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 June 30, 1997
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 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
--- ---
Number of Shares Outstanding
At June 30, 1997
----------------------------------
27,184,452
----------------------------------
EUROPA CRUISES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1 Consolidated Statements of Operations for the Three
------ Months Ended June 30, 1997 and 1996. 2
Consolidated Statements of Operations for the Six
Months Ended June 30, 1997 and 1996. 3
Consolidated Balance Sheets as of June 30, 1997 4-5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1997 and 1996. 6-7
Notes to Consolidated Financial Statements 8-14
ITEM 2 Management's Discussion and Analysis of Financial
------ Condition and Results of Operations for the Three
Months Ended June 30, 1997 and 1996. 14-19
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 19
------
ITEM 5 Other Information 19
------
ITEM 6 Exhibits and Reports on Form 8-K 20
------
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 June 30,
1997 1996
---- ----
Revenues
Gaming revenue $ 3,897,462 $ 3,900,082
Passenger fares 809,891 1,064,609
Food and beverage 360,547 435,608
Subcharter fees 55,000 146,805
Other 242,683 59,451
------------ ------------
5,365,583 5,606,555
------------ ------------
Costs and Expenses:
Vessel operating 3,166,767 3,330,837
Administrative and general 541,770 427,394
Advertising and promotion 439,031 403,528
Depreciation and amortization 468,189 346,509
Nonrecurring sales tax settlement 1,284,664 -0-
(Note 4)
Interest, net 193,490 234,351
Other operating (Note 1) 365,903 120,207
------------ ------------
6,459,814 4,862,826
------------ ------------
Net (loss) income (1,094,231) 743,729
Preferred stock dividends (52,825) (75,223)
------------ ------------
Net (loss) income applicable to
common stock $ (1,147,056) $ 668,506
============ ============
Net (loss) income per common $ (.05) $ 0.03
============ ============
Weighted average number of
common and common equivalent
shares outstanding primary and
fully diluted (Note 2) 22,755,718 19,782,452
============ ============
2
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended June 30
1997 1996
---- ----
Revenues
Gaming revenue $ 8,238,361 $ 6,488,396
Passenger fares 1,945,519 2,294,364
Food and beverage 749,135 790,036
Subcharter fees 55,000 384,072
Other 441,926 118,055
------------ ------------
11,429,941 10,074,923
------------ ------------
Costs and Expenses:
Vessel operating 6,569,601 6,410,045
Administrative and general 1,128,963 909,695
Advertising and promotion 853,640 794,319
Depreciation and amortization 924,608 702,019
Nonrecurring sales tax settlement 1,284,664 -0-
(Note 4)
Interest, net 424,392 446,057
Other operating (Note 1) 649,850 240,528
------------ ------------
11,835,718 9,502,263
------------ ------------
Net (loss) income (405,777) 572,260
Preferred stock dividends (99,712) (120,105)
------------ ------------
Net (loss) income applicable to
common stock $ (505,489) $ 452,155
============ ============
Net (loss) income per common $ (.02) $ 0.02
============ ============
Weighted average number of
common and common equivalent
shares outstanding primary and
fully diluted (Note 2) 22,302,413 19,238,171
============ ============
3
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
June 30, 1997
-------------
Current Assets:
Cash and cash equivalents $ 1,315,976
Accounts receivable 310,385
Prepaid insurance and other 660,763
-----------
Total current assets 2,287,124
-----------
Vessels, equipment and fixtures, less
accumulated depreciation 13,576,587
Land under development for dockside
gaming 4,778,577
Deferred drydock costs, less
accumulated amortization 768,902
Other assets 459,761
-----------
$21,870,951
===========
4
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30, 1997
Current Liabilities:
Accounts payable and accrued liabilities $ 1,065,476
Current maturities of long-term debt 1,852,133
Unearned revenues 322,663
------------
Total current liabilities 3,240,272
------------
Long-term debt less current maturities 7,417,860
Other liabilities 150,000
------------
Total liabilities 10,808,132
------------
Stockholder's equity:
Preferred stock, $.01 par value;
shares authorized 5,000,000; outstanding
2,808,000; ($3,963,080 aggregate
liquidation preference) 28,080
Common stock, $.001 par value-
shares authorized 50,000,000;
issued 28,434,452; outstanding 22,809,452 28,433
Additional paid-in-capital 25,434,150
Unearned ESOP Shares (6,522,970)
Deficit (7,714,718)
Treasury stock, at cost,
1,250,000 shares (190,156)
------------
Total stockholders' equity 11,062,819
------------
$ 21,870,951
============
5
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months Ended June 30,
1997 1996
---- ----
Operating Activities:
Net income (loss) $ (405,777) $ 572,260
Adjustments to reconcile net
income (loss) to net cash used in
operating activities:
Nonrecurring sales tax settlement 1,284,664 -0-
Depreciation and amortization 924,608 702,019
Release of ESOP shares 127,500 106,250
Expenses paid in shares of common stock 1,313 -0-
