ceased trading on Amex. 
 Holders
of Star Maritime common stock had the right to redeem their shares for cash by
voting against the Redomiciliation Merger.  Accordingly, at December
31, 2005, the Company had  a liability of $64,680 due to a possible
redemption of 6,599,999 shares of common stock.  Upon completion of
the Redomiciliation Merger none of the redemption rights were exercised
therefore, the liability for the possible redemption was reclassified as
additional paid-in capital during the year ended December 31,
2007.  Deferred interest attributable to common stock subject to a
possible redemption in the amount of $2,163 was recognized in the
consolidated statement of income during the year ended December 31,
2007.
  In
addition, upon completion of the Redomiciliation Merger, all Trust Account
proceeds were released to the Company to complete the Transaction as per the
Master Agreement.  Star Bulk shares and warrants started trading on
the NASDAQ Market on December 3, 2007 under the ticker symbols SBLK and SBLKW,
respectively.  Immediately following the effective date of the
Redomiciliation Merger, TMT and its affiliates owned 30.2% of Star Bulk’s
outstanding common stock.
  The
Company began operations on December 3, 2007 with the delivery of its first
vessel Star Epsilon. By the end of December 2007, Star Bulk took delivery of
three out of eight initial vessels.  Additionally, on December 3,
2007, the Company contracted to acquire an additional Supramax vessel, the Star
Kappa from TMT, which was delivered to the Company on December 14,
2007.


F-9


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





Below is
the list of the Company’s wholly owned ship-owning subsidiaries as of December
31, 2007:




Wholly
      Owned
                Subsidiaries
              
              Vessels
                Acquired
              
              
              dwt
              
              
              Date
                Delivered
              
              
              Year
                builtStar
      Bulk Management Inc.
              
              -
              
              
              
              
              -
              
              
              
              -
              
              
              
              -Vessels
      in operation atDecember
      31, 2007Star
      Epsilon LLC
              
              Star
      Epsilon (ex G Duckling)
              
              
              
              52,402
              
              
              December
      3, 2007
              
              
              2001Star
      Theta LLC
              
              Star
      Theta (ex J Duckling)
              
              
              
              52,425
              
              
              December
      6, 2007
              
              
              2003Star
      Kappa LLC
              
              Star
      Kappa (ex E Duckling)
              
              
              
              52,055
              
              
              December
      14, 2007
              
              
              2001Star
      Beta LLC
              
              Star
      Beta (ex B Duckling)
              
              
              
              174,691
              
              
              December
      28, 2007
              
              
              1993Vessels
      in operation after December 31, 2007Star
      Zeta LLC
              
              Star
      Zeta (ex I Duckling)
              
              
              
              52,994
              
              
              January
      2, 2008 (Note 17)
              
              2003Star
      Delta LLC
              
              Star
      Delta (ex F Duckling)
              
              
              
              52,434
              
              
              January
      2, 2008 (Note 17)
              
              2000Star
      Gamma LLC
              
              Star
      Gamma (ex C Duckling)
              
              
              
              53,098
              
              
              January
      4, 2008 (Note 17)
              
              2002Star
      Alpha LLC
              
              Star
      Alpha (ex A Duckling)
              
              
              
              175,075
              
              
              January
      9, 2008 (Note 17)
              
              1992Star
      Iota LLC
              
              Star
      Iota (ex Mommy Duckling)
              
              
              
              78,585
              
              
              March
      7, 2008 (Note 17)
              
              1983




Charterers
individually accounting for more than 10% of the Company’s voyage revenues
during the period ended December 31, 2005 and the years ended December 31, 2006
and 2007 are as follows:








Charterer
            
            
            2005
            
            2006
            
            2007North
      China Shipping Limited
            
            
            
            -
            
            
            
            -
            
            
            
            44
            %Hyndai
      Merchant Marine
            
            
            
            -
            
            
            
            -
            
            
            
            36
            %Ishaar
      Overseas
            
            
            
            -
            
            
            
            -
            
            
            
            20
            %





F-10


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





2.      Significant
Accounting Policies:





a)   Principles
of Consolidation:The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”), which include the accounts of Star Maritime, prior to the
Redomiciliation Merger, and of Star Bulk and  its wholly owned
subsidiaries referred to in Note 1 above. All inter-company accounts and
transactions have been eliminated in consolidation.





b)   Use
of estimates:The
preparation of the accompanying consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contigent assets and
liabilities at the date of the accompanying consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.





c)  Other
Comprehensive Income:The Company follows the provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive
Income,” which requires separate presentation of certain transactions, which are
recorded directly as components of stockholders’ equity. The Company has no such
transactions which affect comprehensive income and, accordingly, comprehensive
income equals net income for all periods presented.





d)  Concentration
of Credit Risk:Financial instruments, which potentially subject the
Company to significant concentrations of credit risk, consist principally of
cash and cash equivalents, short-term investments, and trade accounts
receivable.  The Company’s policy is to place cash and cash
equivalents and short-term investments with financial institutions evaluated as
being creditworthy, or in short–term market money market funds which are exposed
to minimal interest rate and credit risk.  The Company also limits
its credit risk with trade accounts receivable by performing ongoing credit
evaluations of its customers’ financial condition and generally does not require
collateral for its trade accounts receivable.





F-11


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





2.      Significant
Accounting Policies – (continued):




e)   Income
taxes:





e.i)  Star Bulk: is not liable for
any income tax on its net income derived from shipping operations because the
countries in which the subsidiaries ship-owning companies and the management
company are incorporated do not levy tax on income, but rather a tonnage tax on
vessels.




e.ii)Star Maritime: was incorporated
in Delaware, thus, deferred income taxes were provided for the differences
between the bases of assets and liabilities for financial reporting and income
tax purposes. A valuation allowance is established when necessary to reduce
deferred tax assets to the amount expected to be realized.





f)  Foreign
Currency Translation: The functional currency of the Company is the U.S.
Dollar since the Company’s vessels operate in international shipping markets,
and therefore primarily transact business in U.S. Dollars. The Company’s books
of accounts are maintained in U.S. Dollars. Transactions involving other
currencies during the year are converted into U.S. Dollars using the exchange
rates in effect at the time of the transactions. At the
consolidated balance sheet dates, monetary assets and liabilities, which
are denominated in other currencies, are translated into U.S. Dollars at the
year-end exchange rates. Resulting gains or losses are included in General and
administrative expenses in the accompanying consolidated statements of
income.





