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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURUSANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
COMMISSION FILE NO: 0-17529
EUROPA CRUISES CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 59-2935476
- ------------------------ ------------
(State of Incorporation) (I.R.S. EIN)
150-153RD AVENUE EAST, SUITE 200, MADEIRA BEACH, FLORIDA 33708
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(Address of principal executive offices)
Registrant's telephone number, including area code: 727/393-2885
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Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 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 March 31, 1998: 24,908,202
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TABLE OF CONTENTS
PART 1: FINANCIAL INFORMATION
ITEM 1 Consolidated Statements of Operations for the three Months Ended
March 31, 1999......................................................... 4
Consolidated balance Sheets as of March 31, 1999....................... 5-6
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 and March 31, 1998...................................... 7-8
Notes to Consolidated Financial Statements............................. 9-20
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three Months Ended March 31, 1999
and 1998............................................................... 20-23
PART II: OTHER INFORMATION
ITEM 1 Legal Proceedings...................................................... 24
ITEM 4 Submission of Matters to a Vote of Security Holders.................... 24
ITEM 6 Exhibits and Reports on Form 8-K....................................... 24
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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.
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-------------------------------
1999 1998
---- ----
Revenues:
Gaming Revenue $ 2,366,745 $ 3,537,626
Passenger Fares 515,032 771,517
Food and Beverage 161,860 229,794
Charter Revenue 396,887 --
Other 12,490 88,738
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$ 3,453,014 $ 4,627,675
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Costs and Expenses:
Vessel Operating 2,290,948 2,952,298
Administrative and General 464,053 576,027
Advertising and Promotion 42,598 283,224
Depreciation and Amortization 476,614 492,062
Interest, Net 181,247 203,796
Other Operating (Note 1) 61,431 81,081
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3,516,891 4,588,488
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Net Income (Loss) (63,877) 39,187
Preferred Stock Dividends (45,005) (54,273)
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Net Income (Loss) Applicable to
Common Stock $ (108,882) $ (15,086)
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Earnings (Loss) Per Share,
Basic and Diluted $ (.004) $ (.001)
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Weighted Average Number of
Common and Common Equivalent
Shares Outstanding Basic and
Diluted 24,368,666 23,126,712
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
MARCH 31, 1999
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Current Assets:
Cash and Cash Equivalents $ 826,264
Accounts Receivable 188,135
Prepaid Insurance and Other 251,781
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Total Current Assets 1,266,180
Vessels, Equipment and Fixtures,
Less Accumulated Depreciation 11,877,678
Land Under Development for Dockside Gaming 5,063,645
Deferred Drydock Costs, Less Accumulated Amortization 483,527
Other Assets 155,536
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$18,846,566
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, 1999
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Current Liabilities:
Accounts Payable and Accrued Liabilities $ 2,197,210
Accounts Payable-Shareholders 516,300
Current Maturities of Long-Term Debt 4,194,643
Unearned Revenues 101,250
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Total Current Liabilities 7,009,403
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Long-Term Debt Less Current Maturities 2,812,441
Other Liabilities 1,800,000
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Total Liabilities 11,621,844
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Stockholders' Equity:
Preferred stock, $.01 par value;
Shares authorized: 5,000,000
Shares outstanding: 2,532,000
Aggregate Liquidation Preference ($3,411,080) 25,320
Common Stock, $.001 par value;
Shares Authorized: 50,000,000
Shares Issued: 30,095,702 30,095
Shares Outstanding: 24,908,202
Additional Paid-In-Capital: 25,685,303
Unearned ESOP Shares (5,867,814)
Deficit (12,458,026)
Treasury Stock, at Cost, 1,250,000 Shares (190,156)
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Total Stockholders' Equity 7,224,722
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$ 18,846,566
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
Operating Activities:
Net Income (Loss) $ (63,877) $ 39,187
Adjustments to reconcile net
Income (loss) to net cash used
In operating activities
Depreciation and Amoritization 476,614 492,062
Release of ESOP Shares 19,375 50,000
Expenses Paid in Shares of Common Stock 75,614 --
Decrease (increase) in:
Accounts Receivable (998) 15,991
Prepaid and Other Assets 138,047 138,118
Increase (decrease) in:
Accounts Payable and Accrued Liabilities (295,922) 243,052
Unearned Revenues 69,655 146,287
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Cash provided by Operating Activities 418,508 1,124,697
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Investing Activities
Purchases of Property and Equipment (250,674) (199,227)
Development Costs for Dockside Gaming (88,379)
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Cash (required) Provided by
Investing Activities (250,674) (287,606)
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
Financing Activities:
Proceeds from issuance of common stock $ 300,000 --
Payment of Notes and long-term debt (252,496) (244,421)
Preferred stock dividends (15,000)
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Cash (used in) financing activities 32,504 (244,421)
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Net increase (decrease) in cash
and cash equivalents 200,338 592,670
Cash and cash equivalents,
beginning of period 625,926 237,987
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Cash and cash equivalents,
end of period $ 826,264 $ 830,657
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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 $587,111
and $820,506 for the three months ended March 31, 1999 and 1998 respectively.