Decrease (increase) in:
Accounts receivable 88,345 36,181
Prepaid and other assets (129,461) 422,493
Increase (decrease) in:
Accounts payable and accrued liabilities (555,414) (801,598)
Unearned revenues 258,836 3,420
----------- -----------
Cash provided by operating activities 1,594,614 1,041,025
----------- -----------
Investing activities:
Purchases of property and equipment (487,335) (457,750)
Development costs for dockside gaming (63,576) (67,623)
Decrease in restricted cash 400,000 -0-
----------- -----------
Cash (provided by) investing activities (150,911) $ (525,373)
----------- -----------
6
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1997 1996
---- ----
Financing activities:
Proceeds from issuance of common stock $ 227,444 $ 997,110
Payment of notes and long-term debt (873,251) (822,337)
Preferred stock dividends (30,000) (32,271)
----------- -----------
Cash (used in) financing activities (675,807) 142,502
----------- -----------
Net increase (decrease) in cash and cash
equivalents 767,896 658,154
Cash and cash equivalents,
beginning of period 548,080 552,061
----------- -----------
Cash and cash equivalents,
end of period $ 1,315,976 $ 1,210,215
=========== ===========
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 $706,000
and $505,000 for the three months ended June 30, 1997 and 1996 respectively, and
$1,327,000 and $915,000 for the six months ended June 30, 1997 and 1996
respectively.
(b) Other Operating Costs
---------------------
Other operating costs consists of the following:
Three months ended June 30, 1997 1996
- --------------------------------------------------------------------------------
ESOP provision $56,875 $60,625
Shareholder litigation 11,184 55,366
Proxy costs 196,750 -0-
Casinos Austria termination fee 98,630 -0-
Other 2,464 4,216
- --------------------------------------------------------------------------------
$365,903 $120,207
================================================================================
Six months ended June 30, 1997 1996
- --------------------------------------------------------------------------------
ESOP provision $127,500 $106,250
Shareholder litigation 17,254 119,638
Proxy costs 335,000 -0-
Casinos Austria termination fee 164,384 -0-
Other 5,712 14,640
- --------------------------------------------------------------------------------
$649,850 $240,528
================================================================================
(c) Reclassification
----------------
Certain 1996 amounts have been reclassified to conform to the classifications
for 1997.
NOTE 2. NET (LOSS) INCOME PER SHARE
Net income per share for 1996 is based on net income 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. Stock options and warrants considered to be common stock
equivalents for both primary and fully diluted calculations were not materially
dilutive. Convertible preferred which is not a common stock equivalent was
anti-dilutive and therefore not considered in the fully diluted calculation.
8
Net (loss) per share for 1997 is based on net (loss) after preferred stock
dividend requirements and weighted average number of common shares outstanding.
Primary and fully diluted earnings per share were not calculated for 1997 since
such calculation would be anti-dilutive.
Common shares outstanding includes:
Issued shares 28,834,452
Less: Treasury shares (1,250,000)
Unallocated, uncommitted ESOP shares (4,375,000)
Escrow shares (400,000)
----------
Outstanding Shares 22,809,452
==========
Escrowed shares are held as collateral for a note with a principal balance of
$247,593 at June 30, 1997.
NOTE 3. NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) has issued a new standard
entitled, " Statement of Financial Accounting Standards ("SFAS") No 128,
Earnings Per Share" (EPS). Statement 128 changes the manner in which EPS is
calculated and represented in the financial statements. Statement 128 is
effective for financial statements issued after December 15, 1997 and requires
that all EPS data presented be restated to reflect the new Standard.
EPS for the three months ended June 30, 1997 and 1996 and EPS for the six months
ended June 30, 1997 and 1996 would be unchanged if calculated under new Standard
128. As currently calculated under the old standard, primary and fully diluted
EPS are anti-dilutive for periods when the Company reports a net loss, and not
materially dilutive for periods when the Company reports net income. As a
result, the Company's presentation of EPS in its financial statements is based
on the weighted average number of common shares outstanding which is generally
equivalent to the calculation of basic EPS under the new Standard.
NOTE 4 . MATERIAL CONTINGENCIES
TAX-RELATED LITIGATION
- ----------------------
FLORIDA DEPARTMENT OF REVENUE TAX AUDIT
- ---------------------------------------
SETTLED
On November 28, 1994, the Florida Department of Revenue issued a Notice of
Intent to make Sales and Use Tax Audit Changes to the Company for the period
February 1, 1989 through June 30, 1994. The total proposed assessment, including
estimated penalties and interest, through June 15, 1997, totals approximately
$7.4 million.
