SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
o [X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
September 30, 2000.
o [ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from
__________________ to ___________________.
Commission file number: 33-61888-FW
STARSHIP CRUISE LINE, INC.
(FORMERLY EMERGING BETA CORPORATION)
(Exact name of small business issuer in its charter)
DELAWARE 72-1235449
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
315 Beach Blvd., Biloxi, Mississippi 39530
(Address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES / X / NO / /
The number of shares outstanding of the issuer's classes of Common Stock as of
September 30, 2000:
Common Stock, $1.00 Par Value - 54,900 shares
================================================================================
STARSHIP CRUISE LINE, INC.
Index to Form 10-Q
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of September 30, 2000 and March 31, 2000
Statements of Operations for the Three and Six Months Ended September
30, 2000 and 1999
Statements of Cash Flows for the Six Months Ended September 30, 2000
and 1999
Notes to the Financial Statements
Item 2. Management's Discussion and Analysis of Financial condition and Results
of Operations
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
================================================================================
PART 1. FINANCIAL STATEMENTS
Item 1. Financial Statements
STARSHIP CRUISE LINE, INC.
BALANCE SHEETS
(Unaudited)
September 30, 2000 March 31, 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 345,202 $ 68,912
Accounts receivable 7,252 12,081
Inventories 47,784 35,873
Prepaid expenses 59,334 15,674
---------- ----------
Total current assets 459,572 132,540
PROPERTY AND EQUIPMENT, net 7,494,792 7,607,779
---------- ----------
Total assets $7,954,364 $7,740,319
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES:
Current portion of notes payable $ 6,552,637 $ 455,985
Due to Shareholder 1,210,000
Revolving line of credit 500,000 443,198
Accounts payable 79,781 116,463
Preferred stock dividends payable 279,760 204,760
Accrued liabilities 246,465 93,061
Unearned revenue 153,026 106,628
---------- -----------
Total current liabilities 9,021,669 1,420,095
LONG-TERM DEBT, net of current portion --- 6,204,015
MANDATORILY REDEEMABLE PREFERRED STOCK, $1.00 par value,
2,000,000 shares authorized; 15,000 shares subscribed, issued
and outstanding 1,500,000 1,500,000
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 20,000,000 shares
authorized; 54,900 shares issued and outstanding 54,900 54,900
Additional paid-in capital 379,431 379,431
Retained earnings (deficit) (3,001,636) (1,818,122)
----------- ------------
Total stockholders' equity (2,567,305) (1,383,791)
----------- ------------
Total liabilities and stockholders' equity $7,954,364 $7,740,319
=========== ============
The accompanying notes are an integral part of these balance sheets.
==================================================================================================================
STARSHIP CRUISE LINE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
For the For the For the For the
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
September September September 30, September 30,
30, 2000 30, 1999 2000 1999
REVENUE, net $ 993,715 - $ 528,441 -
COST OF SALES AND EXPENSES:
Operating expenses 948,068 412,827 -
Sales and Marketing 425,773 277,169 -
General and Administrative 252,477 302,812 122,790 165,154
Interest, net 306,432 159,133 -
preciation expense 169,479 85,340 -
------------- -------------
Total cost and expenses 2,102,229 302,812 1,057,259 165,154
------------- ----------- ------------- -----------
NET INCOME (LOSS) BEFORE INCOME TAXES
(1,108,514) (302,812) (528,818) (165,154)
PROVISION FOR INCOME TAXES - - - -
NET INCOME (LOSS)
(1,108,514) (302,812) (528,818) (165,154)
PREFERRED STOCK DIVIDENDS (75,000) (75,000) (37,500) (37,500)
------------- ----------- ------------- -----------
NET LOSS ATTRIBUTABLE TO COMMON STOCK $(1,183,514) $ (377,812) $ (566,318)$ (202,654)
------------- ----------- ------------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES 54,900 54,900 54,900 54,900
OUTSTANDING ------------- ----------- ------------- -----------
BASIC AND DILUTED LOSS PER SHARE $ (21.56) $ (6.88) $ (10.32) $ (3.69)
--------- --------- ----------- ---------
The accompanying notes are an integral part of these financial statements.
