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 September 30, 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 principalexecutive offices) (zip code)
(813) 393-2885 extension 326
(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 October 4, 1996
-----------------------------
21,116,205
-----------------------------
EUROPA CRUISES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1 Consolidated Statements of Operations for the Three
- ------ Months Ended September 30, 1996 and 1995. 2
Consolidated Statements of Operations for the Nine
Months ended September 30, 1996 and 1995. 3
Consolidated Balance Sheets as of September 30, 1996 4-5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995. 6-7
Notes to Consolidated Financial Statements 8-13
ITEM 2 Management's Discussion and Analysis of Financial
- ------ Condition and Results of Operations. 13-16
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 16
- ------
ITEM 5 Other Information 16
- ------
ITEM 6 Exhibits and Reports on Form 8K 16
- ------
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 September 30
-------------------------------
1996 1995
---- ----
Revenues
Gaming revenue (Note 1(a)) $ 3,650,800 $ 2,543,629
Passenger fares 806,643 1,035,531
Food and beverage 399,693 303,248
Charter fees -0- 258,666
Other 55,612 23,888
-------------- ------------
4,912,748 4,164,962
-------------- ------------
Costs and Expenses
Vessel operating 3,263,001 3,153,847
Administrative and general 515,203 599,413
Advertising and promotion 406,518 409,453
Depreciation and amortization 369,982 306,813
Interest, net 222,257 224,058
Other operating (Note 1 (b)) 69,901 98,921
--------------- ------------
4,846,862 4,792,505
--------------- ------------
Net income (loss) before income taxes 65,886 (627,543)
Provision for income taxes - current -0- 13,390
-------------- ------------
Net income (loss) 65,886 (640,933)
Preferred stock dividends (54,859) (70,600)
-------------- ------------
Net income (loss) applicable to common
stock $ 11,027 $ (711,533)
============= ============
Net income (loss) per common share (Note
2) $ * $ (.04)
============= ============
Weighted average number of common and
common shares outstanding (Note 2) 20,844,954 17,510,146
============= ============
* Amount is less than $.01
2
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended September 30
------------------------------
1996 1995
---- ----
Revenues
Gaming revenue (note 1(a)) $ 10,139,196 9,048,406
Passenger fares 3,100,246 3,533,225
Food and beverage 1,180,664 1,057,313
Charter fees 384,072 773,576
Other 173,665 309,330
--------------- -----------
14,977,843 14,721,850
--------------- -----------
Costs and Expenses
Vessel operating 9,672,751 10,605,379
Administrative and general 1,519,986 1,966,508
Advertising and promotion 1,191,010 1,520,633
Depreciation and amortization 1,071,587 858,718
Interest, net 668,318 584,244
Other operating (Note 1(b)) 215,756 567,900
-------------- -----------
14,339,408 16,103,382
-------------- -----------
Net income (loss) before income taxes 638,435 (1,381,532)
Provision for income taxes-current -0- 13,390
-------------- -----------
Net income (loss) 638,435 (1,394,922)
Preferred stock dividends (174,954) (212,524)
-------------- -----------
Net income (loss) applicable to common
stock $ 463,481 $(1,607,446)
============= ===========
Net income (loss) per common share (Note
2) $ .02 $ (.09)
============= ===========
Weighted average number of common and
common shares outstanding 19,773,765 17,507,498
============= ===========
3
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
September 30, 1996
------------------
Current Assets:
Cash and cash equivalents $ 698,070
Accounts receivable 202,577
and other 731,328
-------------
Total current assets 1,631,975
-------------
Vessels, equipment and fixtures, less
accumulated depreciation 13,651,855
Land under development for dockside
gaming 4,638,573
Deferred drydock costs, less accumulated
amortization 678,377
Other assets 648,489
-------------
$ 21,249,269
=============
4
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
September 30, 1996
------------------
Current Liabilities:
Accounts payable and accrued liabilities $ 1,250,902
Current maturities of long-term debt 1,450,395
Unearned cruise revenues 55,806
-------------
Total current liabilities 2,757,103
Long-term debt less current maturities 6,863,724
Other liabilities 150,000
-------------
Total liabilities 9,770,827
-------------
Stockholder's equity:
Preferred stock, $.01 par value;
shares authorized 5,000,000; outstanding
2,822,467; ($3,922,014 aggregate
liquidation preference) 28,225
Common stock, $.001 par value-
shares authorized 50,000,000;
issued 27,116,205; outstanding 21,116,205 27,115
Additional paid-in-capital 24,913,300
Unearned ESOP Shares (6,802,579)
Deficit (6,497,463)
Treasury stock, at cost,
1,300,000 shares (190,156)
-------------
Total stockholders' equity 11,478,442
-------------