In June, 1997, the Company settled this liability by entering into Closing
Agreements with the Florida Department of Revenue. The settlement, which
includes all audits for the covered period, is approximately $1.9 million. The
settlement includes a payment schedule of approximately $21,000 per month for
seven years. The settlement provides for no interest for the first 3 years and
interest accruing at a rate of 6% per year for the last 4 years.
9
GALVESTON INDEPENDENT SCHOOL DISTRICT, ET AL. V. EUROPA CRUISE LINES OF TEXAS,
INC., ET AL. (In the District Court of Galveston County, Texas (Case No.
95TX0051)
On or about January 31, 1995, the Galveston Independent School District filed a
Petition in the District Court of Galveston County, Texas for ad valorem taxes
allegedly due for the year 1990 in the principal amount of $211,470 and for
interest and penalties in the amount of $177,635. The Company maintains that it
is not liable for this alleged tax. The Company believes the tax is a tangible
property tax which cannot be levied on a foreign flag vessel.
GAMING-RELATED LITIGATION
- -------------------------
WILLIAM POULOS, ET AL. V. AMBASSADOR CRUISE LINES, INC., ET AL.
(United States District Court, District of Nevada) (Case No. CV-S-95-936-LDG
(RLH)
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. Although this action is in the very
early stages of litigation, management believes there is no support for
plaintiff's factual claims and the Company intends to vigorously defend this
lawsuit.
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.
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, 1995, 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 Court of the Seventeenth Judicial Circuit In and For Broward
10
County, Florida. (Case No. 96-6177 (21) Europa Cruises of Florida 1, Inc. and
Europa Cruises of Florida 2, 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 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. Although this action is in the very early
stages of litigation, management believes there is no support for plaintiff's
factual claims and 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. A status conference is
expected to be held on September 5, 1997.
OTHER LITIGATION
- ----------------
SEA LANE BAHAMAS LIMITED V. EUROPA CRUISES CORPORATION (United States District
Court for the Southern District of Florida)(Case No. 94-10004)
In February, 1994, following attachment of one of the Company's vessels by Sea
Lane Bahamas Limited, the Company entered into a partial settlement agreement
with Sea Lane with respect to the Company's obligations under a Bareboat Charter
Agreement. With respect to unpaid charterhire, the Company paid the sum of
$250,000 to Sea Lane plus an additional $386,000 in monthly payments of $30,000
per month plus interest at the rate of six percent (6%) per annum fully paid as
of December 31, 1995. The Company's liability, if any, for damages arising out
of the condition of the EuropaJet upon its redelivery to Sea Lane remains in
dispute. The Company believes its liability for required repairs and maintenance
to the EuropaJet when the vessel was returned to Sea Lane is approximately
$150,000. The Settlement Agreement provided that if the Company and Sea Lane are
unable to settle this dispute with respect to the condition of the EuropaJet
when it was redelivered to Sea Lane, the amount of the Company's remaining
obligation to Sea Lane would be determined in binding arbitration.
On or about September 26, 1994, Sea Lane filed a Petition to Compel Arbitration
in the United States District Court for the Southern District of Florida seeking
damages in excess of one million dollars. Sea Lane contends that it acquired the
EuropaJet from Europa for nonpayment of amounts due on a charterhire agreement
and that substantial expenses were incurred to make repairs for which Europa is
responsible. The Petition requested that the court direct Europa to proceed to
arbitration under the charterhire agreement. Europa objected to the demand for
arbitration and denied that it owed the amount requested by Sea Lane. On or
about April 10, 1995, the United States District Court entered an Order granting
Sea Lane's Petition to Compel Arbitration. The parties have selected arbitrators
and are in the process of taking discovery prior to arbitration. The issues in
the case have been bifurcated and the matter will be arbitrated from October 1
through October 3, 1997 and December 9 through December 12, 1997. On or about
August 2, 1995, the EuropaJet sank off the coast of Florida in a hurricane.
What, if any effect, this will have on the Petitioner's ability to prove alleged
damages is unknown.
11
IN RE BURTON SECURITIES, S.A., DEBTOR/HARRELL Z. BROWNING, LIQUIDATING TRUSTEE
OF BURTON SECURITIES, S.A. V. EUROPA CRUISES CORPORATION (In the United States
Bankruptcy Court for the Southern District of Texas, Corpus Christi Division
(Case No. 94-2199-C).