(b) Other Operating Costs
Other operating costs consist of the following:
Three months ended March 31 1999 1998
---- ----
ESOP Provision 19,375 50,000
Other 42,056 31,081
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61,431 81,081
NOTE 2. EARNINGS (LOSS) PER SHARE
Basic earnings/(loss) per common share is based on the net income/(loss) after
preferred stock dividends divided by the weighted average number of common
shares outstanding during each year. Dilutive earnings per share is computed
based on the net income/(loss) after preferred stock dividends divided by the
weighted average number of common shares and dilutive securities outstanding.
Common shares outstanding includes issued shares less shares held in treasury,
and un-allocated and uncommitted shares held by the ESOP trust.
The Company's potentially issuable shares of common stock pursuant to
outstanding stock purchase options and warrants and convertible preferred stock
are excluded from the Company's diluted computation as their effect would be
antidilutive to the Company's net income/(loss).
Common Shares outstanding includes:
Issued Shares 30,095,702
Less: Treasury Shares (1,250,000)
Unallocated, uncommitted ESOP Shares (3,937,500)
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Outstanding Shares 24,908,202
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NOTE 3. INCOME TAXES
The Company's taxable income in 1998 has been offset substantially by the
utilization of net operating loss contingencies.
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, totaled
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 (payment reduced to $10,475.89 in March
1998). 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.
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 $211,470.00 and for
interest and penalties in the amount of $177,634.80. 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
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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.
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. On November 3, 1997, the Court heard various motions in
the case, including a Motion to Dismiss filed by the cruise ship defendants.
The motion was denied. On March 18, 1998, the Plaintiffs filed a Motion for
Class Certification. The motion is pending.
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))
CASE DISMISSED WITHOUT PREJUDICE
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
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
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which utilized casino video poker machines and electronic slot machines. The
plaintiff alleged 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 contended 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 alleged 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 sought 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 shared the cost of this litigation with
certain other defendants who retained the same law firm to represent them.
On March 6, 1998, the Plaintiffs filed a Notice of Voluntary Dismissal Without
Prejudice.
OTHER LITIGATION
SEA LANE BAHAMAS LIMITED V. EUROPA CRUISES CORPORATION (United States District
Court for the Southern District of Florida)(Case No. 94-10004)
CASE PENDING
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. However, the Company's liability, if any, for
damages arising out of the condition of the Europa Jet upon its redelivery to
Sea Lane remains in dispute. The Settlement Agreement provided that if the
Company and Sea Lane were unable to settle this dispute with respect to the
condition of the Europa Jet when it was redelivered to Sea Lane, the amount of
the Company's remaining obligation to Sea Lane would be determined in binding
arbitration. Sea Lane contends that substantial expenses, in excess of one
million dollars, were incurred to make repairs for which Europa is responsible.
On or about April 10, 1995, the United States District Court entered an Order
granting Sea Lane's Petition to Compel Arbitration. Arbitrators were selected
and discovery was taken.
Europa took the position in arbitration that the Plaintiff had failed to name
the real party in interest as Plaintiff and that it was too late to do so. On
or about March 18, 1998, the Plaintiff filed a Motion to Re-Open the case for
the purpose of considering Plaintiff's proposed Motion
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for Leave to Amend the Complaint to Join Marne (Delaware), Inc. as a Party
Plaintiff and for Relation Back of [the] Amendment. The Plaintiff was
attempting to add Marne (Delaware), Inc. as a Plaintiff in the case. On or
about April 16, 1998, Europa filed an Opposition to the motion. On June 1,
1998, the District Court entered an Order Denying Sea Lane's Motion to Re-Open
and Amend. On or about June 11, 1998, Sea Lane filed a Motion for
Reconsideration. Europa filed a Memorandum in Opposition to Sea Lane's Motion
for Reconsideration. On June 22, 1998, the District Court entered an Order
Denying [Sea Lane's] Motion for Reconsideration. On or about July 6, 1998, Sea
Lane filed a Notice of Appeal to the United States Court of Appeals for the
Eleventh Circuit. Briefs have been filed. Oral argument is set for June 22,
1999.
