UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission File Number 0-17529
EUROPA CRUISES CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
DELAWARE 59-2935476
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
150 153rd Avenue, Suite 200, Madeira Beach, Florida 33708
- --------------------------------------------------- ----------
(Address of principal executive offices) (zip code)
(813) 393-2885
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(Registrant's telephone number, including area 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 Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Number of Shares Outstanding
At April 30, 1996
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19,538,778
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EUROPA CRUISES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1 Consolidated Statements of Operations for the Three
------
Months Ended March 31, 1996 and 1995. 2
Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1995. 3-4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1995. 5-6
Notes to Consolidated Financial Statements 7-10
ITEM 2 Management's Discussion and Analysis of Financial
------ Condition and Results of Operations for the Three
Months Ended March 31, 1996 and 1995. 10-11
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 11
------
ITEM 5 Other Information 12
------
ITEM 6 Exhibits and Reports on Form 8K 12
------
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
The results of operations for the interim periods shown in
this report are not necessarily indicative of results to be
expected for the fiscal year. In the opinion of Management,
the information contained herein reflects all adjustments
necessary to make the results of operations for the interim
periods a fair statement of such operations. All such
adjustments are of a normal recurring nature.
1
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31
1996 1995
------------ ------------
Revenues
Gaming revenue $ 2,588,314 $ 3,363,486
Passenger fares 1,229,755 1,317,164
Food and beverage 354,428 367,243
Subcharter fees 237,267 552,005
Other 58,604 71,243
------------ ------------
4,468,368 5,671,141
------------ ------------
Costs and Expenses:
Vessel operating 3,079,209 3,665,581
Administrative and general 566,135 764,736
Advertising and promotion 390,791 536,781
Depreciation and amortization 346,371 191,870
Interest, net 211,706 196,776
Other operating 45,625 65,300
------------ ------------
4,639,837 5,421,044
------------ ------------
Net (loss) income (171,469) 250,097
Preferred stock dividends (29,872) (71,324)
------------ ------------
Net (loss) income applicable to
common stock $ (201,341) $ 178,773
============ ============
Net (loss) income per common $ (.01) $ 0.01
============ ============
Weighted average number of
common and common equivalent
shares outstanding primary and
fully diluted 18,673,985 17,565,416
============ ============
2
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, 1996
--------------
Current Assets:
Cash and cash equivalents $ 481,037
Accounts receivable 531,512
Prepaid insurance and other 1,037,090
-----------
Total current assets 2,049,639
Vessels, equipment and fixtures, less 13,687,899
accumulated depreciation
Land under development for dockside
gaming 4,542,678
Other Assets 765,014
-----------
$21,045,230
===========
3
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1996
--------------
Current Liabilities:
Accounts payable and accrued liabilities $ 1,598,227
Current maturities of long-term debt 2,702,232
Unearned cruise revenues 99,363
------------
Total current liabilities 4,399,822
------------
Long-term debt less current maturities 6,400,277
Other liabilities 150,000
------------
Total liabilities 10,950,099
------------
Stockholder's equity:
Preferred stock, $.01 par value;
shares authorized 5,000,000; outstanding
2,959,800; ($4,266,680 aggregate
liquidation preference) 28,725
Common stock, $.001 par value-
shares authorized 50,000,000;
issued 25,622,432; outstanding 19,222,432 25,138
Additional paid-in-capital 24,397,695
Unearned ESOP Shares (6,988,986)
Deficit (7,177,285)
Treasury stock, at cost,
1,300,000 shares (190,156)
------------
Total stockholders' equity 10,095,131
------------
$ 21,045,230
============
4
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
1996 1995
--------- ---------
Operating Activities:
Net (loss) income $(171,469) $ 250,097
Adjustments to reconcile net (loss)
income to net cash used in operating
activities:
Depreciation and amortization 346,371 191,870
Release of ESOP shares 45,625 65,000
Decrease (increase) in:
Accounts receivable 79,255 (18,695)
Prepaid and other assets 174,734 174,104
Increase (decrease) in:
Accounts payable and accrued liabilities (191,947) (18,695)
Unearned cruise revenues 27,324 (8,947)
--------- ---------
Cash provided by operating activities 309,893 694,344
--------- ---------
Investing activities:
Purchases of property and equipment (55,758) (103,525)
Development costs for dockside gaming (25,000) (133,410)
--------- ---------
Cash (used in) investing activities $ (80,758) $(236,935)
--------- ---------
5
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
1996 1995
--------- ---------
Financing activities:
Proceeds from issuance of common stock $230,000 $ --
Payment of notes and long-term debt (524,159) (590,858)
Preferred stock dividends (6,000) (15,000)
----------- -----------
Cash (used in) financing activities
(300,159) (605,858)
----------- -----------
Net (decrease) in cash and cash equivalents (71,024) (148,349)
Cash and cash equivalents,
beginning of period 552,061 3,121,794
----------- -----------
Cash and cash equivalents,
end of period $481,037 $2,973,445
=========== ===========
6
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Casino Revenue
Casino revenue is the net win from gaming activities, which is the difference
between gaming wins and losses. Revenue does not include the retail amount of
fares, food, and beverage provided gratuitously to customers, which was $410,000
and $217,000 for the three months ended March 31 in 1996 and 1995 respectively.