CASE DECIDED
- -------------
On June 17, 1994, Harrell Z. Browning, Liquidating Trustee under the Chapter 11
plan of Burton Securities, S.A., Debtor, entered into a Memorandum of Agreement
with Europa Cruises Corporation providing for the purchase by Europa of the
Panamanian-flag vessel M/V LE MISTRAL. Paragraph 4 of the Agreement gave Europa
the right to terminate the Agreement in the event closing did not occur within
sixty days from the date of the Agreement in which event, Europa would be
entitled to receive a refund of its full escrow deposit in the amount of
$85,000. Moreover, the Bankruptcy Court entered an Order on July 15, 1994,
approving the terms and condition of the Memorandum of Agreement in all respects
and specifically stating that "[i]f for any reason the closing [had] not taken
place on or before August 16, 1994, Europa may, at its option, terminate the
Europa Agreement and, in such event, the Trustee shall refund the entire escrow
deposit plus any accrued interest to Europa and Europa shall have no obligation
to the Trustee or the estate." The Trustee was notified on August 15, 1994, that
Europa had determined to exercise its right to terminate the Agreement. Europa
attempted to obtain the return of its deposit from the Trustee who refused to
return same. On December 15, 1994, the Trustee filed an action against Europa
for breach of contract seeking damages in excess of $750,000. The case was tried
on June 13 and 14, 1996. On March 25, 1997, the court entered a judgement in
favor of the Trustee which allows the Trustee to keep Europa's deposit of
$85,000 and interest accrued thereon and which awards the Trustee costs and
attorneys fees.
LONNIE AVANT, ET AL. V. EUROPA CRUISES CORPORATION (In the United States
District Court for the Middle District of Florida (Case 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 denies the allegations and intends to defend this
lawsuit vigorously. On August 13, 1996, the Plaintiff filed a Motion for Class
Certification and for Evidentiary Hearing Relating Thereto seeking to certify a
class consisting of all passengers who were assessed and paid a port charge from
June 14, 1992 to June 13, 1996. On April 28, 1997, a hearing was held on
Plaintiff's Motion for Class Certification. On May 8, 1997 the Court entered an
Order denying Plaintiff's Motion for Class Certification. A Pretrial Conference
is scheduled in the case for August 14, 1997. The case is set for a jury trial
for the trial term commencing September, 1997.
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)
12
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 administrative 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 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. The Joint Motion to Dismiss was granted
on December 31, 1996.
On January 15, 1997, the 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 in the Supreme
Court of Mississippi from the decision of the Chancery Court. Appellate Briefs
have been filed by the parties.
LIBERIS-RELATED LITIGATION
- --------------------------
The following litigation relates to Charles S. Liberis, the founder of the
Company, a former Chairman of the Board of Directors, President, Director and
Chief Operating Officer of the Company.
1. LIBERIS V. EUROPA CRUISES CORPORATION (Court of Chancery of the State of
Delaware in and for New Castle County, C.A. 13103) CASE ON APPEAL
On July 30, 1993, Charles S. Liberis attempted to exercise 1,417,500 Europa
Common Stock options at $ .15625 per share. The Company refused Liberis' attempt
to exercise these alleged options. On August 30, 1993, Liberis filed a Complaint
for Specific Performance of Stock Options against the Company in the Court of
Chancery of the State of Delaware in and for New Castle County. On or about
October 7, 1993, the Company filed an Answer denying the substantive allegations
of the Complaint and asserting counterclaims against Liberis for breach of
fiduciary duties and mismanagement of corporate assets in connection with the
purchase and sale of Europa's interest in Sea Lane Bahamas/Marne Delaware. On or
about October 27, 1993, Liberis filed his reply to the counterclaims denying the
substantive allegations of the counterclaims. On or about May 2, 1995, Liberis
amended his Complaint seeking damages in the amount of $1,282,948.00 for
Europa's refusal to allow Liberis to exercise his stock options. The case was
tried from May 22, 1995 to May 25, 1995. On February 8, 1996, the Court entered
a Memorandum Opinion in which it ruled, in pertinent part, that Liberis, who had
filed suit to enforce an alleged stock option agreement to purchase 1,417,500
shares of stock at $.15625 per share, "ha[d] no right to enforce the alleged
stock option agreement." The decision further requires Liberis to return 250,000
shares of common stock to the Company. On October 9, 1996, the Court entered an
Order and Judgment.
Liberis filed a Notice of Appeal from the Final Order on November 7, 1996.
Liberis filed his appellate brief on February 14, 1997. Europa filed its
appellate brief on April 18, 1997. On July 22, 1997 the Supreme Court of
Delaware heard oral arguments in the case. On July 24, 1997, the Supreme Court
entered an Order remanding the case to the Court of Chancery to permit that
court to make certain supplemental findings in explanation of its decision of
February 8, 1996 and its order and judgment of October 9, 1996. The supplemental
findings are due within thirty days of the Supreme Court's Order.