g)   Cash
and Cash Equivalents: The Company considers highly liquid investments
such as time deposits and certificates of deposit with an original maturity
of three months or less to be cash equivalents.




h)  Cash
Held in Trust:  Investments held in trust as of  December
31, 2006 were held in short-term investments.  The Company invested in
various short-term tax free money market funds promulgated under the Investment
Company Act of 1940.  Interest income earned on such investments and
unrealized and realized gains and losses were the Company’s source of income
until the consummation of the Merger.  For the
period from May 13, 2005 (date of inception) to December 31, 2005 and for the
years ending December 31, 2006 and 2007 the realized gain on such investments
amounted to $183, $4,057 and $1,179, respectively.





i)  Inventories:
Inventories consist of consumable bunkers and lubricants, which are stated at
the lower of cost or market value. Cost is determined by the first in, first out
method.










F-12


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





2.
            Significant
      Accounting Policies – (continued):





j)  Vessels,
Net:Vessels are stated at
cost, which consists of the purchase price and any material expenses incurred
upon acquisition, such as (initial repairs, improvements, delivery expenses and
other expenditures to prepare the vessel for her initial voyage). 
Otherwise these amounts are charged to expense as incurred.





The
aggregate purchase price paid for our eight vessels in initial fleet from
certain subsidiaries of TMT consisted of cash and common shares of Star Bulk.
The stock consideration was measured based on the fair market value of their
shares at the time each vessel was delivered.  The total purchase
price consisting of cash and stock consideration was allocated to the acquired
vessels based on vessel relative fair values on their respective dates of
delivery.





Certain
vessels are purchased by assuming existing time charter agreements. The Company
records all identified tangible and intangible assets associated with the
acquisition of a vessel or liabilities at fair value.  Fair value of
above or below market acquired time charters is determined by comparing existing
charter rates in the acquired time charter agreements with the market rates for
equivalent time charter agreements prevailing at the time the foregoing vessels
are delivered. The present values representing the fair value of the above or
below market acquired time charters are recorded as an intangible asset or
liability, respectively.  Such
intangible asset or liability is recognized ratably as an adjustment to revenues
over the remaining term of the assumed time charter.





The cost
of each of the Company’s vessels is depreciated beginning when the vessel is
ready for its intended use, on a straight-line basis over the vessel’s remaining
economic useful life, after considering the estimated residual value (vessel’s
residual value is equal to the product of its lightweight tonnage and estimated
scrap rate per ton).  Management estimates the useful life of the
Company’s vessels to be 25 years from the date of initial delivery from the
shipyard.  When regulations place limitations over the ability of a
vessel to trade on a worldwide basis, its remaining useful life is adjusted at
the date such regulations are adopted.   Depreciation expense is
calculated based on cost less the estimated residual scrap value. Scrap value is
estimated by the Company by taking the cost of steel times the weight of the
ship noted in lightweight ton (lwt).
















F-13


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





2.           Significant
Accounting Policies – (continued):





k)  Impairment
of Long-Lived Assets: The Company follows SFAS No. 144 “Accounting for
the Impairment or Disposal of Long-lived Assets,” which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The standard requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed 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 should evaluate the asset for an
impairment loss. Measurement of the impairment loss is based on the fair
value.  In this respect, management regularly reviews the carrying amount
of the vessels on vessel by vessel basis when events and circumstances indicate
that the carrying amount of the vessels might not be recoverable. No impairment
losses were recorded in any of the periods presented.





l)  Financing
Costs:Fees paid to
lenders or required to be paid to third parties on the lender’s behalf for
obtaining loans or refinancing existing ones are recorded as deferred
charges.  Unamortized fees relating to loans repaid or refinanced as
debt extinguishment are expensed as interest and finance costs in the period the
repayment or extinguishment is made using the effective interest
method.




m)  Pension
and retirement benefit obligations—crew:The
ship-owning subsidiaries included in the consolidated financial statements
employ the crew on board under short-term contracts (usually up to eight months)
and, accordingly, are not liable for any pension or post-retirement
benefits.





n)  Pension
and retirement benefit obligations—administrative personnel:Administrative
employees are covered by state-sponsored pension funds. Both employees and the
Company are required to contribute a portion of the employees’ gross salary to
the fund. Upon retirement, the state-sponsored pension funds are responsible for
paying the employees retirement benefits without recourse to the
Company.





o)  Stock
incentive plan awards:Share-based compensation represents
vested and nonvested restricted shares granted to employees and to non-employee
directors, for their services as directors, and is included in “General and
administrative expenses” in the consolidated statements of income. These shares
are measured at their fair value equal to the market value of the Company’s
common stock on the grant date. The shares that do not contain any future
service vesting conditions are considered vested shares and a total fair value
of such shares is expensed on the grant date. The shares that contain a
time-based service vesting condition are considered nonvested shares on the
grant date and a total fair value of such shares is recognized on a
straight-line basis over the requisite service period.





F-14


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





2.           Significant
Accounting Policies – (continued):





p)  Accounting
for Revenue and Related Expenses:The Company generates
its revenues from time charters for the charterhire of its vessels. Vessels are
chartered using time charters, where a contract is entered into for the use of a
vessel for a specific period of time and a specified daily charterhire
rate.  All of the Company’s time charters agreements are classified as
operating leases. Revenues under operating lease arrangements are recognized
when a charter agreement exists, charter rate is fixed and determinable, the
vessel is made available to the lessee, and collection of the related revenue is
reasonably assured. Revenues are recognized ratably on a straight line basis
over the period of the respective time charter agreement in accordance with SFAS
No. 13 “Accounting for Leases.”





Deferred
revenue includes cash received prior to the consolidated balance sheet date and
is related to revenue earned after such date.