Note 2. Net Income (Loss) Per Share
Net income (loss) per share is based on net income (loss) after preferred stock
dividend requirements and the weighted average number of common shares
outstanding during each period after giving effect to stock options and warrants
considered to be dilutive common stock equivalents. It is assumed that all
dilutive stock options and warrants are exercised at the beginning of each year
and that the proceeds are used to purchase up to 20 percent of the outstanding
shares of the Company's common stock with any remaining proceeds utilized to
repay indebtedness. Primary and fully diluted earnings per share were not
calculated for 1996, since such calculation would be anti-dilutive.
Common shares outstanding includes issued shares less shares held in treasury
and the 4,687,500 unallocated and uncommitted shares held by the ESOP trust at
March 31, 1996.
Fully diluted earnings per common and common equivalent share is not materially
different from primary net income per share.
Note 3. Material Contingencies
(a) Sea Lane Bahamas
Through December 31, 1993, the Company leased a vessel (the EuropaJet)
under a bareboat charterparty agreement with Sea Lane Bahamas (Marne), an entity
in which the Company previously owned a twenty percent interest. As a result of
continued unprofitable operations of the EuropaJet during the first quarter of
1993, the Company negotiated a lease settlement with Marne, whereby, the lease
was terminated as of December 31, 1993 in exchange for payment of outstanding
lease charges of $888,000, paid as of December 31, 1995.
The Company's liability, for alleged damages arising out of the condition
of the EuropaJet upon its redelivery is in dispute. The lessor claims the
liability for damages to the EuropaJet under the charterparty agreement is in
excess of $1 million. The Company and the lessor were unable to settle this
dispute with respect to the condition of the EuropaJet when it was redelivered,
and the amount of the Company's remaining obligation will be determined in
arbitration. To date, the Company has accrued expenses of $150,000 relating to
this contingency.
7
(b) Litigation
On or about May 5, 1993, Charles S. Liberis, the founder of the Company
and a former Chairman of the Board, filed suit in the Circuit Court in and for
Pinellas County, Florida (Case No. 93-0016126-CI-008) against Steve Turner,
Deborah A. Vitale, William A. Herold, Ernst G. Walter, Sharon E. Petty, Charles
H. Reddien, Victor B. Gersh, Serco International Limited, Casinos Austria
Maritime Corporation (CAMC), and Austroinvest International Limited seeking
unspecified damages for rescission, fraud and conspiracy for which the Company
may be required to indemnify its directors. On or about August 4, 1993, Liberis
filed an Amended Complaint, naming additional defendants and adding a count for
defamation. On or about April 22, 1996, Liberis filed a motion for Leave to File
a Second Amended Complaint to add a claim for intentional infliction of
emotional distress. The Court has not yet granted Liberis' motion for leave to
file a Second Amended Complaint. No trial date has been set.
The Company's litigation, including the foregoing, may have an adverse impact on
the Company's ability to secure financing for its planned Mississippi expansion
and on licensing by the Mississippi Gaming Commission. The ultimate outcome of
these matters cannot presently be determined. Accordingly, the financial
statements do not include any adjustments that might result from litigation
uncertainty.