Europa believes that if Sea Lane is unsuccessful on appeal, this case will be
concluded inasmuch as Sea Lane's failure to have filed suit in the name of
Marne (Delaware) Inc. may have been fatal to their claim. Europa believes that
if Sea Lane is successful on appeal, this matter will be returned to
arbitration for further proceedings. In an apparent effort to attempt to avoid
a successful outcome for Europa on appeal in the above-captioned matter, on
November 3, 1998, Sea Lane Bahamas Limited and Marne (Delaware) Inc. filed a
similar, companion case against Europa Cruises Corporation and Europa Cruise
Line, Ltd. in the Circuit Court of the Eleventh Judicial Circuit In and For
Miami-Dade County, Florida (Case No. 98-25127CA02) alleging breach of charter,
breach of settlement agreement, and fraud in the inducement and seeking
compensatory and punitive damages. In response, Europa filed a Motion to Stay,
Dismiss, and Strike.
The Company has recorded an estimated liability for losses in the above matter
in the amount of $400,000.
ASSOCIATION FOR DISABLED AMERICANS, INC. DANIEL RUIZ AND JORGE LUIS RODRIGUEZ
V. EUROPA CRUISES OF FLORIDA 2, INC. AND EUROPA CRUISES CORPORATION (United
States District Court for the Southern District of Florida, Miami Division,
Civil Action No. 98-1836)
On July 31, 1998, the Association for Disabled Americans, Inc., Daniel Ruiz and
Jorge Luis Rodriguez filed suit against Europa Cruises of Florida 2, Inc. and
Europa Cruises Corporation ("Europa") for injunctive relief pursuant to the
Americans With Disabilities Act. The Plaintiffs claim, in part, that Europa has
discriminated against them by denying them access to and full and equal
enjoyment of services, facilities, accommodations, the subject vessel and
premises and that the Company has failed to remove architectural barriers and
erect certain architecturally required improvements. The Plaintiffs have
requested that the Court issue a permanent injunction enjoining Europa from
continuing its alleged discriminatory practices, ordering Europa to alter the
subject vessel and premises, close the subject vessel and premises until the
alleged required modifications are completed and to award Plaintiffs attorneys'
fees, costs and expenses incurred. The Company intends to vigorously defend
this action.
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MISSISSIPPI-RELATED LITIGATION
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)
CASE PENDING
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
appealing the decision of the Chancery Court to the Supreme Court of
Mississippi. On July 23, 1998, the Supreme Court of Mississippi reversed the
lower court's decision and remanded the case to the lower court for a hearing
on the merits. On or about August 6, 1998, Casino World, Inc. filed a Motion
for Rehearing which was denied on October 15, 1998. The case was remanded to
the lower court for a hearing on the merits.
BAY ST. LOUIS COMMUNITY ASSOCIATION, INC., PROTECT DIAMONDHEAD QUALITY, INC.,
CONCERNED CITIZENS TO PROTECT THE POINT AND ISLES, INC. AND GULF ISLANDS
CONSERVANCY, INC. V. THE COMMISSION ON ENVIRONMENTAL QUALITY, HANCOCK COUNTY
PORT AND HARBOR AUTHORITY, AND CASINO WORLD, INC. (CHANCERY COURT OF HANCOCK
COUNTY, MISSISSIPPI)(CASE NO. 97-0386)
CASE DECIDED
On June 6, 1997, Bay St. Louis Community Association, Inc., Protect Diamondhead
Quality,
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Inc., Concerned Citizens to Protect the Point and Isles and Gulf Islands
Conservancy, Inc. filed a Notice of Appeal against the Commission on
Environmental Quality, Hancock County Port and Harbor Authority, and Casino
World, Inc., in the Chancery Court of Hancock County, Mississippi (Case No.