Voyage
related and vessel operating costs are expensed as incurred.  Under
time charters, specified voyage costs, such as fuel and port charges are borne
and paid by the charterer and other non-specified voyage expenses, such as
brokerage commission are paid by the Company.  Vessel operating costs
including crews, maintenance and insurance are paid by the Company.





q)Earnings
per Common Share:Earnings per
share is computed in accordance with SFAS No. 128,Earnings
per Share.  Basic
earnings per share are calculated by dividing net income available to common
shareholders by the basic weighted average number of common shares outstanding
during the period.Diluted net income per share reflects the
potential dilution assuming common shares were issued for the exercise of
outstanding in-the-money warrants and unvested restricted shares and assuming
the hypothetical proceeds, including proceeds from warrant exercise and average
unrecognized stock-based compensation cost, thereof were used to purchase
common shares at the average market price during the period such warrants and
unvested restricted shares were outstanding (Note 12).





r)  Segment
Reporting: The Company reports financial information and evaluates its
operations by total charter revenues and not by the type of vessel, length of
vessel employment, customer or type of charter. As a result, management,
including the chief operating decision makers, reviews operating results solely
by revenue per day and operating results of the fleet, and thus, the Company has
determined that it operates under one reportable segment. Furthermore, when the
Company charters a vessel to a charterer, the charterer is free to trade the
vessel worldwide and, as a result, the disclosure of geographic information is
impracticable.








F-15


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





2.Significant Accounting
Policies – (continued):




s)
Recent Accounting Pronouncements:





(i)
            In
      September 2006 the FASB issued SFAS No. 157 “Fair Value Measurements”
      (SFAS No. 157). SFAS No. 157 provides guidance for using fair value to
      measure assets and liabilities. The standard applies whenever other
      standards require (or permit) assets or liabilities to be measured at fair
      value. Under the standard, fair value refers to the price that would be
      received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants in the market in which the
      reporting entity transacts. SFAS No. 157 clarifies the principle that fair
      value should be based on the assumptions market participants would use
      when pricing the asset or liability. In support of this principle, the
      standard establishes a fair value hierarchy that prioritizes the
      information used to develop those assumptions. The fair value hierarchy
      gives the highest priority to quoted prices in active markets and the
      lowest priority to unobservable data, for example, the reporting entity’s
      own data. Under the standard, fair value measurements will be required to
      be separately disclosed by level within the fair value hierarchy. SFAS No.
      157 is effective for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods within those fiscal
      years. Early adoption is permitted. The Company will adopt this
      pronouncement beginning in fiscal year 2008. The adoption of the standard
      is not expected to have a material effect on the Company’s financial
      position, results of operations or cash
flows.




(ii)
            In
      February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS No. 159), which
      permits the entities to choose to measure many financial instruments and
      certain other items at fair value that are not currently required to be
      measured at fair value. This Statement is expected to expand the use of
      fair value measurement, which is consistent with the Board’s long-term
      measurement objectives for accounting for financial instruments. The
      objective is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by
      measuring related assets and liabilities differently without having to
      apply complex hedge accounting provisions. This statement also establishes
      presentation and disclosure requirements designed to facilitate
      comparisons between entities that choose different measurement attributes
      for similar types of assets and liabilities. SFAS No. 159 is effective as
      of the beginning of an entity’s first fiscal year that begins after
      November 15, 2007. Early adoption is permitted as of the beginning of a
      fiscal year on or before November 15, 2007, provided the entity also
      elects to apply the provisions of SFAS No. 157.  This statement will
      be effective for the Company for the fiscal year beginning on January 1,
      2008. The Company has not opted to fair value any of its financial assets
      and  liabilities.





(iii)
            In
      December, 2007, the FASB issued SFAS No. 141(R), “Business
      Combinations” (SFAS No. 141(R)).  This Statement is a revision of
      SFAS No. 141, “Business Combinations,” issued in June 2001 and is
      designed to improve the relevance, representational fairness and
      comparability and information that a reporting entity provides about a
      business combination and its effects. The Statement establishes principles
      and requirements for how the acquirer recognizes assets, liabilities and
      non-controlling interests, how to recognize and measure goodwill and the
      disclosures to be made. SFAS No. 141(R) applies prospectively to business
      combinations for which the acquisition date is on or after the beginning
      of the first annual reporting period beginning on or after
      December 15, 2008. As the provisions of SFAS No. 141(R) are
      applied prospectively, the impact to the Company cannot be determined
      until the transactions occur.








F-16


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





2.      Significant
Accounting Policies – (continued):




s)  Recent
Accounting Pronouncements – (continued):





(iv)
            In
      December 2007, the FASB issued SFAS No. 160 “Non-controlling Interests in
      Consolidated Financial Statements” (SFAS No. 160), an amendment of ARB No.
      51. SFAS No. 160 amends ARB No. 151 to establish accounting and reporting
      standards for the non-controlling interest in a subsidiary and for the
      deconsolidation of a subsidiary. This Standard applies to all entities
      that prepare consolidated financial statements, except not-for-profit
      organizations. The objective of the Standard is to improve the relevance,
      comparability and transparency of the financial information that a
      reporting entity provides in its consolidated financial statements. SFAS
      No. 160 is effective as of the beginning of an entity’s fiscal year that
      begins on or after December 15, 2008. Earlier adoption is prohibited.
       This statement will be effective for the Company for the fiscal year
      beginning January 1, 2009. The adoption of this standard is not expected
      to have a material effect on the consolidated financial
      statements.





(v)
            In
      March 2008 the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities” (SFAS No. 161).  The new
      standard is intended to improve financial reporting about derivative
      instruments and hedging activities by requiring enhanced disclosures to
      enable investors to better understand their effects on an entity’s
      financial position, financial performance, and cash flows.  It is
      effective for financial statements issued for fiscal years and interim
      periods beginning after November 15, 2008.  The adoption of this
      standard is not expected to have a material effect on the consolidated
      financial statements.





F-17


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





3.      Transactions
with Related Parties:




Transactions
and balances with related parties are analyzed as follows:





2006
            
            
            2007Current
      liabilities:TMT
      Co ltd. (a)
            
            
            -
            
            
            
            480$
            -
            
            
            $
            480





(a) TMT Co.
Ltd.:Under the Master Agreement (Note 1) the Company issued
to TMT 12,537,645 shares of Star Bulk’s common stock representing the stock
consideration portion of the aggregate purchase price of initial vessels and
agreed to issue to TMT the additional stock consideration of 1,606,962 common
shares of Star Bulk in 2008 and 2009.  Under the Master Agreement, TMT
also had the right to require Star Bulk to make available shelf registration
statements permitting sales of shares into the market from time to time over an
extended period.In
addition, TMT has the ability to exercise certain piggyback registration
rights.