(c) Sales and Use Taxes
On November 28, 1994, the Florida Department of Revenue issued to the
Company, a Notice of Intent to make Sales and Use Tax Audit Changes for the
period February 1, 1989 through June 30, 1994. The proposed audit Changes,
including penalties and interest total $6,515,681. The Florida Department of
Revenue seeks to assess sales tax on gaming revenue, passenger fares, the
purchase, sale and lease of fixed assets, repairs, and other items.
On June 28, 1989, the Department of Revenue issued Technical Assistance
Advisement (TAA 89 (A) - 034) to Europa Cruise Line, Ltd. (the entity which is
now known as Europa Cruises Corporation). This TAA appeared to resolve the
admissions tax issue and the tax on purchases issued in favor of Europa. The
Department revised this TAA in 1990, purporting to "clarify" that it had
actually intended to conclude that the admissions tax was applicable. The
revision did not revisit the tax on purchases. On April 21, 1995, the Assistant
General Counsel for the Florida Department of Revenue issued a recommendation to
the auditor responsible for the Europa sales tax assessments that the TAA issued
on June 28, 1989, should be honored. Therefore, the Assistant General Counsel
recommended that the assessment for Europa Cruise Line, Ltd., be eliminated for
the period from June 28, 1989 to May 2, 1990. For the period following May 2,
1990, the Company relies on Florida statutes that provide that vessels are not
establishments subject to admission sales tax. The Assistant General Counsel
further recommends that the TAA be honored for all purchases made by Europa
Cruise Line, Ltd., if such purchases were for supplies appropriate to carry out
the purposes for which the Vessel was designed. The recommendation is limited to
assessments for Europa Cruise Line, Ltd. However, the Company intends to pursue
the argument that the successor entities are entitled to the benefits of the
TAA. The recommendation of General Counsel for the Department of Revenue
regarding the TAA will reduce the sales tax assessment by the Department of
Revenue. However, it is not possible for the Company to estimate the amount of
the reduction in the sales tax assessment at this time. In late April 1996, the
Florida Department of Revenue issued a Final Notice of Intent to make Audit
Changes that totals $6.6 million of which $1.7 million and $1.3 million
represent interest and penalties respectively. The Company has until July 6,
1996 to file a protest to this assessment. The Company strongly disagrees with
the proposed Audit Changes and intends to vigorously contest the factual,
statutory, and regulatory issues which form the basis for the proposed Audit
Changes. The Company believes many of the proposed Audit Changes will be
resolved in the Company's favor. However, the outcome of this matter is
uncertain and if the Company is not successful in challenging the proposed Audit
Changes by the Florida Department of Revenue, the additional Sales and Use Tax
the Company will be required to pay would have a major substantial adverse
impact on the Company's financial condition.
8
(d) Government Regulation - Day Cruise Gaming Vessels
Federal legislation enacted in 1948, (the "Gambling Act"), prohibits any
person within the jurisdiction of the United States from establishing, operating
or owning an interest in a gambling ship on the high seas or otherwise within
the jurisdiction of the United States. There are no formal or informal
regulations or legal or administrative opinions as to the application of the
Gambling Act to business operations such as those conducted by the Company.
Federal Legislation enacted in 1992 specifically authorized U.S. registered
vessels to carry gambling equipment to and from U.S. ports for use in
international waters. The 1992 Federal Legislation would appear to conflict in
certain respects with the Gambling Act. However, there are no reported judicial
decisions or administrative opinions reconciling any potential conflicts between
the Gambling Act and the 1992 Federal Legislation.
Though no litigation is presently contemplated, if the Company's
operations were ever found by a court of law in a litigation commenced by a
United States Attorney's Office to violate the Gambling Act, the vessels owned
and operated by the Company could be forfeited to the United States Government
without compensation to owners or the Company or the Company could be required
to change its operations. A material change in the Company's operation, such as
the removal of casinos from the vessels, would have a material adverse impact on
the Company's financial condition.