=================================================================================================================
STARSHIP CRUISE LINE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the For the
Six Months Ended Six Months
September 30, 2000 Ended
September 30, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,108,514) $(302,812)
Adjustments to reconcile net loss to net cash
provided (used in) operating activities-
Depreciation and amortization 169,479 -
Changes in current assets and liabilities:
Accounts receivable 4,829 -
Inventories (11,911) (12,023)
Other current assets (43,660) -
Accounts payable (34,356) (346,801)
Accrued liabilities 153,404 -
Other current liabilities 46,398 -
--------- ---------
Net cash used in operating activities (824,331) (661,636)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to facilities and vessel (56,492) (1,509,468)
CASH FLOWS FROM FINANCING ACTIVITES:
Proceeds from notes payable and revolving line of credit 556,802 2,133,639
Proceeds from Shareholder advances 1,210,000 -
Payments on notes payable (609,689) -
--------- ---------
Cash flows from financing activities 1,157,113 2,133,639
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 276,290 (37,465)
CASH AND CASH EQUIVALENTS, Beginning of period 68,912 45,813
--------- ---------
CASH AND CASH EQUIVALENTS, End of period $345,202 $8,348
--------- ---------
The accompanying notes are an integral part of these financial statements.
STARSHIP CRUISE LINE, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF ORGANIZATION:
---------------------------
Starship Cruise Line, Inc. (the "Company") is a Delaware Corporation. The
Company operates a dinner cruise vessel on the Mississippi Gulf Coast, primarily
serving that region's tourism market. Operations commenced in December, 1999.
The Company is highly leveraged and has limited operating history. Initial
operations have not been profitable and the Company is in a deficit working
capital position. The Company's management believes the vessel will be able to
generate positive cash flow by the end of its first year of operations, but
there is no assurance that this will occur. However, one of the Company's
principal stockholders has committed to provide the funding, if necessary, to
cover any working capital deficiencies during initial operations (at a minimum
through March 31, 2001).
This is the first such dinner cruise vessel operating on the Mississippi Gulf
Coast and while the Company's management believes demand will be sufficient,
there is no assurance that market demand will be able to support the vessel.
2. SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------
The financial statements for the six months ended September 30, 2000 and 1999
are unaudited, but in the opinion of the management of the Company, contain all
adjustments, consisting of only normal recurring accruals, necessary to present
fairly the financial position at September 30, 2000, the results of operations
for the three and six months ended September 30, 2000 and 1999 and the cash
flows for the six months ended September 30, 2000 and 1999.
The results of operations for the six months ended September 30, 2000 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year ending March 31, 2001.
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventory, which is recorded at the lower of actual cost or market, represents
amounts on hand related to food and beverages used in the dinner cruise
operation as well as other miscellaneous items held for sale through the
Company's gift shop.
The Company's property and equipment consists primarily of the cruise vessel,
related leasehold improvements and office equipment for shore side facilities.
These assets are recorded at cost less accumulated depreciation calculated using
the straight-line method over the estimated useful lives of the respective
classes of depreciable assets, net of salvage value (if any). Expenditures for
maintenance and repairs are expensed when incurred. Major expenditures for
renewals and improvements that extend the useful lives of existing assets and
interest incurred during vessel construction are capitalized.
The carrying value of property and equipment is periodically assessed by
management to determine whether such assets are impaired. When events or
circumstances indicate that long-lived asset carrying amounts (including
property and equipment) may not be recoverable, a reduction in the carrying
value of long-lived assets to fair value is required. The Company's management
believes that the vessel will generate positive cash flow in the future and that
the recorded amounts for property and equipment are recoverable as of September
30, 2000. However, as discussed above, the vessel has a limited operating
history, and if circumstances change over time such that it becomes evident that
estimated future cash flows will not recover recorded amounts, the Company may
be required to recognize asset imparment charges in the future.
Unearned revenue represents amounts received in advance for future cruises and
for the sale of gift certificates outstanding as of the financial statement
date.