Under the
Master Agreement, as of December 31, 2007, Star Bulk had taken delivery of
three vessels from the initial fleet as indicated in Note 1.  In addition,
in December 2007, Star Bulk took delivery of the M/V Star Kappa from
TMT, which was not part of the initial fleet for a cash consideration of
$72,000.  Vessels acquired from TMT had lubricants and bunkers on
board on their respective delivery dates, the total of which amounted to $480,
as such, Star Bulk is indebted to TMT for this amount as of December 31,
2007.









F-18


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





3.      Transactions
with Related Parties-(continued):




Star
Gamma LLC, a wholly-owned subsidiary of Star Bulk, entered into a time
charter agreement dated, February 23, 2007, with TMT for the Star Gamma .
The charter rate for the Star Gamma would be $28.5 per day for a term of one
year. Star Iota LLC, a wholly-owned subsidiary of Star Bulk, entered into a
time charter agreement, dated February 26, 2007, with TMT for the Star Iota.  The
charter rate for the Star
Iota would be $18 per day for a term of one year. Each charter agreement
will commence as of the date the vessel is delivered to Star Bulk. Neither
vessel was delivered to the Company as of December 31, 2007, consequently no
amounts relating thereto have been included in the consolidated statement of
income in 2007.




(b)  Combine Marine S.A.,
or Combine:Under an agreement dated May 4, 2007, Star
Bulk appointed Combine, a company affiliated with Mr. Tsirigakis,
Mr. Pappas and Mr. Christos Anagnostou, as interim manager of the
vessels in the initial fleet. Under the agreement, Combine provides interim
technical management and associated services, including legal services, to the
vessels starting with their delivery to Star Bulk, and also provides such
services and shore personnel prior to and during vessel delivery to Star Bulk in
exchange for a flat fee of $10 per vessel prior to delivery and at a daily fee
of $450 U.S. dollars per vessel after vessel’s delivery and during the term of
the agreement. Combine is entitled to be reimbursed by Star Bulk for
out-of-pocket expenses incurred by Combine while managing the vessels and is
obligated to provide Star Bulk with the full benefit of all discounts and
rebates available to Combine. The term of the agreement is for one year from the
date of delivery of each vessel. Either party may terminate the agreement upon
thirty days’ notice.
  During
2007, Combine has charged $91 for legal and other services, which are included
in the consolidated statement of income for the year ended December 31, 2007,
$84 related to vessel pre-delivery expenses, which represents $10 per vessel
from initial fleet plus $4 of other capitalized expenses that were capitalized
as vessel cost as of December 31, 2007 and $0 for daily management fees since
there were no vessels under its management.
  (c)  Oceanbulk Maritime,
S.A., or Oceanbulk:Star Bulk’s director Mr. Petros Pappas is also
the Honorary Chairman of Oceanbulk, a ship management company of drybulk
vessels.  Star Bulk’s Chief Executive Officer, Mr. Prokopios
(Akis) Tsirigakis, as well as its officer Mr. Christos Anagnostou had been
employees of Oceanbulk until November 30, 2007.  Included in the
consolidated statement of income for December 31, 2007 are legal and office
support expenses paid to Oceanbulk Maritime S.A. in the amount of
$196.  There were no expenses incurred or charged by Oceanbulk
Maritime S.A. during the period from May 13, 2005 (date of inception) to
December 31, 2005 and the year ended December 31, 2006.  As of
December 31, 2007 and 2006, Star Bulk had no outstanding balance with
Oceanbulk Maritime S.A




(d)  Consultancy
Agreements




On
October 3, 2007, Star Bulk has entered into separate consulting agreements
with companies owned and controlled by the Chief Executive Officer and the Chief
Financial Officer, for the services provided by the Chief Executive Officer and
the Chief Financial Officer, respectively.  Each of these agreements has a
term of three years unless terminated earlier in accordance with the terms of
such agreements.  Under the consulting agreements, each company
controlled by the Chief Executive Officer and the Chief Financial Officer is
expected to receive an annual consulting fee of €370 (approx. $541) and €250
(approx. $365) respectively, commencing on the Merger date on a pro-rata
basis.




Additionally,
the Chief Executive Officer and the Chief Financial Officer are entitled to
receive benefits under each of their consultancy agreements with Star Bulk,
amongst others: (i) each is entitled to receive an annual discretionary
bonus, to be determined by Star Bulk’s board of directors in its sole
discretion; (ii) was entitled to and received payment of a one-time sign-on
bonus in the amount of € 200 (approx $292).




The
related expenses for 2007 were $659 and are included in General and
Administrative expenses in the consolidated statement of income.


F-19


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





4.      Inventories:




The
amounts shown in the accompanying consolidated balance sheets are analyzed as
follows:





2006
            
            2007Bunkers
            
            $
            -
            
            
            $
            280Lubricants
            
            
            -
            
            
            
            318$
            -
            
            
            $
            598





5.     Advances
for vessels to be acquired:





Advances
for vessels to be acquired of $83,444  included in the consolidated
statement of cash flows for the year ended December 31, 2007 represent cash
advances paid by the Company for vessels Star Zeta and Star Delta
that were delivered to the Company in 2008.  Advances for vessels to be
acquired of $118,242 included in the consolidated balance sheet as of
December 31, 2007 represent advances for Star Zeta and Star
Delta that were delivered to the Company in 2008 and the difference between
the fair value of stock consideration and the portion of the total
purchase price for eight initial vessels that was allocated to the three
out of eight initial vessels that were delivered to the Company during the year
ended December 31, 2007.