(e) Casino Industry Litigation
On or about November 29, 1994, William Poulos filed a class action lawsuit
on behalf of himself and all others similarly situated against approximately
thirty-three defendants, including Europa Cruises of Florida 1, Inc. and Europa
Cruises of Florida 2, Inc. in the United States District Court, Middle District
of Florida, Orlando Division (Case No. 94-1259-CIV-ORL-22). Europa Cruises of
Florida 1, Inc. and Europa Cruises of Florida 2, Inc. were served with the
Complaint on or about March 15, 1995. The suit was filed against the owners,
operators and distributors of cruise ship casinos which utilized casino video
poker machines and electronic slot machines. The Plaintiff alleges violation of
the Federal Civil RICO statute, common law fraud and deceit, unjust enrichment
and negligent misrepresentation. The plaintiff had filed a similar action
against most major, land-based casino operators in the United States. The
earlier action, which did not name the Company or any of its subsidiaries as
defendants, was transferred from the U.S. District Court in Orlando, Florida to
the U.S. District Court in Las Vegas, Nevada. The plaintiff contends in both
actions that the defendant owners and operators of casinos, including cruise
ship casinos, along with the distributors and manufacturers of video poker
machines and electronic slot machines have engaged in a course of fraudulent and
misleading conduct intended to induce people to play their machines based on a
false understanding that the machines operate in a truly random fashion. The
plaintiff alleges that these machines actually follow fixed, preordained
sequences that are not random, but rather are both predictable and subject to
manipulation by defendants and others. The plaintiff seeks damages in excess of
$1 billion dollars against all defendants.
On September 13, 1995, the United States District Court for the Middle
District of Florida, Orlando Division, transferred the case pending in that
Court against Europa Cruises of Florida 1, Inc. and Europa Cruises of Florida 2,
Inc. and other defendants to the United States District Court for the District
of Nevada, Southern Division. Accordingly, the case against Europa and the other
defendants in the cruise ship industry will be litigated and perhaps tried
together with those cases now pending against the land-based casino operators
and the manufacturers, assemblers and distributors of gaming equipment
previously sued in federal court in Nevada. Management believes the Nevada forum
provides a more favorable forum in which to litigate the issues raised in the
Complaint. The Company is sharing the cost of litigation in this matter with
other defendants.
9
(f) Proposed Florida Law Relating to Cruise to Nowhere Business
On or about March 6, 1996, a bill was introduced into the Florida State
House of Representatives by Representative King from the Jacksonville, Florida
area to ban all cruises to nowhere originating from the State of Florida. This
bill, if passed by both the House of Representatives and the Senate and signed
by the Governor, would in fact bar the Company from continuing its core business
of day and evening cruises to nowhere, in the State of Florida. The Company is
actively engaged in lobbying efforts through the Florida Day Cruise Association
to defeat this bill in committee. The Company feels that this bill will not
become a new law, however, there can be no assurances that this bill will be
defeated.
The Governor of the State of Florida has proposed a bill that would
provide the State of Florida with a $5.00 per passenger tax on all cruises to
nowhere originating from the State of Florida. The Florida Day Cruise
Association is working closely with the Governor's budget office to develop a
fair tax that would not be burdensome to the passengers, or those companies
engaged in the cruise to nowhere business.
On May 4, 1996, the Florida Legislative Session closed with no action
taken on either proposed bill. As a result these bills died in the 1996
legislative session.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations for the Three Months Ended March 31, 1996
Revenues
Revenue from casino operations decreased by approximately $775,000 or 30%
in the first quarter of 1996 over the comparable period of 1995 due in part to
significant winter storms which caused not only lost cruises, but also a
corresponding drop in passenger count due to rough seas. Madeira Beach first
quarter 1996 passenger count was 32,819 compared to 35,400 in 1995, a reduction
of 8% or an equivalent reduction in casino revenue of approximately $86,000. Bad
weather also caused a reduction in the trend toward higher passenger counts in
the Ft. Myers Beach port. Ft. Myers Beach passenger count in the first quarter
of 1996 increased by 10%. Using the prior three-year trend for first quarter
passenger count increases, passenger count would have increased by 20%, a
difference of 10%. Despite bad weather, Ft. Myers was still able to maintain a
10% increase.