There are no significant temporary differences between financial reporting and
tax basis of assets and liabilities. The Company has incurred a cumulative loss
from operations since inception. Therefore, a full valuation allowance was
provided against the net deferred tax asset primarily resulting from the
Company's net operating loss (NOL ) carry forwards.
Cruise revenues are recognized at the time of voyage and gift shop revenues are
recognized upon the sale of goods. In the case of cruises not taken, the
nonrefundable portion of amounts received are recognized as revenue on the
scheduled date of the cruise, with any additional amount on deposit relieved
from unearned revenues and refunded to the customer.
All expenses related to entering the dinner cruise business including marketing
expenses were expensed as incurred.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported results of operations during the reporting
period. Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS:
--------------------------
Officers and directors are compensated based on actual time and expenses devoted
to the Company's business. During the six months ended September 30, 2000 and
1999 consulting fees paid to Directors were $12,000 and $1,500 respectively.
4. NOTES PAYABLE:
-------------
The Company financed the construction of the cruise vessel with bank financing
and mandatorily redeemable preferred stock (see Note 5).
At September 30, 2000 the Company had in place term financing in the amount of
$6,660,000 for a five year period with payments based on a ten year amortization
schedule with the remaining unpaid balance due after five years. The payments
are due quarterly beginning June 30, 2000 with interest fixed at a rate of
8.05%. As of September 30, 2000 the balance outstanding on the term financing is
$6,552,637. All of the term financing is classified as current debt due to bank
waiver on financial covenants expiring in April 2001. The Company also has a
$500,000 revolving line of credit (used for working capital purposes) with the
bank that was fully drawn as of September 30, 2000 and is due October 31, 2000.
The $500,000 was repaid on Octover 31, 2000 with proceeds received from
additional shareholder advances. Interest on the revolving line of credit is
based upon the Lender's floating prime rate (9.00% at September 30, 2000). The
combined term and revolving financing arrangement is secured by a lien on the
cruise vessel, a limited guarantee from the vendor who supplied the vessel's
engines and the personal guarantee of Mr. Burt H. Keenan, a principal
stockholder and Chairman of the Company. Also as of September 30, 2000 Burt H.
Keenan has loaned the Company $1,210,000 on an unsecured demand basis at the
same interest rate as the bank line of credit to provide additional working
capital.
The term financing is subject to certain financial and non-financial covenants.
The Company has obtained a waiver from its lender with respect to compliance
with the financial covenants extending until April 2001. The financial
covenants, which become effective subsequent to March 31, 2001, include minimum
cash flow coverage of debt payments of 1.25 to 1 and minimum net worth,
including preferred stock, of $1,000,000.
While the financial covenants discussed above do not become effective until
after March 31, 2001, as discussed in Note 1, the Company's initial operations
have not been profitable, and the Company is in a deficit working capital
position as of September 30, 2000. Should such losses continue, the Company's
operations alone will not provide adequate performance to meet the financial
covenants under the Company's debt agreement once effective, subsequent to March
31, 2001. Additionally, as noted above, the Company has borrowed approximately
$1.2 million from a principal stockholder as of September 30, 2000 to provide
additional working capital. Management is currently developing a plan to amend
its debt agreement to enable the Company to continue to meet its obligations as
they become due from funds generated by operations and maintain compliance under
the terms of its debt agreement. However, if management is unsuccessful in that
effort, consideration may be given to seeking additional capital and/or other
additional financial support from the Company's principal stockholders.
The Company has been advised by its independent public accountants that should
the Company's situation described above remain unresolved prior to completion of
the Company's financial statements for the year ending at March 31, 2001, their
auditors' report on those financial statements will likely include a
modification concerning the Company's ability to continue as a going concern.
