<PAGE>
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, 1995
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
--- ---
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 June 30, 1995
----------------------------
17,526,276
----------------------------
<PAGE>
EUROPA CRUISES CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
<S> <C>
ITEM 1 Consolidated Statements of Operations for the Three
------ Months Ended June 30, 1995 and 1994. 2
Consolidated Statements of Operations for the Six
Months ended June 30, 1995 and 1994. 3
Consolidated Balance Sheets as of June 30, 1995 and
December 31, 1994. 4-5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1995 and 1994. 6-7
Notes to Consolidated Financial Statements 8-12
ITEM 2 Management's Discussion and Analysis of Financial
------ Condition and Results of Operations for the Three
Months and Six Months Ended June 30, 1995 and 1994. 12-17
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 17
------
ITEM 5 Other Information 17
------
ITEM 6 Exhibits and Reports on Form 8K 17
------
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1 Financial Statements
------
The interim unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Item 310 (b) of Regulation S-B
and therefore do not include all information and footnotes
necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with generally
accepted accounting principles.
In the opinion of the Company, such financial statements
contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position as of June 30,
1995, and the results of operations and cash flows for the six
months ended June 30, 1995 and 1994. Operating results for the
six months ended June 30, 1995 are not necessarily indicative of
the results that may be expected for the year ending December 31,
1995. For further information, refer to the financial statements
contained in the Form 10-KSB Annual Report pursuant to Section 13
or 15 (d) of the Securities Exchange Act of 1934 for the fiscal
year ended December 31, 1994.
1
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30
1995 1994
----------- -----------
<S> <C> <C>
Revenues
Casino revenue $ 3,266,885 $ 1,985,810
Passenger fares 1,189,144 1,854,848
Beverage 387,107 544,617
Charter fees 256,250 -0-
Other 89,108 63,747
----------- -----------
5,188,494 4,449,022
----------- -----------
Costs and Expenses
Vessel operating 2,788,475 2,685,290
Casino operations 1,104,654 14,189
Administrative and general 1,241,459 947,174
Advertising and promotion 613,319 546,295
Depreciation and amorization 281,257 179,867
----------- -----------
6,029,164 4,372,815
----------- -----------
Other income (expense)
Interest, net (163,415) (122,265)
Other income -0- 2,288,101
Other expense -0- (200,000)
----------- -----------
(163,415) 1,965,836
----------- -----------
Net income (loss) before income
taxes (1,004,085) 2,042,043
Provision for income taxes -
current -0- 35,000
----------- -----------
Net income (loss) (1,004,085) 2,007,043
Preferred stock dividends 70,600 -0-
----------- -----------
Net income (loss) applicable to
common stock (1,074,685) 2,007,043
=========== ===========
Net income (loss) per common
and common share equivalents-
primary and fully-diluted $(.06) $0.12
=========== ===========
Weighted average number of
common and common equivalent
shares outstanding primary and
fully diluted 17,510,146 15,945,842
=========== ===========
</TABLE>
2
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
----------- -----------
<S> <C> <C>
Revenues
Casino revenue $ 6,923,716 $ 4,137,600
Passenger fares 2,506,308 3,709,437
Beverage 754,350 1,031,890
Charter fees 514,910 -0-
Other 160,351 109,691
----------- -----------
10,859,635 8,988,618
----------- -----------
Costs and Expenses
Vessel operating 5,333,506 5,186,145
Casino operations 2,225,504 67,323
Administrative and general 2,071,195 1,546,415
Advertising and promotion 1,150,100 1,052,736
Depreciation and amorization 473,127 359,540
----------- -----------
11,253,432 8,212,159
----------- -----------
Other income (expense)
Interest, net (360,191) (191,390)
Other income -0- 2,288,101
Other expense -0- (200,000)
----------- -----------
(360,191) 1,896,711
----------- -----------
Net income (loss) before income (753,988) 2,673,170
taxes
Provision for income taxes-
current -0- 50,000
----------- -----------
Net income (loss) (753,988) 2,623,170
Preferred stock dividends 141,924 -0-
----------- -----------
Net income (loss) applicable to
common stock $ (895,912) $ 2,623,170
=========== ===========
Net income (loss) per common
and common share equivalents-
primary and fully-diluted $(.05) $0.16
=========== ===========