$ 21,249,269
=============
5
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
1996 1995
---- ----
Operating Activities:
Net Income (loss) before income taxes $ 638,435 $(1,381,532)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,071,587 858,718
Release of ESOP shares 162,500 122,522
Decrease (increase) in:
Accounts receivable 3,997 (72,994)
Prepaid expenses 584,348 499,509
Other assets 28,999 (260,506)
Increase (decrease) in:
Accounts payable and accrued liabilities (533,272) (561,796)
Unearned cruise revenues (16,233) (59,760)
Cash provided by (used in) operating
activities 1,940,361 (855,839)
----------- -----------
Investing activities:
Purchases of property and equipment (1,343,329) (515,215)
Development costs for dockside gaming (105,126) (160,446)
----------- -----------
Cash (used in) investing activities $(1,448,455) $ (675,661)
----------- -----------
6
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
1996 1995
---- ----
Financing activities:
Proceeds from issuance of common stock $ 1,013,923 $ -0-
Proceeds from long-term debt -0- 7,646,332
Payment of notes and long-term debt (1,312,549) (8,370,395)
Preferred stock dividends (47,271) (55,279)
---------- -----------
Cash provided by (used in) financing
activities (345,897) (779,342)
---------- -----------
Net increase (decrease) in cash and cash
equivalents 146,009 (2,310,842)
Cash and cash equivalents,
beginning of period 552,061 3,121,794
---------- -----------
Cash and cash equivalents,
end of period $ 698,070 $ 810,952
=========== ============
Supplemental schedule of noncash
investing and financing activities
Payment of preferred dividends in stock $ 129,954 $ 166,800
=========== ============
7
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
(a) 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 $570,000 and $238,000 for the three months ended September 30, 1996 and 1995
respectively; and $1,495,000 and $737,000 for the nine months ended September
30, 1996 and 1995 respectively.
(b) Other Operating Costs
- -------------------------
Other operating costs consist of the following:
Three months ended September 30, 1996 1995
- --------------------------------------------------------------------------------
ESOP (benefit) provision $56,250 $ (3,496)
Shareholder litigation -0- 65,917
Other 13,651 36,500
- --------------------------------------------------------------------------------
$69,901 $98,921
================================================================================
Nine months ended September 30, 1996 1995
- --------------------------------------------------------------------------------
ESOP provision $162,500 $122,521
Shareholder litigation 32,279 365,261
Other 20,977 80,118
- --------------------------------------------------------------------------------
$215,756 $567,900
================================================================================
(c) Reclassification
- --------------------
Certain 1995 amounts have been reclassified to conform to the
classifications for 1996.
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. Stock options and warrants considered to be
common stock equivalents for both primary and fully diluted earnings per share
were not materially dilutive.
Common shares outstanding includes issued shares less shares held in
treasury; 4,562,500 unallocated and uncommitted shares held by the ESOP trust at
September 30, 1996, and 400,000 shares held in escrow by the Company as
collateral for a note with a principal balance of $273,000 at September 30,
1996.
Note 3 Income Taxes
The Company's taxable income in 1996 has been offset substantially by the
utilization of net operating loss carryforwards.
8
Note 4. Long Term Debt
On October 31, 1996, the Company closed on a $2,250,000 loan with dEBIS
Financial Services, Inc. The loan carries a fixed rate of interest of
approximately 10.5% over a term of ten years.The term loan requires monthly
payments of approximately $30,400, including interest, through 2006. The primary
collateral for the loan is a vessel mortgage. The secondary collateral for the
loan is the property owned by Mississippi Gaming Corporation in Mississippi. The
secondary collateral requirement may terminate after two years at the option of
the Lender. The Company has a cure period in the event primary collateral is
insufficient to cover a default. The term loan has a balloon payment due after
five years at which time the lender may refinance at the then current rate of
interest.
Note 5. 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.
(b) Liberis 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.
9
(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 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. In July 1996, the Company filed a
Protest with the Florida Department of Revenue contesting all amounts assessed.
(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.
10
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.