97-0386) appealing that Order of the Mississippi Commission on Environmental
Quality dated June 26, 1997, affirming the water quality certification issued
to Casino World, Inc. on January 9, 1997, as modified and clarified on May 22,
1997. On July 11, 1997, Appellants filed an Amended Notice of Appeal. On or
about August 19, 1997, the Administrative Record in the case was filed with the
Court. All briefs were filed in the case on or before October 31, 1997. On
February 27, 1998, the Chancery Court filed a Memorandum Opinion and Order
denying the appeal and entering judgment in favor of the Appellees, including
Casino World, Inc. No appeal from the decision of the lower court was filed.
The time period for appealing expired.
CASINO WORLD, INC. AND MISSISSIPPI GAMING CORPORATION V. GULF ISLANDS
CONSERVANCY, INC.; CONCERNED CITIZENS TO PROTECT THE ISLES AND POINT, INC.;
PRESERVE DIAMONDHEAD'S QUALITY, INC.; BAY ST. LOUIS COMMUNITY ASSOCIATION; AND
THE SIERRA CLUB, INCORPORATED AND UNITED STATES ARMY CORPS OF ENGINEERS AND
UNITED STATES OF AMERICA (In the United States District Court of the Southern
District of Mississippi) (Biloxi Division (Case No. 1:98CV147BrR)).
On March 26, 1998, Casino World, Inc. and Mississippi Gaming Corporation filed
suit against the above-named parties, inter alia, to declare a Permit issued by
the U.S. Army Corps of Engineers to the Hancock County Port and Harbor
Commission on March 26, 1998, which was transferred to Casino World, Inc. and
Mississippi Gaming Corporation, to be valid under Section 10 of the Rivers and
Harbors Act and to enjoin the defendants from delaying, interfering or
infringing on protected rights the Plaintiffs have under the Permit. On or
about April 16, 1998, the Defendants (with the exception of the United States
Army Corps of Engineers and United States of America) filed a Motion to Dismiss
the Complaint on grounds, inter alia, that the Court lacks subject matter
jurisdiction and that the Complaint fails to state a claim upon which relief
may be granted. On May 21, 1998, Casino World, Inc. filed a Memorandum Brief in
Opposition to the Motion to Dismiss. Three judges have recused themselves from
hearing the case. The Court heard oral argument on the Motion to Dismiss and
the parties are awaiting the Court's decision.
FRIENDS OF THE EARTH, INC. AND GULF ISLANDS CONSERVANCY, INC. V. UNITED STATES
ARMY CORPS OF ENGINEERS (In the United States District Court for the District
of Columbia) (Case No. 1:98CV00801)
On March 27, 1998, Friends of the Earth, Inc. and Gulf Islands Conservancy,
Inc. filed a Complaint for Declaratory and Injunctive Relief against the United
States Army Corps of Engineers to, inter alia, declare the Corps' approval of
the Casino World, Inc. Permit without prior preparation of an environmental
impact statement, to be arbitrary, capricious, an abuse of
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discretion and in violation of the National Environmental Policy Act,
applicable Council on Environmental Quality regulations and applicable U.S.
Army Corps of Engineers regulations and to enjoin the U.S. Army Corps of
Engineers from permitting Casino World, Inc. or its successors-in-interest and
all other casino developers from proceeding with future development of any
dockside gambling facilities or related infrastructure in certain areas,
including the Company's site on the Bay of St. Louis, in Mississippi, until the
Corps prepares an environmental impact statement. The Company was not named as
a party in the action. On or about August 31, 1998, the Company filed a motion
for leave to intervene as a party defendant in the action. On November 4, 1998,
the Court granted the Company's motion. Various motions and cross-motions in
the case have been filed and briefed, including motions and cross-motions for
summary judgment.
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.
LIBERIS V. EUROPA CRUISES CORPORATION (Court of Chancery of the State of
Delaware in and for New Castle County, C.A. 13103)
CASE DECIDED
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
trial 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 required
Liberis to return 250,000 shares of common stock to the Company. On October 9,
1996, the trial Court entered an Order and Judgment. On November 7, 1996,
Liberis filed a Notice of Appeal from the Final Order to the Supreme Court of
Delaware.