Weighted average number of
common and common equivalent
shares outstanding primary and
fully diluted 17,475,934 15,945,842
=========== ===========
</TABLE>
3
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,039,627 $ 3,121,794
Accounts receivable 138,652 83,721
Prepaid insurance and other 1,259,405 1,468,777
----------- -----------
Total current assets 2,437,684 4,674,292
----------- -----------
Vessels, equipment and fixtures, less
accumulated depreciation 13,902,093 14,026,531
Investment in and advances to
unconsolidated affiliate 271,022 271,022
Land under development for dockside
gaming 4,100,000 4,100,000
Dockside gaming development costs 615,901 455,455
----------- -----------
$21,326,700 $23,527,300
=========== ===========
</TABLE>
4
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------- -----------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued liabilities $ 2,636,194 $ 2,306,594
Current maturities of long-term debt 1,169,998 4,631,383
Unearned cruise revenues 186,302 192,621
----------- -----------
Total current liabilities 3,992,494 7,130,598
----------- -----------
Long-term debt less current maturities 6,996,121 5,288,723
----------- -----------
Total liabilities 10,988,615 12,419,321
----------- -----------
Stockholder's equity:
Preferred stock, $.01 par value;
shares authorized 5,000,000; outstanding
3,216,000; ($5,126,580 aggregate
liquidation preference) 32,160 32,160
Common stock, $.001 par value-
shares authorized 50,000,000;
issued 23,517,314; outstanding 17,526,276
and 17,403,615, respectively 23,517 23,517
Additional paid-in-capital 23,491,250 23,523,724
Unearned ESOP Shares (7,017,056) (7,175,548)
Deficit (6,001,630) (5,105,718)
Treasury stock, at cost,
1,300,000 shares (190,156) (190,156)
----------- -----------
Total stockholders' equity 10,338,085 11,107,979
----------- -----------
$21,326,700 $23,527,300
=========== ===========
</TABLE>
5
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
----------- -----------
<S> <C> <C>
Operating Activities:
Net Income (loss) before income taxes $ (753,988) $ 2,623,170
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 471,502 359,540
Release of ESOP shares 126,018 -0-
Decrease (increase) in:
Accounts receivable (54,931) 236,059
Prepaid expenses 209,372 (163,478)
Other current assets -0- 479,006
Increase (decrease) in:
Accounts payable and accrued liabilities 217,676 (1,089,124)
Unearned cruise revenues (6,319) 70,655
Deposits -0- (85,000)
----------- -----------
Cash provided by (used in) operating
activities 209,330 2,430,828
----------- -----------
Investing activities:
Purchases of property and equipment (347,064) (251,312)
Development costs for dockside gaming (160,446) -0-
Proceeds from sale of gaming equipment -0- 1,100,326
----------- -----------
Cash (used in) investing activities $ (507,510) $ 849,014
----------- -----------
</TABLE>
6
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
----------- -----------
<S> <C> <C>
Financing activities:
Issuance of common stock $ -0- $ 1,711,389
Issuance of units -0- 3,399,297
Purchase of treasury stock -0- (41,406)
Proceeds from long-term debt 6,446,332 -0-
Payment of notes and long-term debt (8,200,319) (2,715,626)
Preferred stock dividends (30,000) -0-
----------- -----------
Cash provided by (used in) financing
activities (1,783,987) 2,497,235
----------- -----------
Net increase (decrease) in cash and cash
equivalents (2,082,167) 5,777,077
Cash and cash equivalents,
beginning of period 3,121,794 228,942
----------- -----------
Cash and cash equivalents,
end of period $ 1,039,627 $ 6,006,019
=========== ===========
</TABLE>
7
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB, and therefore do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles.
In the opinion of the Company, such financial statements contain all
adjustments (consisting of only normal recurring accruals) necessary to present
fairly the financial position as of June 30, 1995, and the results of operations
and cash flows for the three month period then ended.
Note 2. Net Income (Loss) Per Share
Net income (loss) per share is based on net income (loss) after preferred
stock dividend requirements and the weighted average number of common shares
outstanding during each period after giving effect to stock options and
warrants considered to be dilutive common stock equivalents. It is assumed that
all dilutive stock options and warrants are exercised at the beginning of each
year and that the proceeds are used to purchase up to 20 percent of the
outstanding shares of the Company's common stock with any remaining proceeds
utilized to repay indebtedness.