(f) Robert M. Baer, et al. v. Ambassador Cruise Lines, Inc., et al. (In the
- --- --------------------------------------------------------------------------
Circuit Court of the Seventeenth Judicial Circuit In and For Broward County,
- --------------------------------------------------------------------------------
Florida ) Case No. 96-6177 (21)
- -------------------------------
On May 7, 1996, Robert M. Baer, on Behalf of Himself and All Others
Similarly Situated, filed a class action lawsuit against approximately
thirty-eight defendants, including Europa Cruises of Florida I and Europa
Cruises of Florida II, in the Circuit County of the Seventeenth Judicial Circuit
In and For Broward County., Florida. (Case No. 96-6177 (21). Europa Cruises of
Florida I, Inc. and Europa Cruises of Florida II, Inc., were served with the
Complaint on or about July 11, 1996. The suit was filed against the
manufacturers, distributors and promoters of video poker and electronic slot
machines and the owners, operators and promoters of cruise ship casinos which
11
utilized casino video poker machines and electronic slot machines. The plaintiff
alleges fraud in connection with the labeling, design, promotion and operation
of casino video poker machines and electronic slot machines, violation of the
Florida Racketeer Influenced and Corrupt Organizations Act ("RICO"), common law
fraud and deceit, unjust enrichment, and negligent misrepresentation. The
plaintiff contends that the defendant owners, operators and promoters of cruise
ship casinos, along with the manufacturers, distributors, and promoters 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 random
fashion and are unpredictable. 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 one billion dollars, including treble their
general and special compensatory damages, punitive damages, consequential and
incidental damages, interest, costs, attorneys' fees and a preliminary and
permanent injunction requiring defendants to accurately and properly describe
their video poker machines and electronic slot machines. The Company intends to
vigorously defend this lawsuit. The Company is sharing the cost of this
litigation with certain other defendants who have retained the same law firm to
represent them. 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.
(g) Lonnie Avant, et al. v. Europa Cruises Corporation (In the United States
- --- --------------------------------------------------------------------------
District Court for the Middle District of Florida (Cases No. 96-217-CIV-FTM-24D)
- --------------------------------------------------------------------------------
On June 13, 1996, Lonnie Avant, on behalf of herself and all others
similarly situated, filed a class action lawsuit against Europa Cruises
Corporation, d/b/a/ Europa Seakruz, Lester Bullock and John Does 1-10 (Europa's
other directors, officers and managers) in the United States District Court for
the Middle District of Florida, Fort Myers Division, Case No.
96-217-CIV-FTM-24D). The Company was served with the Complaint on or about June
19, 1996. The suit was filed against the Company and its directors, officers and
managers. The Plaintiff alleges that the Company and its directors, officers,
and managers intentionally charged fictitious "port charges" and thereby
overcharged numerous customers and that this practice violated the federal
Racketeer Influenced and Corrupt Organizations Act (RICO). The plaintiff seeks
treble damages, attorneys fees, litigation expenses, costs and restitution. This
is one of a number of class action lawsuits relating to "port charges" recently
filed against cruise ship companies. The Company intends to vigorously defend
this lawsuit. 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.
(h) Bay St. Louis Community Association, Preserve Diamondhead Quality, Inc.,
- --- --------------------------------------------------------------------------
Gulf Islands Conservancy, Inc. and Concerned Citizens to Protect the Isles and
- --------------------------------------------------------------------------------
Point, Inc. v. the Commission on Marine Resources, Hancock County Port and
- --------------------------------------------------------------------------------
Harbor Commission and Casino World, Inc. (Chancery Court of Hancock County,
- --------------------------------------------------------------------------------
Mississippi) (Case No. 960707)
- ------------------------------
On September 18, 1996, Bay St. Louis Community Association, Preserve
Diamondhead Quality, Inc., Gulf Islands Conservancy, Inc. and Concerned Citizens
to Protect the Isles and Point, Inc. filed a Notice of Appeal and Complaint
against the Commission on Marine Resources, Hancock County Port and Harbor
Commission and Casino World, Inc., in the Chancery Court of Hancock County,
Mississippi (Case No. 960707), appealing the decision of the Commission on
Marine Resources in granting Permit No. DMR-M 9612281-W and COE No.