5. MANDATORILY REDEEMABLE PREFERRED STOCK:
--------------------------------------
The Company issued 15,000 shares of mandatorily redeemable convertible preferred
stock in November 1998. The Preferred Stock bears annual dividends of $10.00 per
share payable quarterly in arrears. Each preferred share is convertible into one
share of common stock at the option of the holder. The Company has the option to
redeem the preferred shares in whole or in part at a price of $100.00 plus
accrued dividends as of December 31, 2001 and the obligation to redeem all
shares at a price of $100.00 on December 31, 2004, plus accrued dividends. The
holder of the preferred shares has no voting rights except at any time when the
equivalent of three quarterly dividends are unpaid or the Company fails to make
any mandatory redemption of the preferred shares at which time the number of
directors of the Company will be increased by two and elected by the preferred
shareholder. No dividends on the Preferred Stock have been paid since issuance;
the amount of dividends payable at September 30, 2000 is $279,760 and is
included within current liabilities in the accompanying balance sheet. The
holder of the Preferred Shares has taken no action as a result of the nonpayment
of the dividends.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes included
elsewhere in this report.
Prior to fiscal 2000, the Company's activities were limited to
organizational matters, raising financing, and seeking a suitable acquisition.
The Company had no sales revenue prior to fiscal 2000.
In July 1998, the Company began developing a dinner cruise business
centered in Biloxi, Mississippi. The dinner cruise business commenced operations
in December 1999. The net cruise revenue for the six and three months ended
September 30, 2000 was $993,715 and $528,441 respectively. The cost of sales and
other operating expenses for the six and three months ended September 30, 2000
were $2,102,229 and $1,057,259 respectively. Total costs and expenses
(consisting only of general and administrative costs) were $302,812 and
$165,154, respectively for the six and three months ended September 30, 1999.
The Company had a loss before preferred stock dividend for the six and three
months ended September 30, 2000 of $1,108,514 and $528,818 compared to a loss
before preferred stock dividend in 1999 of $302,812 and $165,154 respectively.
The Company had a working capital deficit of $2,587,173 and negative
stockholders' equity of $(2,567,305) as of September 30, 2000. Substantially all
of the Company's assets are comprised of the cruise vessel and related on shore
facilities. The Company has financed it operations and the construction with
proceeds of a private placement of 30,000 shares of Common Stock at $10 per
share, proceeds from the sale of 15,000 shares of preferred stock at $100 per
share, the exercise of stock options by officers and directors at $12 or $15 per
share, and with debt financing. At September 30, 2000, term financing was in
place in the amount of $6,660,000 for a five year period with the unpaid balance
due after the five years. The payments are due quarterly beginning June 30, 2000
(interest only at March 31, 2000) with interest fixed at a rate of 8.05%. As of
September 30, 2000 the amount outstanding on the term financing is $6,552,637.
All of the term financing is classified as current debt due to bank waiver on
financial covenants expiring in April 2001. The Company also has a $500,000
working capital revolving line of credit with the bank that is fully drawn at
September 30, 2000 and is due October 31, 2000. The $500,000 was repaid on
October 31, 2000 with proceeds received from additional shareholder advances.
The financing is secured by a lien on the dinner cruise vessel, a limited
guarantee from the vendor who supplied the vessel's engines and the personal
guarantee of Burt H. Keenan, the company's founder. The term financing is
subject to certain financial and non-financial covenants. The financial
covenants, which have been waived by the Company's lender until April 1, 2001,
include minimum cash flow coverage of debt payments of 1.25 to 1 and minimum net
worth, including preferred stock of, $1,000,000. Also as of September 30, 2000
Burt H. Keenan has loaned the Company $1,210,000 on an unsecured demand basis at
the same interest rate as the bank line of credit to provide additional working
capital.
While the financial covenants discussed above do not become effective until
after March 31, 2001, the Company's initial operations have not been profitable,
and the Company is in the deficit working capital position as of September 30,
2000. Should such losses continue, the Company's operations alone will not
provide adequate performance to meet the financial covenants under the Company's
debt agreement once effective, subsequent to March 31, 2001. Additionally, as
noted above, the Company has borrowed approximately $1.2 million from a
principal stockholder as of September 30, 2000 to provide additional working
capital. Management is currently developing a plan to amend its debt agreement
to enable the Company to continue to meet its obligations as they become due
from funds generated by operations and maintain compliance under the terms of
its debt agreement. However, if management is unsuccessful in that effort,
consideration may be given to seeking additional capital and/or other financial
support from the Company's principal stockholders. The Company's management
believes the vessel will be able to generate positive cash flow by the end of
its first year of operations, but there is no assurance this will occur.