Common shares outstanding includes issued shares less shares held in
treasury and the 4,691,038 unallocated and uncommitted shares held by the ESOP
trust at June 30, 1995. Fully diluted net income (loss) per common and common
equivalent share is not materially different from primary net income (loss) per
share.
Note 3. Income Taxes
The Company's taxable income in 1994 has been offset substantially by the
utilization of net operating loss carryforwards.
Note. 4. Material Contingencies
Florida Department of Revenue Tax Audit
---------------------------------------
On November 28, 1994, the Florida Department of Revenue (DOR) 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 proposed audit changes,
including penalties and interest total $6,515,681. The Company is challenging
the proposed sales tax audit changes. If the Company is not successful in
challenging the proposed audit changes, the additional tax the Company would be
required to pay, would have a major substantial adverse impact on the Company's
financial condition. See "Liquidity and Capital Resources."
Sea Lane Bahamas Limited v. Europa Cruises Corporation
------------------------------------------------------
In February, 1994, following attachment of one of the Company's vessels by
Sea Lane, the Company entered into a partial settlement agreement with Sea Lane
with respect to the Company's obligations under the 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. 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.
8
<PAGE>
However, the owners of the vessel have informed the company that they believe
the Company's liability for damages to the EuropaJet under the charterparty
agreement is approximately $700,000. The Settlement Agreement further provides
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 under a charterhire
agreement on the vessel known as the "EuropaJet". 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 November 30, 1994, the Company filed an Opposition to the Petition to
Compel Arbitration on grounds that the arbitration clause in the Settlement
Agreement was procured by fraud. The Company also asked the Court to disqualify
the law firm of Douglass & Stroup from representing Sea Lane on grounds that
Glen Kolk, maritime counsel to the Company if "Of Counsel" to the law firm of
Douglass & Stroup. On or about April 10, 1995, the United States District Court
entered an Order granting Sea Lane's Petition to Compel Arbitration. The Court
further held that any issues regarding the continued representation of Sea Lane
by the law firm of Douglass & Stroup must be resolved by the arbitrators. The
parties have not selected arbitrators and no date for the arbitration has been
set. 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.
William Poulos, Et Al. v. Ambassador Cruise Lines, Inc. Et Al.
-------------------------------------------------------------
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. 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 in this action had brought a similar action
against most land-based casino operations 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 defendants, 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 these 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.
Shoney's Inc. v. Lone Star Hospitality Corporation and Europa Cruises
---------------------------------------------------------------------
Corporation (Tennessee)
----------------------
On March 7, 1995, Shoney's Inc. filed suit against LoneStar Hospitality
Corporation and Europa Cruises Corporation (the Company) in the United States
District Court of the Middle District of Tennessee (Case Number 3-95-0215)
seeking damages relating to breaches under four separate lease agreements
between Shoney's Inc. and LoneStar. The Company was sued as guarantor of the
leases under written guarantee agreements.
9
<PAGE>
The Complaint sought a declaration that the leases had been breached by
LoneStar, and judgement against LoneStar and the Company for rent and other past
due charges. The total amount sought as a judgement was not specified in the
Complaint, but was in excess of $110,680, the total rent and property taxes past
due.
On or about June 30, 1995, a Settlement Agreement was reached between
Shoney's LoneStar and the Company under which Shoney's was to be paid an agreed
upon amount, and certain other obligations were to have been undertaken in
exchange for which Shoney's would dismiss the litigation and the leases would
then be in full force and effect. Upon successful consummation of all of the
provisions of the Settlement Agreement, which is believed to be imminent, the
litigation will be dismissed.
Off-Shore, Inc. and Arthur Foss v. Europa Cruise Line, Ltd.