6.      Vessels,
Net:





As at
December 31, 2007, the Company owned four drybulk carriers. The amounts in the
accompanying consolidated balance sheets are analyzed as follows:







Vessel
              cost
            
            
            Accumulated
      depreciation
            
            
            Net
      Book ValueBalance,
      December 31, 2006
            
            $
            -
            
            
            $
            -
            
            
            $
            --
      Vessel acquisitions
            
            
            263,585
            
            
            
            -
            
            
            
            263,585-
      Depreciation
            
            
            -
            
            
            
            (730
            )
            
            
            (730
            )Balance,
      December 31, 2007
            
            $
            263,585
            
            
            $
            (730
            )
            
            $
            262,855











F-20


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





6.      Vessels,
Net: – (continued):





Following
the consummation of the Redomiciliation Merger, Star Bulk took delivery from TMT
three out of the eight initial vessels indicated in Note 1.  The purchase
price for all eight vessels included stock consideration of 12,537,645 shares
and cash consideration of $224,500. The purchase price of each vessel was first
satisfied in a form of stock consideration and after the vessels with an
aggregate value of the stock consideration had been delivered to Star Bulk,
payment of the remaining portion of the purchase price is to be made in the form
of cash consideration. The purchase price of the first three vessels from
initial fleet delivered to Star Bulk in December, 2007 was satisfied by issuing
all 12,537,645 shares to TMT and a cash payment of $25,541. The stock
consideration of $175,955 was measured based on the fair market value of Star
Bulk shares at the time each vessel was delivered. The total purchase price for
all eight vessels from initial fleet amounting to $400,455 and consisting of
cash and stock consideration was allocated to the acquired vessels based on
vessel relative fair values on the date of delivery of each vessel. The total
consideration for the Star Epsilon, Star Theta and Star Beta (three vessels from
initial fleet delivered within 2007), amounted to $166,793.  Star Bulk also
purchased from TMT, Star Kappa, an additional vessel not included in
the initial vessels, for a cash consideration of $72,000, which was
delivered to the Company on December 14, 2007.  Vessel acquisitions of
$263,585 also includes $24,792, which represents the net fair value of above and
below market acquired time charters allocated to the vessel cost (Note
8).





Star Bulk
took delivery of the remaining five vessels from initial fleet as indicated in
Note 1 after December 31, 2007.




7.    Deferred
finance charges




Deferred
charges comprise deferred financing costs, consisting of fees and commissions
associated with obtaining loan facilities. On December 27, 2007, the
Company executed its loan agreement for a total $120 million, resulting in the
deferral of the associated loan management fees amounting to
$600.  The loan facility was drawn after December 31, 2007.














F-21


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated





8.   Fair
value of acquired time charters:





During
2007, the Company acquired three dry bulk carrier vessels (Note 6)
with existing time charter contracts which the Company agreed to assume
through arrangements with the respective charterers.  Upon delivery of the
above vessels, the Company evaluated the charter contract
assumed  by comparing the charter rates in the acquired time charter
agreements with the market rates for equivalent time charter agreements
prevailing at the time the foregoing vessels were delivered and recognized (a)
an asset of $1,980 for one of the vessels with a corresponding decrease in the
vessel’s purchase price and (b) a liability of $26,772 for the other two vessels
with a corresponding increase in the vessels’ purchase price.





This
amount is amortized on a straight-line basis to revenues through the end of
the charter period. During 2007 amortization of fair value of below/above
market acquired time charters resulted in a net increase in revenues of
$1,437.




9.
            Accrued
      liabilities





The
amounts shown in the accompanying consolidated balance sheets are analysed as
follows:




2006
            
            
            2007Taxes
            
            $
            165
            
            
            
            $
            -Audit
      fees
            
            
            45
            
            
            
            
            312Legal
      fees
            
            
            168Stores,
      spares and repairs
            
            
            -
            
            
            
            
            289Other
      Operating & voyage expenses
            
            
            
            
            
            
            
            126Other
      general and administrative expenses
            
            
            26
            
            
            
            
            125Financing
      fees
            
            
            -
            
            
            
            641Totals:
            
            $
            404
            
            
            $
            1,493





F-22


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





10.    Long-term
Debt:




On
December 27, 2007 the Company concluded a loan agreement of up to $120,000 in
order to partly finance the acquisition cost of five of the eight initial fleet
vessels, Star Gamma, Star Delta, Star Epsilon, Star Zeta, and Star
Theta.  The loan bears interest at Libor plus a margin and will be
repaid in twenty-eight quarterly installments through December
2016.




As of
December 31, 2007 the Company’s unutilized line of credit totaled to $120,000,
and the Company is required to pay a quarterly commitment fee of 0.35% per annum
of the unutilized portion of the loan. Furthermore, the Company is required to
pay a flat Management fee of 0.50% that was paid after December 31,
2007.




The above
loan is secured by a first priority mortgage over the vessels, corporate
guarantee, a first assignment of all freights, earnings, insurances and
requisition compensation.  The loan contains covenants including
restrictions as to changes in management and ownership of the vessels,
additional indebtedness and mortgaging of vessels without the bank’s prior
consent as well as certain financial covenants relating to the Company’s
financial position, operating performance and liquidity. In addition, the
Company must maintain minimum cash deposits, as defined in the loan agreement an
amount of at least the higher of i) $10,000 and ii) $1,000 per vessel owned by
the Company.  The Company was in compliance with its debt covenants as
of December 31, 2007.





F-23


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





11.      Preferred,
Common stock and Additional paid in capital:





As of
December 31, 2006 and 2007 the Company had common stock and warrants
outstanding.





Preferred Stock:Star
Bulk is authorized to issue up to 25,000,000 shares of preferred stock, $0.01
par value, with such designations, as voting, and other rights and
preferences, as determined by the Board of Directors.




Common Stock:Pursuant
to the Agreement and Plan of Merger by and between Star Maritime and Star Bulk,
or the Merger Agreement, each outstanding share of Star Maritime common stock,
par value $0.0001 per share,  converted into the right to receive one
share of Star Bulk common stock, par value $0.01 per
share.   Star Bulk is authorized to issue 100,000,000 shares of
common stock, par value $0.01.