The Company's east coast port in Miami Beach was affected both by weather
and down time for vessel maintenance. Average passengers per cruise was 74
compared to 106 in 1995 in Key West, a reduction of 43%. In January 1996, the
Miami port was temporally closed for 10 days when the Europa Sun was redeployed
to Ft. Myers port in order to maintain operations in Ft. Myers Beach while an
emergency shaft repair was completed on the Europa Star. This temporary closure
in Miami resulted in the loss of approximately 18 cruises. Operations began in
Miami Beach on March 29, 1995. Prior to that date, the vessel was operated out
of Key West.
The most significant reduction in casino revenues came from a lower than
average casino hold percentage in the quarter. Unlike land based casinos which
are open 24 hours a day, the casino hold percentage on a vessel is effected by
gaming time of only 4 to 5 hours per cruise and short term fluctuations in hold
percentage can be expected. However, in the long term, the fluctuations correct
to expected hold percentages. For example, based on a normalization of the hold
percentage, casino revenue in Madeira Beach would have been approximately
$370,000 higher.
10
During the first quarter of 1996 the Company received $237,000 under a
charter agreement of the M/V Stardancer compared to $552,000 in the first
quarter of 1995, a decrease of 60%. In the first quarter of 1995, the Company
managed the casino on the chartered vessel and received a management fee of
$293,000 in addition to the charter fee. The Company has no similar arrangement
in 1996. The charter agreement will expire June 30, 1996. The Company is
negotiating a new one year agreement with an unrelated third party.
Vessel Operating Expenses
Vessel operating expenses including casino operations, cost of food and
beverage sales, marine operations, and all other vessel related expenses
decreased by approximately $587,000, or 16%, as a result of cost cutting
measures instituted by the Company in the fourth quarter of 1995. In the first
quarter of 1996, meal costs were reduced by approximately $215,000, a savings of
approximately 29%.
Administration and General Expenses
Administrative and general expenses decreased by approximately $199,000,
or 26% over the comparable quarter of 1995, primarily due to reduced
compensation expense and decreases in legal and professional fees.
Advertising and Promotion
Advertising and promotion decreased by approximately $145,990 or about 37%
in 1996, primarily due to concentrating marketing efforts aimed at increasing
recognition through promotions rather than paid advertising. This type of
marketing has been very successful in the Miami Beach market in April where
advertising costs are high compared to the other two ports.
Liquidity and Capital Resources
The Company's working capital deficiency was $2.4 million at March 31,
1996. Current maturities of long-term debt increased by $1.1 million reflecting
the February, 1996 payment due First Union Bank of Florida. Cash provided by
operations in the first quarter of 1996 was approximately $300,000.
Depreciation, release of ESOP shares, a decrease in accounts receivable and
prepaid expenses more than offset changes in accounts payable and increased
unearned cruise revenues. Cash provided by operations was used to purchase
property and equipment of approximately $81,000, for dockside development costs
of $25,000, debt reduction $524,000 and preferred stock dividends $6,000. Cash
and cash equivalents decreased $71,000 from December 31, 1995.
As of December 31, 1995, the Company was not in compliance with its
tangible net worth and cash flow covenants as required under the loan with First
Union National Bank of Florida. First Union waived the Company's default by
waiving compliance with the cash flow covenant through April 30, 1997 and
reducing the tangible net worth requirement through April 30, 1997. At March 31,
1996, the Company met the reduced tangible net worth requirement. Therefore, the
Company is in compliance with the loan requirement.
As of May 15, 1996, the Company received $530,000 in proceeds from
Regulation S offerings made in the last quarter of 1995 and the first quarter of
1996.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See item 5, Material Contingencies
11
Item 5. Other Information
At a Board meeting held April 18, 1996, the Board voted to grant
nonqualifed options to the following employees and Directors:
Deborah A. Vitale, Director 800,000
Piers Hedley, Director 250,000
Lester Bullock, Director 250,000
Lester Bullock, Employee 150,000
Charles Reddien, Employee 400,000
Debra Gladstone, Employee 50,000
Andy Rufo, Employee 50,000
Michael Reeves, Employee 50,000
Jim Monninger, Employee 50,000
Employee option awards are subject to certain vesting criteria.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8K have been filed during the quarter ended March 31,
1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EUROPA CRUISES CORPORATION
Date: May 15, 1996 By: /s/Lester E. Bullock
-------------------------
Lester E. Bullock
President
By: /s/Debra Gladstone
-------------------------
Debra Gladstone
Chief Financial Officer
12