-----------------------------------------------------------
On or about December 6, 1994, Off Shore, Inc. and Arthur Foss filed suit
against Europa Cruise Line, Ltd. in the United States District Court for the
District of New Jersey, for $71,541.94, attorneys' fees, interest and costs,
alleging breach of contract for failure to pay for goods and services allegedly
sold and delivered in or about 1988. The Complaint was served on or about
April 3, 1995. On or about May 9, 1995, Europa Cruises Corporation filed an
Answer, Affirmative Defenses and Jury Demand. On or about July 27, 1995, the
Court held a Scheduling Conference. The Plaintiff failed to appear at the
Scheduling Conference. Nevertheless, the Court proceeded to conduct a scheduling
conference and entered a scheduling order. A Settlement Conference is scheduled
for August 21, 1995. Discovery in the case is to be concluded by November 17,
1995.
Liberis v. Europa Cruises Corporation (Delaware) (C.A. No. 13103)
----------------------------------------------------------------
On July 30, 1993, Charles Liberis the founder, a former President, Director
and Chief Operating Office of the Company, attempted to exercise 1,417,500
Europa Common Stock purchase 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
(C.A. No. 13103).
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
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. Inasmuch as any shares issued to Liberis pursuant to exercise
of the stock options are "restricted securities" and could not have been sold
prior to August 1, 1995, the Company believes there is no basis for Liberis'
damage claim.
The case proceeded to trial on May 22, 1995 and continued through May 25,
1995 before Judge Berger. At the conclusion of the trial, the Court established
a post-trial briefing schedule pursuant to which the parties would file their
post-trial briefs. On or about July 10, 1995, Liberis filed his Opening Post-
Trial Brief in Support of Complaint. On or about July 31,1995, Europa filed its
Post-Trial Answering Brief on Plaintiff's Complaint and Post-Trial Opening Brief
on its Counterclaim. Additional briefs are due to be filed on August 14, 1995
and August 28, 1995. Thereafter, the trial Judge can enter a decision based on
the briefs and evidence presented at trial or schedule a time for the parties to
present final arguments. Local counsel has indicated that the Delaware court
normally prefers to hear final argument in a case.
10
<PAGE>
Liberis v. Steve Turner, Deborah A. Vitale, William A. Herold, Ernst Walter,
---------------------------------------------------------------------------
Sharon Petty, Charles "Kip" Reddien, Serco International Limited, Casinos
-------------------------------------------------------------------------
Austria Maritime, Austroinvest International, Limited (Pinellas County,
-----------------------------------------------------------------------
Florida) (C.A. 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 against the above-named persons and entities and Victor Gersh
(now deceased) formerly special counsel to the Company. 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 CEO of Europa
Cruises Corporation and defamed him. Liberis seeks compensatory, punitive,
treble damage 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 issue 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 judgement
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". Liberis has informed the Pinellas
County, Florida Circuit Court in a pleading filed on or about June 23, 1995,
that he moved to dismiss Civil Action No. 12955 because there have been two
annual meetings of Europa subsequent to the filing of that case at which the
directors sought to be removed were reelected, thus rendering the case moot.
On or about August 7, 1995, the defendants agreed to lift the stay for
discovery purposes and for the purpose of finalizing the pleadings. No trial
date will be scheduled pending a final judgement in Delaware on December 31,
1995.
Liberis v. Europa Cruises Corporation (Escambia County, Florida (Case No.
-------------------------------------------------------------------------
93-1187)
--------
Liberis 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 alleges that a principal balance of $141,000.00 is owed on
the note. The case has been dormant since it was initially filed. It is expected
that the disposition of the claims in Delaware will resolve the claims alleged
in this action. On July 28, 1995, the Court entered an Order Scheduling a Case
Management Conference for August 24, 1995.
Europa Cruises Corporation v. Liberis (Florida Federal Court) (Case No.
-----------------------------------------------------------------------
93-30158)
---------
Europa filed suit against Liberis in the United Stated District Court for
the Northern District of Florida, (Case No. 93-30158). In this action, Europa is
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 are currently pending before Judge Berger in
Delaware Case No. 13103. However, Europa has also made a claim for securities
fraud against Liberis in this Florida case which is not made in the Delaware
case. Thus, the extent to which a decision in Delaware would resolve all of the
issues pending in this case is uncertain.