Oral argument was heard in the Supreme Court of Delaware on or about July 22,
1997. On July
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24, 1997, the Delaware Supreme Court issued an Order remanding the case to the
trial court for further supplemental findings in explanation of its decision of
February 8, 1996 and its Order and Judgment of October 9, 1996. On September 2,
1997, the trial court filed a Supplemental Opinion. On September 10, 1997, the
Supreme Court issued an Order requesting additional supplemental briefs from
the parties. On November 10, 1997, the Supreme Court issued an Order affirming
the judgment of the lower court.
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)
CASE DISMISSED
On March 12, 1996, Charles S. Liberis filed a 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
maintained 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. Mr. Liberis agreed to dismiss the case. A
Stipulation and Order of Dismissal was signed on March 24, 1998.
LIBERIS V. EUROPA CRUISES CORPORATION, CASINO WORLD, INC., CASINOS AUSTRIA
MARITIME CORPORATION (CAMC), SERCO INTERNATIONAL LIMITED, CHARLES H. REDDIEN,
STEPHEN M. TURNER, DEBORAH A. VITALE, WILLIAM A. HEROLD AND SHARON E. PETTY (IN
THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY)
(CASE NO. 12955)
CASE DISMISSED
On April 22, 1993, Charles S. Liberis filed an action in the Court of Chancery
of the State of Delaware in and for New Castle County against Europa and its
subsidiary, Casino World, Inc. (CWI) and the above-named entities and directors
of Europa. In the action, Liberis alleged a scheme on the part of CAMC and
Serco acting with Petty, Reddien and others to seize control of Europa by
changing the membership of the Board and transferring power to the directors
nominated by Serco, an alleged entrenchment by that Board by means of a
proposed issuance of Preferred Stock of Europa and an alleged scheme by that
Board to entrench itself in Casino World, Inc. by spinning off CWI to the
stockholders of Europa and selling 60% of CWI to outside investors and improper
actions relating to the retention of the services of CAMC. Count I of the
Complaint sought the removal of allegedly wrongfully elected directors and two
officers and the reinstatement of Liberis as CEO. Counts II and III sought
relief against the issuance of the Europa Preferred Stock. Count IV sought
injunctive relief as to the proposed spinoff of CWI. Count V sought relief
against CAMC and Serco for civil conspiracy. Liberis sought a preliminary
injunction to enjoin three directors elected at Europa's Board meeting on
December
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12, 1992 from acting on behalf of Europa and CWI and to enjoin Reddien, the
then Chief Executive Officer of both Europa and CWI from taking any action on
behalf of those entities. On May 17, 1993, the Court denied Liberis'
application for a preliminary injunction finding that Liberis had failed to
establish a likelihood of success on the merits as well as irreparable harm
that would result in the event an injunction were not entered. On March 25,
1996, an Order was entered dismissing this case as moot.
CHARLES S. LIBERIS, AS TRUSTEE OF THE CHARLES S. LIBERIS, P.A., PROFIT SHARING
PLAN V. EUROPA CRUISES CORPORATION (IN THE CIRCUIT COURT IN AND FOR ESCAMBIA
COUNTY, FLORIDA) (CASE NO. 93-1187-CA-01-J)
CASE DISMISSED
In or about March, 1993, Charles S. Liberis, as Trustee of the Charles S.
Liberis, P.A. Profit Sharing Plan, filed suit against Europa for amounts
allegedly due from Europa in connection with a promissory note Liberis received
from Europa in conjunction with a purported December 1990 transfer to Europa of
Liberis' interest in Sea Lane. The Complaint alleged that a principal balance
of approximately $141,000.00 was owed on the note. On or about April 9, 1996,
the parties filed a Stipulation of Dismissal dismissing this case without
prejudice on grounds that the action was moot.
EUROPA CRUISES CORPORATION V. LIBERIS, ET AL. (IN THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF FLORIDA) (CASE NO. 93-30158)
CASE DISMISSED
On or about May 11, 1993, the Company filed an action in the United States
District Court for the Northern District of Florida against Charles S. Liberis
and one of the Company's former Chief Financial Officers, seeking compensatory
and punitive damages. The Company and the former Chief Financial Officer
involved have settled this and other disputes between them. The Company was
seeking damages from Liberis for substantially the same events and transactions
alleged in Europa's counterclaim in Delaware Case No. 13103. Liberis also filed
a counterclaim requesting the same relief sought in Delaware Case No. 13103.