However, one of the Company's principal stockholders has committed to provide
the funding, if necessary, to cover any working capital deficiencies through
March 31, 2001.
The Company's debt obligations and its mandatorily redeemable preferred
stock represent financial instruments subject to changes in market risk
(primarily interest rate risk). The Company's revolving line of credit and its
advances from a shareholder have variable interest rates and are therefore less
subject to interest rate risk. The Company's term financing carries a fixed rate
of interest and its mandatorily redeemable preferred stock has a fixed dividend
rate. All other things being equal, the fair value of debt and debt equivalent
instruments with fixed accrual rates will increase as market interest rates
decline, and conversely the fair value of such instruments will decrease as
market interest rates rise.
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
In connection with forward-looking statements contained in this Form 10-QSB and
those that may be made in the future by or on behalf of the Company which are
identified as forward-looking by such words as "believes," "intends" or words of
a similar nature, the Company notes that there are various factors that could
cause actual results to differ materially from those set forth in any such
forward-looking statements. The forward-looking statements contained in this
Form 10-QSB were prepared by management and are qualified by, and subject to,
significant business, economic, competitive, regulatory and other uncertainties
and contingencies, all of which are difficult or impossible to predict and many
of which are beyond the control of the Company. Accordingly, there can be no
assurance that the forward-looking statements contained in this Form 10-QSB will
be realized or the actual results will not be significantly higher or lower.
These forward-looking statements have not been audited by, examined by, compiled
by or subjected to agreed-upon procedures by independent accountants, and no
third-party has independently verified or reviewed such statements. Readers of
this Form 10-QSB should consider these facts in evaluating the information
contained herein. In addition, the business and operations of the Company are
subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements contained in this Form 10-QSB. The inclusion of the
forward-looking statements contained in this Form 10-QSB should not be regarded
as a representation by the Company or any other person that the forward-looking
statements contained in this Form 10-QSB will be achieved. In light of the
foregoing, readers of this Form 10-QSB are cautioned not to place undue reliance
on the forward-looking statements contained herein.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. DEFAUTLS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3. Certificate of Incorporation and Bylaws
*3.1 Restated Certificate of Incorporation
*3.2 Bylaws
*3.3 Proposed Certificate of Amendment to the
Restated Certificate of Incorporation
*3.4 Amendment to Certificate of Incorporation
for name change
10. Material Contracts
*10.1 1993 Stock Option Plan
*10.2 Form of Stock Option Agreements with
Messrs. Keenan, Killeen, Jarrell and
Chaffe with Schedule of Details
(b) Reports of Form 8-K. No reports were filed in the
quarter ended September 30, 2000
- - -----------
*Filed with Registration Statement on Form SB-2, File No. 33-61888-FW and
incorporated by reference herein.
================================================================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on November 14, 2000.
STARSHIP CRUISE LINE, INC.
By: /s/ Burt H. Keenan
--------------------------------
Burt H. Keenan
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on November 14, 2000.
By: /s/ Burt H. Keenan
__________________________________ Chairman of the Board
Burt H. Keenan and Director
By: /s/ Troy M. Manthey
__________________________________ President, Chief Executive
Troy M. Manthey Officer and Director
By: /s/ George F. Sustendal III
__________________________________ Director
George F. Sustendal III
By: /s/ Richard D. Stewart
__________________________________ Director
Richard D. Stewart
By: /s/ D. B. H. Chaffe III
__________________________________ Director
D. B. H. Chaffe III
By: /s/ Daniel B. Killeen
__________________________________ Director
Daniel B. Killeen
By: /s/ Jerry W. Jarrell
__________________________________ Chief Financial Officer,
Jerry W. Jarrell Secretary and Director