11
<PAGE>
In re Burton Securities, S.A./Europa Cruises Corporation v. Harrell Z. Browning,
--------------------------------------------------------------------------------
Liquidating Trustee of Burton Securities, S.A. (Texas) (Case No. 91-00125-C-11)
-------------------------------------------------------------------------------
Europa has filed an action for the return of a deposit of $85,000 together
with interest earned thereon, posted in connection with Europa's potential
purchase of the M/V LE MISTRAL from a bankruptcy estate. On June 17, 1994,
Harrell Z. Browning, Liquidating Trustee under the Chapter 11 plan of Burton
Securities, S.A., entered into a binding Memorandum of Agreement with Europa
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
the full escrow deposit. Moreover, the Court entered an Order on July 15, 1994,
approving the terms and condition of the 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. Since August
22, 1994, Europa has attempted to obtain the return of its deposit from the
Trustee who has refused to return same. On the contrary, the Trustee has filed
an action against Europa for breach of contract and alleged damages. The Company
believes there is no merit to the action and that the action is designed to
force Europa to settle for less than the full deposit to which it is entitled.
Galveston County Tax Assessment
-------------------------------
The County of Galveston, Texas, by letter dated May 12, 1995, notified
Europa Cruise Line, Ltd., the predecessor of Europa Cruises Corporation,that
there is tax, penalty and interest due in the amount of $80,667.47 arising from
the failure to pay taxes incurred in the year 1990. The Company maintains that
it is not liable for this alleged tax.
Note 5. Long-term debt
On May 23, 1995, the Company received a 11.35% term loan of $6,446,332 from
First Union National Bank of Florida. The term loan agreement requires monthly
payments of approximately $103,000, including interest, through 2003. The loan
is secured by vessel mortgages and security interest in accounts receivable,
inventories, equipment and intangibles.
At June 30, 1995, the Company fell below the tangible net worth covenant
required by the loan with First Union National Bank of Florida, resulting in a
technical default of the loan. The Company has requested a waiver from the
tangible net worth covenant.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations for the Three Months Ended June 30, 1995
--------------------------------------------------------------
The Company experienced high startup costs with the opening of the Miami
Beach port during the second quarter ending June 30, 1995. The Miami Beach port
also posted losses during all three months of the quarter. The advertising and
promotion costs are extremely expensive in the Miami Beach port. The Company
anticipates the Miami Beach port to break even and begin making a profit by the
end of September, 1995.
Revenues
--------
The Company operated 566 cruises in the current period in 1995 as compared
to 497 in the comparable period in 1994, an increase of approximately 14%. The
Company carried 91,360 passengers in the current period, as compared with 82,085
in 1994, an increase of approximately 11%. The occupancy level on a per cruise
basis declined during the current period by approximately 2%. This decline in
occupancy can be attributed to the start up operation in Miami Beach. The
Company had total revenues of approximately $5,200,000 in 1995 as compared to
approximately $4,400,000 for the comparable period in 1994, an increase of
approximately 18%.
12
<PAGE>
The revenues from casino operations increased by approximately $1.3 million
or 64% in the second quarter of 1995 over the comparable period of 1994,
primarily due to the Company operating its own casinos on board the vessels in
1995. This represents an increase per passenger of approximately $15.55, or 62%.
The Company realized 100% of the gaming revenue as compared to only 65% in 1994
(3.5% of gross gaming revenue is paid to Casinos Austria Maritime, see casino
operating expenses). The comparison from 1994 to 1995, in the second quarter, of
gross gaming revenue (prior to the split with Casinos Austria), shows an
increase of approximately $210,000, an increase of 7%. Revenue from passenger
fares decreased by $665,704 or $7.28 per passenger. The decrease is attributable
to the increased competition, and the Company's need to reduce the fares in
order to remain competitive throughout the state of Florida.
Beverage reserve decreased by $157,510, or $1.72 per passenger. This
decrease is attributable to an increase in the complimentary drinks that are
provided in the casinos on board the vessels. This is a net revenue figure after
complimentary drinks. The gross beverage revenue has decreased $70,559 from the
same period in 1994 or $0.77 per passenger. The decrease in gross revenue is
attributable to the initial low passenger counts during the startup of
operations in Miami Beach.
The Company received $256,000, during the second quarter of 1995 under a
May, 1995 charter agreement of the M/V Stardancer, which was purchased in 1994.
The charter agreement expires in November, 1995. However, the charterer has an
option to extend this charter for an additional 6 months. The charterer is
required to notify the Company on or before August 22, 1995, as to whether it
intends to renew its charter under the agreement.