Each
outstanding share of Star Bulk common stock entitles the holder to one vote on
all matters submitted to a vote of shareholders. Subject to preferences that may
be applicable to any outstanding shares of preferred stock, holders of shares of
common stock are entitled to receive ratably all dividends, if any, declared by
Star Bulk’s board of directors out of funds legally available for dividends.
Holders of common stock do not have conversion, redemption or preemptive rights
to subscribe to any of Star Bulk’s securities. All outstanding shares of common
stock are fully paid and non-assessable. The rights, preferences and privileges
of holders of common stock are subject to the rights of the holders of any
shares of preferred stock which Star Bulk may issue in the future.




On
November 30, 2007, the date of consummation of the Redomiciliation Merger, Star
Bulk had outstanding 41,564,569 shares of common stock. This included the
12,537,645 shares of common stock that had been issued to TMT in connection
with the Master Agreement (Note 1).  The stock consideration was
measured based on the fair market value of the shares at the time the vessels
were delivered (Notes 1 and 6) amounting to $175,955.




Following
the consummation of the Redomiciliation Merger on November 30, 2007, warrant
holders exercised their right to purchase shares of the Company’s common stock.
Star Bulk received a total of $7,534 representing 951,864 warrants exercised at
exercise price of $8.00 per warrant. The Company issued 951,864 shares of common
stock upon the exercise of the warrants.




F-24


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)







11.      Preferred,
Common stock and Additional paid in capital-(continued):





Warrants:On
November 30, 2007, the date of consummation of the Redomiciliation Merger, Star
Bulk had 20,000,000 shares of common stock reserved for issuance upon the
exercise of the warrants. Each outstanding Star Maritime warrant was assumed by
Star Bulk with the same terms and restrictions except that each would be
exercisable for common stock of Star Bulk.




Each
warrant entitles the registered holder to purchase one share of common stock at
a price of $8.00 per share, subject to adjustment as discussed below, at any
time commencing on the completion of a business combination. Following the
effectiveness of the Redomiciliation Merger, the warrants became exercisable.
The warrants will expire on December 16, 2009.  There is no cash
settlement option for the Warrants.




Star Bulk
may call the warrants for redemption:




·
            in
      whole and not in part;




·
            at
      a price of $0.01 per warrant at any time after the warrants become
      exercisable;




·
            upon
      not less than 30 days’ prior written notice of redemption to each
      warrant holder; and




·
            if,
      and only if, the reported last sale price of the common stock equals or
      exceeds $14.25 per share, for any 20 trading days within a 30 trading day
      period ending on the third business day prior to the notice of redemption
      to warrant holders.




Following the
exercise of 951,864 warrants in 2007, 19,048,136 warrants remained outstanding
as of December 31, 2007.





F-25


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





12.
Earnings per Share:





The
Company calculates basic and diluted earnings per share  as
follows:




May
      13, 2005 (date of December 31, 2005
            
            
            Year
      ended December 31, 2006
            
            
            Year
      ended December 31, 2007Income:Net
      income
            
            110
            
            
            2,978
            
            
            3,411Basic
      earnings per share:Weighted
      average common
              shares
      outstanding, basic
            
            9,918,282
            
            
            29,026,924
            
            
            30,065,923Basic
      earnings per share
            
            0.01
            
            
            0.10
            
            
            0.11Effect
      of dilutive securities:Dilutive
      effect of Warrants
            
            -
            
            
            -
            
            
            6,751,692Weighted
      average common shares outstanding, diluted
            
            9,918,282
            
            
            29,026,924
            
            
            36,817,616Dilured
      earnings per share
            
            0.01
            
            
            0.10
            
            
            0.09




During
the year ended December 31, 2007, 951,864 (Note 11) warrants were
exercised.  At December 31, 2007, a total of 19,048,136 warrants
were outstanding at an exercise price of $8 per warrant.  The exercise
price of warrants was below the average market price of the Company's shares
during the year ended December 31, 2007.  Consequently, the Company’s
warrants were dilutive and included in the computation of the
dilutedweighted average common shares outstanding.  The
weighted average diluted common shares outstanding for the year ended December
31, 2007 excludes the effect of 165,000 (Note 13) of unvested restricted shares
because their effect would be anti-dilutive.






F-26


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





13.
Equity Incentive Plan:




On
February 8, 2007 the Company’s Board of Directors adopted a resolution
approving the terms and provisions of the Company’s Equity Incentive Plan (the
Plan).  The Plan is designed to provide certain key persons, whose
initiative and efforts are deemed to be important to the successful conduct of
the business of the Company with incentives to enter into and remain in the
service of the Company, acquire a propriety interest in the success of the
Company, maximize their performance and enhance the long-term performance of the
Company.




Under the
Plan, officers, key employees, directors and consultants of Star Bulk and its
subsidiaries will be eligible to receive options to acquire shares of common
stock, stock appreciation rights, restricted stock and other stock-based or
stock-denominated awards. Star Bulk has reserved a total of 2,000,000 shares of common stock for issuance
under the plan, subject to adjustment for changes in capitalization as provided
in the Plan.




Under the
terms of the Plan, stock options and stock appreciation rights granted will have
an exercise price per common share equal to the fair market value of a common
share on the date of grant, unless otherwise determined by the plan
administrator, but in no event will the exercise price be less than the fair
market value of a common share on the date of grant. Options and stock
appreciation rights will be exercisable at times and under conditions as
determined by the plan administrator, but in no event will they be exercisable
later than ten years from the date of grant.




On
December 3, 2007, the Company granted to Mr. Tsirigakis, Chief Executive
Officer, and Mr. Syllantavos, Chief Financial Officer, 90,000 and 75,000
unvested restricted shares of Star Bulk common stock,
respectively.  The fair value of each share was $15.34 which is equal
to the market value of the Company’s common stock on the date of grant. 
The shares will vest in three equal installments on July 1, 2008,
July 1, 2009 and July 1, 2010, respectively.




All
unvested restricted shares are conditional upon the option holder’s continued
service as an employee of the Company, or as a director until the applicable
vesting date.  The grantee does not have the right to vote such
unvested restricted shares until they vest or exercise any right as a
shareholder of these shares, however, the unvested shares will accrue dividends
as declared and paid which will be retained by the Company until the share vest
at which time they are payable to the grantee. As of December 31, 2007, the
unvested restricted shares accrued no dividends. As unvested restricted share
grants accrue dividends on awards that are expected to vest, such
dividends will be charged to retained earnings.