13
2. LIBERIS V. 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 (Circuit Court in and for Pinellas County,
Florida)(Civil Action No. 93-001626-CI-008)
On or about May 5, 1993, Liberis filed suit in the Circuit Court in and for
Pinellas County, Florida (Case No. 93-001626-CI-008) for rescission, fraud and
conspiracy. On or about August 4, 1993, Liberis filed an Amended Complaint,
naming additional defendants and adding a count for defamation. Liberis alleges
that the defendants conspired to defraud, coerce and trick Liberis into
resigning his position as Chief Executive Officer and Chairman of the Board of
Europa Cruises Corporation and defamed him. Liberis seeks compensatory,
punitive, treble damages and attorneys' fees from the above-named defendants.
The defendants filed a motion to stay the action on grounds that Liberis had
filed a substantially similar action in the Court of Chancery of the State of
Delaware in and for New Castle County, styled Liberis v. Reddien, et al. (Civil
Action No. 12955) and that any substantive issues decided in Delaware would be
binding as to this case. On December 13, 1993, the Court entered an Order
staying this action as to all parties until the cases of Liberis v. Reddien,et
al (Civil Action No. 12955) and Liberis v. Europa Cruises Corporation (Civil
Action No. 13103) pending in Delaware were dismissed or final judgment on the
merits was entered with respect to all claims alleged in Count I of Civil Action
No. 12955 and as to all claims in Civil Action No. 13103. Count I of Delaware
Civil Action No. 12955 was for "Removal of Wrongfully Elected Directors and
Officers and Reinstatement of Liberis" (against Europa and Director Defendants).
On March 25, 1996, the Court of Chancery of the State of Delaware in and for New
Castle County entered an Order of Dismissal dismissing Liberis v. Reddien, et
al.(Civil Action No. 12955) as moot. On or about August 7, 1995, the defendants
agreed to lift the stay in the Pinellas County case for discovery purposes and
for the purpose of finalizing the pleadings. 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. Discovery is in
progress. No trial date has been set.
3. LIBERIS V. EUROPA CRUISES CORPORATION (In the Court of Chancery of the State
of Delaware In and For New Castle County) (Civil Action No. 14889)
On March 12, 1996, Charles S. Liberis filed Complaint Under 8 Delaware Code
Section 220 to inspect and/or copy the Company's shareholders' list and other
materials, books and records of the Company and for attorneys fees incident to
the action. On April 8, 1996, the Company filed an Answer denying that Mr.
Liberis was entitled to inspect and/or copy the Company's shareholders' list
and/or other materials, books and records of the Company. The Company maintains
that Mr. Liberis was not entitled to the inspection sought inasmuch as he was
not a shareholder of record, as required under the statute, at the time the
request to inspect was made. There have been no further proceedings in this
case.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997
--------------------------------------------------------------
The Company operated 559 cruises in 1997, as compared to 553 in 1996, an
increase of 6 cruises. The Company carried 88,297 passengers in 1997 as compared
to 88,755 passengers in 1996, a decrease of 458 passengers. The average revenue
per passenger was approximately $60.77 in 1997 as compared to $63.17 in 1996, a
decrease of $2.40 per passenger or 3.8%. The principal components of this per
passenger change are a $2.82 or 23.5% decrease in passenger fares, an $.83 or
14
16.9% decrease in food and beverage revenue, a $1.03 or 62.4% decrease in
charter fees and a $2.08 or 405.7% increase in other income. The change in each
of these material components is described below. The Company carried an average
of 158 and 160 passengers per cruise respectively in 1997 and 1996.
TOTAL REVENUES/GAMING REVENUES
- ------------------------------
The Company earned total revenues of $5,365,583 in 1997 as compared to total
revenues of $5,606,555 in 1996, a decrease of 4.3%. There was no material change
in gaming revenue.
PASSENGER FARES
- ---------------
Passenger fares fell from $1,064,609 in 1996 to $809,891 in 1997, a decrease of
$254,718 or 23.9%. The average passenger fare in 1997 was $9.17 compared to
$11.99 in 1996 a decrease of $2.82 per passenger or 23.5%. This decrease is
attributable to a VIP program resulting in additional complimentary fares to
VIP's and an increase in the number of passengers in Miami Beach which has the
lowest net fares.
FOOD AND BEVERAGE REVENUES
- --------------------------
Revenue from food and beverage sales decreased from $435,608 in 1996 to $360,547
in 1997, a decrease of $75,061 or 17.2%. The decrease is attributable to reduced
passenger counts at the west coast ports and an increase in VIP passengers
resulting in additional complimentary fares to VIP's and an increase in the
number of passengers in Miami Beach which has the lowest net fares.