Most of Europa's claims against Liberis and all of Liberis' pending claims
against Europa in this case were the subject of Delaware Case No. 13103. Europa
also made a claim for securities fraud against Liberis in this Florida case
which was not made in the Delaware case. On or about April 9, 1996, the parties
filed a Stipulation of Dismissal of all claims and counterclaims as moot.
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), AUSTROINVEST
INTERNATIONAL LIMITED, PETER MUELLER AND EUROPA CRUISES CORPORATION (CIRCUIT
COURT IN AND FOR PINELLAS COUNTY, FLORIDA)(CIVIL ACTION NO. 93-001626-CI-008)
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CASE DISMISSED/POST DISMISSAL MOTIONS PENDING
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 case was stayed pending the outcome of certain other cases involving
several of the parties. On or about August 7, 1995, the defendants agreed to
lift the stay for discovery purposes and for the purpose of finalizing the
pleadings. On or about April 22, 1996, Liberis filed a Motion for Leave to
Amend, a Second Amended Complaint and a Motion for Substitution of Parties. On
or about October 20, 1997, Liberis filed a Motion for Leave to File a Third
Amended Complaint and to Join Additional Party Plaintiff which motion was
granted. In the Third Amended Complaint, Liberis, inter alia, adds an
additional co-Plaintiff, Ginger Liberis, his former wife; names new defendants,
including Europa Cruises Corporation and Peter Mueller, Senior Vice President
of Casinos Austria Maritime Corporation, and John Does A-Z; and adds several
new theories and claims for relief, including fraud, breach of fiduciary
duties, defamation, slander per se, intentional infliction of emotional
distress, a RICO (Racketeer Influenced and Corrupt Organizations Act) claim,
and other claims for other tortious conduct. On or about October 30, 1997,
Liberis filed an appeal from the Order of the Court granting the motion of
Defendant Victor Gersh/Estate of Victor Gersh to dismiss the Complaint against
them. Liberis' appeal was denied. Liberis also filed a separate action against
the Estate of Victor Gersh which remains pending. On or about December 31,
1997, the case was removed to the United States District Court for the Middle
District of Florida, Tampa Division (Case No. 97-3062-CIV-T-24-E).
On September 30, 1998, the Honorable Susan C. Bucklew, granted the Motions to
Dismiss filed by Europa and Casinos Austria Maritime Corporation. The Judge
ordered the Court Clerk to close the case. Liberis filed a motion to have the
Court reconsider its ruling and to have certain claims remanded to the state
court. The Company filed a motion for attorneys' fees. Various other post-
ruling motions were filed.
LIBERIS V. STEVEN M. TURNER, DEBORAH A. VITALE, WILLIAM A. HEROLD, DR. ERNST
WALTER, SHARON PETTY, CHARLES "KIP" REDDIEN, SERCO INTERNATIONAL LIMITED,
CASINOS AUSTRIA MARITIME CORPORATION (CAMC), AUSTROINVEST INTERNATIONAL
LIMITED, BERTHA GERSH, AS ADMINISTRATOR OF THE ESTATE OF VICTOR GERSH, EUROPA
CRUISES CORPORATION, PETER MUELLER, STEVEN B. SOLOMON, AND JOHN DOES A-Z
(CIRCUIT COURT IN AND FOR PINELLAS COUNTY, FLORIDA)(CIVIL ACTION NO.
98-007120-CI-008)
On or about October 30, 1998, one month after the Court dismissed the previous
case, Liberis
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and his former spouse, Ginger Liberis, filed suit in the Circuit Court in and
for Pinellas County, Florida for fraud and conspiracy, intentional interference
with advantageous business relationships, intentional breach of duty to
facilitate stock transfers, conspiracy, negligence-failure to facilitate stock
transfers, defamation, conspiracy to defame, and intentional infliction of
emotional distress. The Company intends to file a motion to dismiss.
WAREHOUSE FIRE/GAMBLING EQUIPMENT SEIZURE
On or about September 18, 1998, the Company was informed there had been one or
two fires in a Madeira Beach warehouse used by the Company. Investigators have
informed the Company that the fire was the result of arson. A former employee
of the Company was arrested and charged with First Degree Arson and Burglary by
the Pinellas County Sheriff's Office. The Company has been informed that this
employee confessed to committing burglary and setting fire to the warehouse to
cover up this criminal activity.