MS96-01566-U. On October 17, 1996, the Mississippi Commission on Marine
Resources filed a Response to Notice of Appeal and Answer in which it
maintained, in pertinent part, that it had complied with all procedural
12
requirements relevant to grants of permits and use adjustments at issue, that
its decision to grant the permit and use adjustment was grounded upon legally
sufficient evidentiary grounds and that there was no proper ground at law
warranting reversal of its decision. On October 16, 1996, Casino World, Inc. and
the Hancock County Port and Harbor Commission filed a Joint Motion to Dismiss
for Untimely Appeal in which they alleged that the appellants had failed to file
their Notice of Appeal and Complaint within the proper time period. A hearing on
the Motion to Dismiss for Untimely Appeal is currently scheduled to be held in
December 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------------
Results of Operations
---------------------
Results of Operations for the Three Months Ended September 30, 1996
- -------------------------------------------------------------------
Revenues
- --------
Revenue from casino operations increased by approximately $1,100,000 or
43% over the comparable period of 1995. This increase in revenue was the result
of sustained high casino hold percentage and a 34% increase in passenger count
from 63,918 in 1995 to 86,199 in 1996. The ports encountered virtually no bad
weather during the third quarter. Cruises were up 8% from 513 in 1995 to 555 in
1996. Due to hurricanes in October and an expected correction of the hold
percentage in the fourth quarter, the Company expects casino revenue to level
off in the fourth quarter.
Passenger revenue from fares decreased by approximately $200,000 or 22%
over the comparable period in 1995 due to decreased fares in all three ports.
The decrease in passenger fares is partially offset by a 32% increase in food
and beverage revenues principally from the Miami port.
During the three months ended September 30, 1996 the Company received no
charter fees for the M/V Stardancer compared to approximately $259,000 in the
third quarter of 1995. The previous charter agreement expired on June 30, 1996
and the M/V Stardancer is currently being utilized to replace each of the
Company's three operating vessels at each of the Company's three operating ports
when each vessel is taken to drydock. It is anticipated that drydocks will be
completed by approximately December 1, 1996. In December 1996, the Company will
begin operating the M/V Stardancer out of a new port in Tierra Verde on the west
coast of Florida. In the fourth quarter of 1995, the M/V Stardancer was under
Charter hire and showed a net profit of approximately $50,000. The Company
anticipates that the M/V Stardancer at the new Tierra Verde port will take
twelve to eighteen months to become a profitable port. However, due to Tierra
Verde's proximity to Madeira Beach, some cost benefit is expected from
operations in as much as Madeira Beach personnel can handle most of the
non-cruise operations and functions.
Vessel Operating Expenses
- -------------------------
Vessel operating expenses, including casino operations, costs of food and
beverage sales, marine operations and other vessel-related expenses, increased
slightly, primarily as a result of a 22% increase in casino operating costs,
from approximately $812,000 in 1995 to $988,000 in 1996 due to the increased
number of cruises and passengers. In the third quarter of 1996, net meal costs
were reduced by approximately $63,000, a savings of approximately 11%.
Administration and General
- --------------------------
Administration and general expenses decreased slightly by approximately
$85,000, or 14%.
13
Advertising and Promotion
- -------------------------
Advertising and promotion remained relatively constant for the comparable
third quarter period.
Results of Operations for the Nine Months Ended September 30, 1996
- ------------------------------------------------------------------
Revenues
- --------
Casino revenue from the three operating ports increased $1,090,000 or 12%
compared to the same period of 1995. However, due to harsh weather experienced
in October, fourth quarter revenues are not expected to increase and may
decrease. There can be no assurance lost revenues due to inclement weather can
be regained.
Passenger fares decreased by approximately $433,000 or 12% over the
comparable period in 1995. Though, to date, there have been no new specific
competitors entering into the Company's existing markets, the Florida market is
very fluid with port openings and closings occurring throughout the state. Even
in its established markets, the Company's customer base is very sensitive to
changes in passenger fare pricing. The Company believes that decreases in
passenger fares are necessary to remain competitive.
The $390,000 decrease in charter fees is primarily related to the
termination in June of 1996 of the charter of the M/V Stardancer. Since July
1996, the M/V Stardancer has been used to replace vessels in operating ports
which must go into drydock for repair. Net operating income from Charter of the
Stardancer was approximately $258,000 for the nine months ended September 30,
1995 compared to a loss of ($136,000) for the same period in 1996.
Other income in 1995 includes net management fee income of approximately
$102,000 from a casino management contract that was terminated in the second
quarter of 1995. The Company has not entered into any casino management
contracts since that time.