CHARTER FEES
- ------------
Charter fees decreased 62.5%. In the same period last year, the M/V Stardancer
was under Charter to an unrelated party in Marco Island, Florida. From November,
1996 through January, 1997, the M/V Stardancer was operated by the Company in
Tierre Verde, Florida. The Company ceased operations due to noise pollution
problems and began looking for an alternate use for the vessel. In June, the M/V
Stardancer was drydocked for its bi-annual coast guard inspection.
On June 12, 1997, the Company entered into a Charter Agreement with an unrelated
party to Charter the Stardancer for a six month period beginning July 15, 1997
for a total charter fee of $510,000. The Agreement gives the Charterer the right
to charter the vessel for an additional six months and an option to purchase the
vessel for $4,000,000 with gaming equipment and $3,500,000 without gaming
equipment. The Company is in receipt of a nonrefundable advance charter fee of
$55,000 and an advance charter fee and deposit in the amount of $200,000.
OTHER REVENUE
- -------------
Other revenue increased from $59,451 in 1996 to $242,683 in 1997, an increase of
$183,232 or 308%. Other income in 1997 includes $200,000 which represents three
month's or one-half (1/2) of the $400,000 paid by Hilton Gaming Corporation to
the Company in return for the exclusive right to negotiate a joint venture
agreement with respect to the Company's Diamondhead, Mississippi, property for a
180-day period of time, which time period has expired.
15
COSTS AND EXPENSES
- ------------------
VESSEL OPERATING EXPENSES
- -------------------------
Vessel operating costs and expenses decreased from $3,330,837 in 1996 to
$3,166,767 in 1997, a decrease of $164,070 or 4.9%. The per cruise vessel
operating costs in 1997 is $5,665 compared to $6,023 in 1996, a decrease of $358
per cruise or a 5.9% decrease. This decrease is principally attributable to a
reduction in casino operating costs due to the termination of the Casinos
Austria consulting fee.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
- ----------------------------------------------
Administrative and general costs and expenses increased from $427,394 in 1996 to
$541,770 in 1997, or $114,376, an increase of 26.8%. This increase is
principally related to the one-time write-down of certain corporate assets and
corporate overhead. Other operating expenses, which include certain litigation
costs, increased from $120,207 in 1996 to $365,903 in 1997 or $245,696, an
increase of 204%. This increase is attributable to proxy costs and the write-off
of the Casinos Austria termination fee. See Note 1 to the financial statements.
ADVERTISING AND PROMOTION
- -------------------------
Advertising and promotion increased from $403,528 in 1996 to $439,031 in 1997,
or $35,303, an increase of 8.8%.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization increased from $346,509 in 1996 to $468,189 in
1997, or $121,680 , an increase of 35.1%. This increase results from the
addition of new gaming equipment to the vessels during the last half of 1996,
increased depreciation on structural and other improvement to the vessels, and
an increase in amortization resulting from 1996 deferred drydock costs.
NONRECURRING SALES TAX SETTLEMENT
- ---------------------------------
In June, 1997, the Company settled its sales tax liability with the State of
Florida Department of Revenue. See Note 4 to the Financial Statements. The
settlement, which includes all audits for the covered period, is approximately
$1.9 million. The settlement includes a payment schedule of approximately
$21,000 per month for seven years. The settlement provides for no interest for
the first 3 years and interest accruing at a rate of 6% per year for the last 4
years. Using the Company's average cost of funds as the discount rate, the
Company recorded a one-time charge to income of $1,284,664.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997
------------------------------------------------------------
The Company operated 1,127 cruises in 1997, as compared to 1,056 in 1996, an
increase of 71 cruises. The Company carried 187,494 passengers in 1997 as
compared to 174,393 passengers in 1996, an increase of 13,101 passengers. The
Miami port showed a strong increase in passenger counts, offset by a decrease
for the west coast ports. Management believes that the decrease in west coast
passenger counts was due to the fact that Easter fell in March rather than
April, resulting in an earlier return north of winter tourists. Revenue per
passenger was $60.96 in 1997 as compared to $57.77 in 1996, an increase of $3.19
per passenger or 5.5%, principally related to an increase in per passenger
gaming revenue of 18.1%. The Company carried an average of 166 passengers per
cruise in 1997 as compared to 165 in 1996.