F-27


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





13.
Equity Incentive Plan-(continued):




The
Company estimates the forfeitures of restricted shares to be immaterial. The
Company will, however, re-evaluate the reasonableness of its assumption at each
reporting period.





SFAS
No. 123(R) “Share-Based Payment” (SFAS No. 123(R)) describes two generally
accepted methods of recognizing expense for restricted share awards with a
graded vesting schedule for financial reporting purposes: 1) the
‘‘accelerated method’’, which treats an award with multiple vesting dates as
multiple awards and results in a front-loading of the costs of the award and
2) the ‘‘straight-line method’’ which treats such awards as a single award
and results in recognition of the cost ratably over the entire vesting period.
The Company elected to use the second method.  For the year ended
December 31, 2007, stock based compensation was $184 and is included in the
general and administrative expenses in the accompanying consolidated statement
of income and the corresponding increase to equity has been classified as a
component of paid-in capital in accordance with SFAS
No. 123(R).





As of
December 31, 2007, there was $2,347 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
Plan. That cost is expected to be recognized over a weighted-average period of
2.5 years.





F-28


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





14.
Income Taxes:





a)
Taxation on Marshall Islands registered companies




Under the
laws of the countries of the companies’ incorporation and/or vessels’
registration, the companies are not subject to tax on international shipping
income. However, they are subject to registration and tonnage taxes, which have
been included in vessel operating expenses.




b)
Taxation on US source income – shipping income




The
Company believes that it and its subsidiaries are exempt from U.S. federal
income tax at 4% on U.S. source shipping income, as each vessel-operating
subsidiary is organized in a foreign country that grants an equivalent exemption
to corporations organized in the United States and the Company’s stock is
primarily and regularly traded on an established securities market in the United
States, as defined by the Internal Revenue Code (IRS) of the United
States.  Under IRS regulations, a Company’s stock will be considered to be
regularly traded on an established securities market if (i) one or more
classes of its stock representing 50% or more of its outstanding shares, by
voting power and value, is listed on the market and is traded on the market,
other than in minimal quantities, on at least 60 days during the taxable year;
and (ii) the aggregate number of shares of stock traded during the taxable
year is at least 10% of the average number of shares of the stock outstanding
during the taxable year.




Based on
the U.S. source Shipping Income for 2007, the Company would be subject to U.S.
federal income tax of approximately $17 under Section 887 in the absence of an
exemption under Section 883.




F-29


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





14.
Income Taxes–(continued):




c)
Taxation on US source income – pre-Redomiciliation Merger





The
provision of income taxes for Star Maritime, prior to merging into Star Bulk
(Note 1), consists of the following:




2005
            
            
            2006
            
            
            2007Current-Federal
            
            $
            -
            
            
            $
            207
            
            
            $
            9Current-State
      and Local
            
            
            32
            
            
            
            -
            
            
            
            -Deferred-Federal
            
            
            -
            
            
            
            -
            
            
            
            -Deferred-State
      and Local
            
            
            (9
            )
            
            
            -
            
            
            
            -Total
            
            $
            23
            
            
            $
            207
            
            
            $
            9





The total
provision for income taxes differs from the amount which would be computed by
applying the U.S. Federal income tax rate to income before provision for income
taxes as follows:




2005
            
            
            2006
            
            
            2007Statutory
      federal income tax rate
            
            
            34
            %
            
            
            34
            %
            
            
            -State
      and local income taxes
            
            
            17
            %
            
            
            -
            
            
            
            -Valuation
      allowance
            
            
            -
            
            
            
            14
            %
            
            
            -Interest
      income not taxable for federal tax purposes
            
            
            (34
            %)
            
            
            (41
            %)
            
            
            -Effective
      tax rate
            
            
            17
            %
            
            
            7
            %
            
            
            -




The tax
effect of temporary differences that give rise to the net deferred tax asset is
as follows:




2006
            
            
            2007Expenses
      deferred for income taxes
            
            $
            447
            
            
            $
            -Valuation
      allowance
            
            
            (447
            )
            
            
            -Total
      deferred tax asset
            
            $
            -
            
            
            $
            -








F-30


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





15.    Commitments
and Contingencies:




Various
claims, suits, and complaints, including those involving government regulations
and product liability, arise in the ordinary course of the shipping business. In
addition, losses may arise from disputes with charterers, agents, insurance and
other claims with suppliers relating to the operations of the Company’s vessels.
Currently, management is not aware of any such claims or contingent liabilities,
which should be disclosed, or for which a provision should be established in the
accompanying consolidated financial statements.




The
Company accrues for the cost of environmental liabilities when management
becomes aware that a liability is probable and is able to reasonably estimate
the probable exposure. Currently, management is not aware of any such claims or
contingent liabilities, which should be disclosed, or for which a provision
should be established in the accompanying consolidated financial
statements.  Up to $1 billion of the liabilities associated with the
individual vessels’ actions, mainly for sea pollution, are covered by the
Protection and Indemnity (P&I) Club Insurance.




Pursuant
to separate definitive agreements, Star Bulk acquired the vessels in its initial
fleet from wholly-owned subsidiaries of TMT for an aggregate purchase price
consisting of $224,500 in cash and 12,537,645 shares of common stock of Star
Bulk issued at the time of the Redomiciliation Merger and an additional
1,606,962 shares of common stock of Star Bulk to be issued in two installments
(Note 1).  As at December 31, 2007, the amount of $115,590
represents the unpaid balance for the vessels yet to be delivered.




In
May 2007, the Company entered into a one-year cancelable operating lease
for its office facilities that terminated in May 2008.  In
May 2008, the Company extended the operating lease for its office
facilities that terminates in August 2008. Rental expense for the year
ended December 31, 2007, was $11.  Future rental commitment
is $12 for 2008.




Future
minimum contractual charter revenue, based on vessels committed to
noncancelable, long-term time charter contracts as of December 31, 2007 will be
$77,720 during 2008, $71,058 during 2009, $27,532 during 2010, $11,826 during
2011 and $11,858 during 2012. These amounts do not include any assumed
off–hire.