During the course of the fire investigation, the investigators seized all
gambling equipment and paraphernalia found in the warehouse pursuant to a
search warrant and Chapters 849.15 and 849.231 of the Florida Code which
prohibit, among other things, the manufacture, sale or possession of certain
gambling devices except under exemption for those registered with the United
States Government pursuant to 15 U.S.C. Section 1171 et seq. The Company is
registered with the United States Government pursuant to 15 U.S.C. Sections
1171-1178 and believes it falls within the exemption. The Company believes the
investigators who seized the equipment did not know that the Company was so
registered. The Company has retained an attorney to handle this matter and to
obtain the return of the seized equipment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
It must be noted that the M/V Europa Sun was chartered beginning March 1, 1999.
Therefore, the comparison between the first quarter of 1999 and the first
quarter of 1998 of the results of operations must allow for the absence of this
vessel from the Company's operations during the month of March, 1999.
The Company operated 446 cruises in 1999 as compared to 504 in 1998, a decrease
of 11.5% or 58 cruises. The decrease in the number of cruises is attributable
to the absence of Miami operations in March. The Company carried 54,268
passengers in 1999 as compared to 69,804 in 1998, a decrease of 15, 431
passengers or 22.10%. The decrease is due, in part, to the fact that the M/V
Europa Sun in Miami was idle for eight days in January and was chartered to a
third party beginning March 1, 1999. In addition, the Company did experience a
drop in the number of passengers of approximately 15.4% in the remaining two
operating ports during the
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quarter. The decrease is attributable to the continued, strong competition in
both ports. The average revenue per passenger was approximately $56.27 in 1999
as compared to $66.30 in 1998, a decrease of $10.09 per passenger or 15.2%. The
Company carried an average of 122 passengers per cruise in 1999 as compared to
139 in 1998, a decrease of 17 passengers per cruise or 12.2%.
TOTAL REVENUES/GAMING REVENUES
The Company earned total revenues of $3,453,014 in 1999 as compared to total
revenues of $4,627,675 in 1998, a decrease of $1,174,661. The Company's gaming
revenue decreased from $3,537,626 in 1998 to $2,366,745 in 1999, a decrease of
$1,170,881, or 33.1%. Approximately $400,000 of the decrease is due to the
termination of the Miami operation. The remainder is attributable to a drop in
the passenger count and a low hold percentage in Ft. Myers during the first
quarter of 1999.
PASSENGER FARES
Passenger fares fell from $771,517 in 1998 to $515,032 in 1999, a decrease of
$256,485 or 33.2%. The average passenger fare in 1999 was $9.47 compared to
$11.05 in 1998, a decrease of 14.3%. The decrease is attributable to continued
pressure on fares from direct competition.
FOOD AND BEVERAGE REVENUES
Revenue from food and beverage sales decreased from $229,794 in 1998 to
$161,860 in 1999, a decrease of $67,934 or 30.0%. Approximately $45,000 of the
decrease is associated with the termination of the Miami operation.
CHARTER REVENUE
In February, 1999, the Company entered into a preliminary agreement, subject to
certain contingencies, with Stardancer Casino, Inc., a South Carolina Company.
Under the terms of the agreement, Stardancer Casino, Inc. would manage and/or
sublease the Company's Miami Beach, Florida operation. Under the terms of the
agreement, Europa would receive approximately $97,000 per month in addition to
expense incident to the operation. The Company is in receipt of a nonrefundable
deposit in the amount of $300,000. The Company's landlord has objected to an
assignment of the Company's lease. Therefore, the Company intends to enter into
a management contract. Stardancer Casino, Inc. has been managing the port since
March 1, 1999. One or more of the principals of Stardancer Casino, Inc. are
affiliated with Seven Star Charters, Inc. which charters the Europa Stardancer.
Revenue associated with this charter amounted to $121,887 for the first quarter
of 1999.
On December 29, 1998, the Company entered into a Charter Agreement with Seven
Star Charters, Inc. to charter the Stardancer for a five year period beginning
January 1, 1999. The Agreement calls for an annual charter fee of $1,080,000 in
addition to certain insurance payments. The Agreement gives Seven Star
Charters, Inc. an option to purchase the Stardancer for $2,800,000. or less
depending on the time of purchase. The Company received an advance charter fee
in the amount of $275,000 and a Letter of Credit in the amount of $150,000. The
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Stardancer is currently operated out of Myrtle Beach, South Carolina. One or
more of the principals of Seven Star Charters, Inc. are affiliated with
Stardancer Casino, Inc., which currently manages the Europa Sun in Miami Beach,
Florida. Revenue associated with this charter amounted to $275,000 for the
first quarter of 1999.