16
TOTAL REVENUES/GAMING REVENUES
- ------------------------------
The Company earned total revenues of $11,429,941 in 1997 as compared to total
revenues of $10,074,923 in 1996, an increase of 13.4%. Gaming revenue was
$8,238,361 in 1997 compared to $6,488,396 in 1996, an increase of $1,749,965 or
27%. This increase is a result of higher passenger counts and a stronger hold
percentage in the casino. Due to the limited gaming time on the vessels,
significant fluctuations in the casino hold percentage occur over the short
term. Therefore, the casino hold percentage may decline over the remainder of
the year.
PASSENGER FARES
- ---------------
Passenger fares fell from $2,294,364 in 1996 to $1,945,519 in 1997, a decrease
of $348,845 or 15.2%. The average passenger fare in 1997 was $10.38 compared to
$13.16 in 1996 a decrease of 21.1%. This decrease is attributable to a VIP
program resulting in additional complimentary fares to VIP's, and an increase in
the number of passengers in Miami Beach, which has the lowest net fares.
FOOD AND BEVERAGE REVENUES
- --------------------------
Revenue from food and beverage sales decreased from $790,036 in 1996 to $749,135
in 1997, a decrease of $40,901 or 5.2%. The decrease is attributable primarily
to reduced passenger counts at the west coast ports and an increase in VIP
passengers resulting in additional complimentary meals and beverages to VIPS's.
CHARTER FEES
- ------------
Charter fees decreased 85.7%. From November, 1996 through January, 1997, the M/V
Stardancer was operated by the Company in Tierre Verde, Florida. The Company
ceased operations due to noise pollution problems and began looking for an
alternate use for the vessel. In June, the M/V Stardancer was drydocked for its
bi-annual coast guard inspection.
On June 12, 1997, the Company entered into a Charter Agreement with an unrelated
party to Charter the Stardancer for a six month period beginning July 15, 1997
for a total charter fee of $510,000. The Agreement gives the Charterer the right
to charter the vessel for an additional six months and an option to purchase the
vessel for $4,000,000 with gaming equipment and $3,500,000 without gaming
equipment. The Company is in receipt of a nonrefundable advance charter fee of
$55,000 and an advance charter fee and deposit in the amount of $200,000.
OTHER REVENUE
- -------------
Other revenue increased from $118,055 in 1996 to $441,926 in 1997, an increase
of $323,871 or 274%. Other income in 1997, includes $333,333 which represents
five month's or five-sixths (5/6) of the $400,000 paid by Hilton Gaming
Corporation to the Company in return for the exclusive right to negotiate a
joint venture agreement with respect to the Company's Diamondhead, Mississippi,
property for an 180-day period of time, which time period has expired.
17
COSTS AND EXPENSES
- ------------------
VESSEL OPERATING EXPENSES
- -------------------------
Vessel operating costs and expenses increased from $6,410,045 in 1996 to
$6,569,601 in 1997, an increase of $159,556 or 2.5%. The per cruise vessel
operating costs in 1997 is $5,829 compared to $6,070 in 1996, a decrease of $241
per cruise or a 4.0% decrease. This decrease is principally attributable to a
reduction in casino operating costs due to the termination of the Casinos
Austria consulting fee.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
- ----------------------------------------------
Administrative and general costs and expenses increased from $909,695 in 1996 to
$1,128,963 in 1997, or $219,268, an increase of 24.1%. This increase is
principally related to the one-time write-down of certain corporate assets and
corporate overhead. Other operating expenses, which include certain litigation
costs, increased from $240,528 in 1996 to $649,850 in 1997 or $409,322, an
increase of 170%. This increase is caused by the proxy contest costs and the
write-off of the Casinos Austria termination fee. See Note 1 to the financial
statements.
ADVERTISING AND PROMOTION
- -------------------------
Advertising and promotion increased from $794,319 in 1996 to $853,640 in 1997,
or $59,321, an increase of 7.5%. This increase is attributable to the Miami port
which had a 51% increase in passenger counts over last year.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization increased from $702,019 in 1996 to $924,608 in
1997, or $222,589 , an increase of 31.7%. This increase results from the
addition of new gaming equipment to the vessels during the last half of 1996,
increased depreciation on structural and other improvements to the vessels, and
from the increase in amortization resulting from 1996 deferred drydock costs.
NONRECURRING ITEMS
- ------------------
During 1997, the Company had several nonrecurring items in net income. These
include the revenue received from Hilton, proxy contest costs, amortization of
the Casinos Austria termination fee, and the State of Florida sales tax
settlement charge to income. If the foregoing were eliminated from operating
results, the Company's 1997 net income would have been $1,044,938 as compared to
1996 net income of $572,260, an increase of $472,678 or 82.6%.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In 1997, the Company expects to meet its normal operating costs and expenses
from its 1997 cash flow from operations. The Company, however, may be unable to
meet any unusual or unanticipated cash requirements should they arise during
1997 except through the sale of common stock or borrowing. No sales of stock
have been made in 1997. In January, 1997, the Company received $265,000 in
proceeds from a 1996 stock sale. In February, the Company received $400,000 from
Hilton. In June, 1997, the Company received $255,000 in prepaid charter fees and
deposits on the M/V Stardancer. In the first six months of 1997, the Company
issued 31,887 shares of common stock as payment for preferred stock dividends.