F-31


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)








16.    Voyage
and Vessel Operating Expenses:




The
amounts in the accompanying consolidated statements of income are analyzed as
follows:





Year
      ended December 31, 2005
              
              
              Year
      ended December 31, 2006
              
              
              Year
      ended December 31, 2007Voyage expensesPort
      charges
              
              
              -
              
              
              
              -
              
              
              
              7Bunkers
              
              
              -
              
              
              
              -
              
              
              
              3Commissions
      paid – third parties
              
              
              -
              
              
              
              -
              
              
              
              33Total
      voyage expenses
              
              
              -
              
              
              
              -
              
              
              
              43Vessel operating expensesCrew
      wages and related costs
              
              
              -
              
              
              
              -
              
              
              
              417Insurances
              
              
              -
              
              
              
              -
              
              
              
              40Maintenance,
      Repairs, Spares and Stores
              
              
              -
              
              
              
              -
              
              
              
              126Tonnage
      taxes
              
              
              -
              
              
              
              -
              
              
              
              35Management
      fees– third parties
              
              
              -
              
              
              
              -
              
              
              
              23Miscellaneous
              
              
              -
              
              
              
              -
              
              
              
              4Total
      vessel operating expenses
              
              
              -
              
              
              
              -
              
              
              
              645


F-32


STAR
BULK CARRIERS CORP.


Notes
to Consolidated Financial Statements


December
31, 2006 and 2007


(Expressed
in thousands of United States Dollars - except for share and per share data,
unless otherwise stated)





17.  Subsequent
Events:




(a)  Purchase
of vessels – deliveries:The following table shows the vessels that were
delivered to the Company, subsequent to December 31, 2007, and the 
respective dates that such deliveries took place:




Vessel
              Date
      of DeliveryStar
      Zeta (ex I Duckling)
              January
      2, 2008Star
      Delta (ex F Duckling)
              January
      2, 2008Star
      Gamma (ex C Duckling)
              January
      4, 2008Star
      Alpha (ex A Duckling)
              January
      9, 2008Star
      Iota (ex Mommy Duckling)
              March
      7, 2008
  (b) Vessel
acquisitions:  On January 22, 2008, the Company concluded a
Memorandum of Agreement for the acquisition of the Capesize dry bulk carrier
vessel Sinfonia (renamed Star Sigma), for $83,740.  The vessel was
delivered on April 15, 2008.
  On March
11, 2008, the Company concluded a Memorandum of Agreement for the acquisition of
the Supramax dry bulk carrier vessel Star Omicron (renamed Nord Wave) for
$72,000.  The vessel was delivered on April 17, 2008.
  On May
22, 2008, the Company concluded a Memorandum of Agreement for the acquisition of
the Supramax dry bulk carrier vessel Victoria (to be renamed Star Cosmo) for
$68,800.  The vessel is scheduled to be delivered to the Company by
the end of July 2008.
  On June
3, 2008, the Company concluded a Memorandum of Agreement for the acquisition of
the Capesize dry bulk carrier vessel Falcon Cape (to be renamed Star
Ypsilon) for $87,180.  The vessel is scheduled to be delivered to the
Company by the end of September 2008.
  (c)  Loan
Drawdown:During January 2008, the Company borrowed $120,000
from Commerzbank AG (Note 10).
  (d)  Declaration
of dividends: On February 14 and April 16, 2008, the Company declared
dividends amounting to $4,599 ($0.10 per share, paid on February 28, 2008 to the
stockholders of record as of February 25, 2007) and $18,844 ($0.35 per share,
paid on May 23, 2008 to the stockholders of record as of May 16, 2008),
respectively.
  (e)  Transfer
of shares and warrants from Directors:On March 24, 2008, Mr.
Tsirigakis, our President and Chief Executive Officer transferred in a private
transaction an aggregate of 2,473,893 of his shares and 300,000 of his warrants
to Mr. Petros Pappas, the Company’s Chairman. On March
24, 2008, Mr. George Syllantavos, our Chief Financial Officer and Secretary
transferred in a private transaction an aggregate of 981,524 of his shares and
102,500 of his warrants to Mr. Petros Pappas, the Company’s
Chairman.
  (f)  Restricted
stock grant agreement: On March 31, 2008, the Company concluded an
agreement with Company's Director Mr. P. Espig.  Under this agreement
Mr. Espig received 150,000 restricted shares of Star Bulk common stock, which
will vest in two equal installments on April 1, 2008, and April 1,
2009, respectively.
  (g)  New
Loan:On, April 14, 2008 (amended on  April 17, 2008) the
Company concluded a loan agreement of up to $170,000 with Piraeus Bank A.E. in
order to partly finance the acquisition cost of vessels Star Omicron and Star
Sigma and also to provide additional liquidity to the
Company.   Vessels Star Alpha, Star Beta, and Star Sigma were
collaterized to secure this loan.  The loan bears interest at Libor
plus a margin and will be repaid in twenty-four quarterly installments through
April 2014.  As of June 25, 2008, the Company had outstanding
borrowings in amount of $85,000 under this loan.
  (h)Sale of vessel:On April 24, 2008 the Company concluded a Memorandum of Agreement for the
disposal of the vessel Star Iota to unaffiliated third parties for $18,350 with
expected delivery within the third quarter of 2008.  During the first
quarter of 2008 the vessel was classified as an asset held for sale and recorded
at the lower of its carrying amount or fair value less cost to
sell.  The resulting impairment loss of $3.14 million was recorded in
the quarter ended March 31, 2008.
  (i)Share
and Warrant re-purchase plan:As of June 25, 2008, an amount of 52,000
shares and an amount of 1,362,500 warrants had been repurchased.  The
Company paid $587 for the shares and $5,474 for the above mentioned
warrants.
  (j)  Warrants
exercised:As of June 25, 2008, an
additional  12,703,420 warrants had been exercised, generating
additional net proceeds to the Company of $101,562  and leaving
5,934,080 warrants outstanding.
 F-33
  SIGNATURES
  The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused and authorized the undersigned to sign this annual
report on its behalf.
  Star
      Bulk Carriers Corp.(Registrant)Dated:
       June 27, 2008By:
                /s/  Prokopios
      TsirigakisName:
                Prokopios TsirigakisTitle:
                Chief Executive Officer and President
         
  SK 25767 0001 853157
v8