The continued receipt of revenue from these charters is contingent on the
success of the respective operations.
COSTS AND EXPENSES
VESSEL OPERATING EXPENSES
Vessel operating costs and expenses decreased form $2,952,298 in 1998 to
$2,290,948 in 1999, a decrease of $661,350 or 22.4%. The per cruise vessel
operating cost in 1999 is $5,137 compared to $5,858 in 1998, a decrease of $721
per cruise or a 12.3% decrease.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING EXPENSES
Administrative and general costs and expenses decreased from $576,027 in 1998
to $464,053 in 1999, or $111,974 a decrease of 19.4%. Other operating expenses
decreased from $81,081 in 1998 to $61,431 in 1999 or $19,650, a decrease of
24.2%.
ADVERTISING AND PROMOTION
Advertising and promotion decreased from $283,224 in 1998 to $42,598 in 1999,
or $240,626, a decrease of 85.0%. The decrease is due to a planned reduction of
print, radio and newspaper advertising.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased from $492,062 in 1998 to $476,614 in
1999, or $15,448, a decrease of 3.1%.
NOTICE OF INTENT TO MAKE AUDIT CHANGES/NOTICE OF PROPOSED ASSESSMENT
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, totaled
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 (payment reduced to $10,475.89 in March
1998). 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.
In January of 1999, the Florida Department of Revenue issued a Notice of Intent
to Make Audit Changes to Europa Cruises Corporation and its subsidiaries for
the period April 1, 1993 and July
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1, 1994 through March 31, 1998. The proposed audit changes include an alleged
tax due in the amount of $1,030,823, penalties in the amount of $515,412 and
interest in the amount of $402,120 for a total of $1,948,355. On April 13,
1999, the Company received Notices of Assessment relating to the foregoing
which include continuing interest to date.
In February of 1999, the Florida Department of Revenue issued a Notice of
Intent to Make Audit Changes to Europa Cruises of Florida 1, Inc. for the
period July 1, 1994 through March 31, 1998, inclusive. The proposed audit
changes include an alleged tax due in the amount of $423,481.78, penalties in
the amount of $211,740.97 and interest in the amount of $166,986.82, for a
total of $802,209.57.
It is the Company's understanding that a Notice of Intent to Make Audit Changes
to Europa Cruises of Florida 2, Inc. (relating to the Miami Beach operation)
will also be forthcoming.
The Company recorded a contingency in 1998 in the amount of $1,400,000 for this
matter.
LIQUIDITY AND CAPITAL RESOURCES
In 1999, the Company expects to meet its normal operating costs and expenses
from its cash flow operations. The Company, however, may be unable to meet any
unusual or unanticipated cash requirements should they arise during 1999 except
through the sale of common stock or borrowing.
The Company's working capital deficiency is approximately $5,743,223 at March
31, 1999 as compared to $5,770,107 at March 31, 1998.
Investing activities (principally vessel improvements, major vessel repair and
maintenance, and gaming equipment purchases) required cash of approximately
$250,674 in 1999, which was met through operating cash. No additional major
capital expenditures are planned for the second quarter of 1999.
The Company has not yet evaluated its computer system for "Year 2000"
compliance. However, the Company does not expect the cost of such conversion to
be material to its financial condition or results or operations, nor does it
anticipate any material disruption in its operations with respect thereto.
Except for historical information contained herein, the matters discussed
herein, in particular, statements that use the words "believes," "expects,"
"intends," or "anticipates," 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,
financing, 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, the outcome of litigation and the actions
of federal, state, or
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local governments or agencies. 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 PROCEEDINGS
See Note 4. Material Contingencies.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule (for SEC use only)
No reports on Form 8-K have been filed during the quarter ended March 31, 1999.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EUROPA CRUISES CORPORATION
DATE: May 20, 1999 /s/ DEBORAH A. VITALE
--------------------------------------
By: Deborah A. Vitale
President
/s/ ROBERT ZIMMERMAN
--------------------------------------
By: Robert Zimmerman
Chief Financial Officer
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