The Company's working capital deficiency is approximately $953,000 at June 30,
1997 as compared to $1.5 million at June 30, 1996.
18
Investing activities (principally vessel improvements, major vessel repair and
maintenance, and Mississippi development costs) required cash of approximately
$551,000 in 1997, which was met through operating cash.
The Company pays dividends quarterly on its Serires S-PIK Preferrred Stock.
Pursuant to the Series S-PIK Preferred Stock subscription agreement, "At the
option of the Company, for a period of three years, dividends on the Preferred
Stock [could] be paid by issuing shares of the Company's common stock to the
holders of the Preferred Stock". The Company's option to pay quarterly dividends
on the Series S-PIK Preferred Stock in common shares expired March 15, 1997.
However, the Company is not in a position to pay the dividends due for June 15,
1997 in cash. Therefore, the Company has requested that the Series S-PIK
Preferred Stock shareholders accept payment of their dividends now due in stock
instead of cash. If any Series S-PIK Preferred Stock shareholder declines to
accept payment of dividends due in stock, the accrued dividend will be paid in
cash in the future.
At June 30, 1997, the Company was not in compliance with its cash flow covenant
required under its loan agreement with First Union National Bank of Florida.
First Union has waived the covenant requirement through July 31, 1998.
In June, 1997, the M/V Stardancer completed its regularly scheduled drydock at a
cost of $110,000, which was funded from operations.
Except for historical information contained herein, the matters discussed in
this Item 2, in particular, statements that use the words "believes," "intends,"
"anticipates" or "expects" are intended to identify forward looking statements
that are subject to risks and uncertainties including, but not limited to,
inclement weather, mechanical failures, increased competition, governmental
action, environmental opposition, legal actions, and other unforeseen factors.
The development of the Diamondhead, Mississippi project, in particular, is
subject to additional risks and uncertainties, including, but not limited to,
risks relating to permitting, financing, the activities of environmental groups
and government-related action. The results of financial operations reported
herein are not necessarily an indication of future prospects of the Company.
Future results may differ materially.
PART II - OTHER INFORMATION
Item 1. Legal Proceeding's
------------------
See note 4, Material Contingencies
Item 5. Other Information
-----------------
Options Granted
- ---------------
In March, 1997 the Board voted to grant 100,000 nonqualified options to purchase
common stock of the Company to Werlin Ladner, Director of Governmental Relations
of Casino World, Inc. at a price of $.84375 per share, which was equal to the
then-market price of the stock.
State of Florida Litigation Relating to the Florida Day Cruise Industry
- -----------------------------------------------------------------------
On July 2, 1997, Robert A. Butterworth, the Attorney General for the State of
Florida, and Neil Perry, Sheriff of St. Johns County, Florida ("Plaintiffs")
filed a Complaint for Injunctive Relief Against the Illegal Possession of Slot
Machines and the Continuance of a Public Nuisance against Chances Casino
19
Cruises, Inc. and Mark Morrow, ("Defendants") operators of the Royal Princess,
in the Circuit Court of the Seventh Judicial Circuit In and For St. Johns
County, Florida (Case No. CIV-97-1088). The Plaintiffs sought a temporary and
permanent injunction restraining the Defendants from continuing to possess slot
machines in the State of Florida. On July 2, 1997, the Plaintiffs filed a Motion
for a Temporary Injunction. The Court heard argument on the Motion for a
Temporary Injunction on July 18, 1997. The Florida Day Cruise Association of
Florida, Inc., of which Europa Cruises Corporation is a member, filed a Motion
to Appear as Amicus Curiae and a Memorandum in Opposition to the Motion for
Temporary Injunction. On July 22, 1997, the Court denied the Plaintiffs' Motion
for Temporary Injunction, without prejudice to a final adjudication on the
merits. The Court also granted the Defendants' Motion to stay enforcement by
Plaintiffs and subordinate agencies through criminal process of the "slot
machine" issue raised.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
No reports on Form 8-K have been filed during the quarter ended June 30,
1997.
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: August 14, 1997 By: /s/Lester E. Bullock
--------------------------------
Lester E. Bullock
President
By: /s/Debra Gladstone
--------------------------------
Debra Gladstone
Chief Financial Officer
20