Vessel Operating Expenses
- -------------------------
Vessel operating expenses, including casino operations, costs of food and
beverage sales, marine operations and other vessel-related expenses, decreased
by approximately $933,000, or 9%, as a result of cost cutting measures
instituted by the Company. Food costs were reduced approximately $500,000.
Entertainment costs were reduced approximately $400,000.
Administration and General
- --------------------------
Administration and general expenses decreased by approximately $447,000,
or 23%, primarily due to decreases in legal and professional fees.
Three new lawsuits have recently been filed against the Company and/or its
subsidiaries. See Note 5, Material Contingencies, Items (f), (g) and (h). These
lawsuits coupled with additional professional costs expected to be incurred
related to the development of Mississippi, may cause an increase in professional
fees and expenses in the future.
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Advertising and Promotion
- -------------------------
Advertising and promotion decreased by approximately $330,000 or 22%. The
Company expects that advertising and promotional expenses may increase over the
next quarter due to the opening of a fourth port. The Company's markets are
seasonal and passenger counts fluctuate widely and are not predictable.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital deficiency was approximately $1.1 million at
September 30, 1996. Operations provided $1.9 million. Investing activities used
approximately $1.3 million for vessel improvements and equipment, including
$800,000 for drydock and $375,000 for upgrades to gaming equipment. During the
fourth quarter, the Company anticipates spending an additional $450,000 on
drydock for the Europa Sun.
On October 31, 1996, the Company closed on a $2,250,000 loan with dEBIS
Financial Services, Inc. The loan carries a fixed rate of interest of
approximately 10.5% over a term of ten years. The Company used the proceeds of
the loan to pay off the $1,100,000 balance due on a loan with First Union
National Bank of Florida due January 31, 1997 and to pay an additional $600,000
to First Union National Bank of Florida on its original loan of $6,400,000 dated
May 25, 1995. Of the remaining proceeds, $400,000 was placed in an interest
bearing escrow account at First Union National Bank of Florida to be used for
the sole purpose of effecting a buy-out of a vessel-related contract. In the
event the buy-out is not effected, the $400,000 will revert to First Union
National Bank of Florida for the purpose of paying down the original $6,400,000
loan with First Union National Bank of Florida. The remaining $150,000 of
proceeds were used to purchase a new engine for the M/V Europa Sun and to pay
closing costs. This refinancing enabled the Company to reduce its current
liabilities by $1,100,000.
First Union National Bank of Florida, which holds the majority of the
Company's long-term debt, further agreed to modify certain loan covenants
contained in that Credit Agreement dated May 25, 1995. As a result of these
modifications, the Company is in full compliance with its First Union loan
covenants. First Union National Bank of Florida was also granted a Warrant from
the Company to purchase 100,000 to 200,000 shares of common stock (the number of
shares dependent upon the ultimate disposition of the escrowed $400,000) at a
price of $2.00 per share. First Union National Bank of Florida has piggyback
registration rights for one year and one demand registration right after one
year.
On October 12, 1996, the Company entered into an amendment to its
consulting agreement with Casinos Austria Maritime to remove the Casinos Austria
personnel from its vessel operations. This change will reduce the monthly
consulting fee due to Casinos Austria by approximately $25,000 per month for an
annual savings of approximately $300,000.
Earnings before interest, taxes, depreciation and amortization is a
measure often considered by financial analysis to scrutinize a Company's ability
to meet debt repayments. The Company's EBITDA and its ESOP expense (which is a
non cash item) for the nine-months ended September 30, 1996 has significantly
improved from approximately $64,000 in 1995 to approximately $2,385,000 for the
same period in 1996.
Except for historical information contained herein, the matters discussed
in this Item 2, in particular, statements that use the words, "expects" or
"anticipates" are intended to identify forward looking statements that are
subject to risk and uncertainties, including inclement weather, mechanical
failures, increased competition, governmental action, environmental opposition
and other unforeseen factors. The results reported this quarter are not
necessarily an indication of future prospects of the Company. Actual results may
differ materially.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
See Note 5 - Material Contingencies.
Item 5. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
No reports on Form 8-K have been filed during the quarter ended September 30,
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.
Date: November 14, 1996 EUROPA CRUISES CORPORATION
By: /s/Debra Gladstone By: /s/Lester E. Bullock
------------------------------- ---------------------------
Debra Gladstone Lester E. Bullock
Chief Financial Officer President
16