Vessel Operating Expenses
-------------------------
The Company saw an increase in vessel operating expenses of $103,000 as a
result of an increase in payroll, maintenance, fuel and insurance costs
associated with the operating of four vessels in 1995 as opposed to three in
1994.
Casino Operating Expenses
-------------------------
Casino operating expenses increased significantly in the current period,
due to the Company internalizing all casino operations. A significant portion of
the casino expense consists of the fee paid to Casinos Austria Maritime,
which includes 3.5% of the gross gaming revenue and the purser fees that are
associated with each cruise. This agreement continues until December, 1997.
Administrative and General Expenses
-----------------------------------
There was a net increase in administrative and general expenses of
approximately $450,000 over the comparable period of 1994, primarily due to an
increase in corporate legal fees of approximately $350,000; an increase in
accounting fees of approximately $50,000; an increase in Casino World and
Mississippi Gaming of approximately $70,000 and an ESOP expense of approximately
$61,000. There was a decrease in administrative and general expenses from the
operating vessels of approximately $48,000. The increase in the legal fees is
attributable to the Company's litigation with a former director. "See Legal
Proceedings." The increase in accounting fees is attributable, in part, to the
Company's need for accounting services for legal proceedings, new financing, and
ongoing tax litigation. See "Legal Proceedings." The increase in Casino World
and Mississippi Gaming is attributable to the development of the Company's
Diamondhead, Mississippi Gaming site. A one time charge of approximately
$150,000 related to the sale of property in Mississippi is reflected in 1994
administrative and general expenses.
Advertising and Promotion
-------------------------
There was an increase in advertising and promotion of approximately
$67,000. This is primarily due to the increased costs associated with operating
in Miami Beach.
13
<PAGE>
Interest, Net
-------------
Interest, net of interest income of $24,000 amounted to $163,000 in the
second quarter as opposed to $122,000 in the prior year. The increase, in part,
is related to increased borrowing.
Other Income, Expense
---------------------
The other income reflects the gain on the sale of the Company's Back Bay
Biloxi, Mississippi site. The $200,000 other expense relates to the writeoff of
a loan made to Caribe FunKruz Corp., S.A.
Results of Operations for the Six Months Ended June 30, 1995
------------------------------------------------------------
Revenues
--------
The Company, during the first six months, operated 1,050 cruises in 1995 as
compared to 947 in 1994, an 11% increase. The Company during the first six
months carried 194,599 passengers in 1995 as compared to 165,086 in 1994, an 18%
increase. The Company had an occupancy per cruise increase of approximately 6%.
The Company had casino revenues of approximately $6,900,000 during the
first six months of 1995, as compared to approximately $4,100,000 in 1994. This
represents an increase of approximately $2,800,000, or 68%. In comparing the
gross gaming revenues that all the vessels earned, the increase is approximately
$558,000 or 9%. The gross gaming revenue is the total revenue earned by the
vessels in 1994 prior to the revenue split with Casinos Austria Maritime.
The Company had, in the first six months of 1995, passenger fare revenues
of approximately $2,500,000 as compared to $3,700,000 in the comparable period
in 1994, a decrease of $1,200,000 or 32%. This reduction represents
approximately $6.16 per passenger. The decrease is due to increased competition
throughout Florida and the company's desire to maintain market share. The
Company is experiencing competition that advertises cruise prices as low as
$1.00. This $1.00 fare includes, the cruise, meal and entertainment. In some
markets, the competitors are advertising "Free" cruises, that is also inclusive
of the cruise, food and entertainment.
The increased competition throughout Florida appears to have risen from the
defeat of a Referendum on land based gaming, on November 8, 1994, which prompted
new competitors to open new day cruise vessels in Florida.
The Company had, in the first six months of 1995, beverage revenues of
approximately $750,000 as compared to approximately $1,000,000 in the comparable
period in 1994, a decrease of 25%. This is a net beverage revenue after all
casino complimentaries are deducted. The gross beverage revenue for the six
months in 1995 is approximately $1,100,000 as compared to approximately
$1,200,000 in the comparable period in 1994.
Vessel Operating Expenses
-------------------------
The Company had, in the first six months of 1995, vessel operating expenses
of approximately $5,300,000 as compared to approximately $5,200,000 in the
comparable period in 1994, an increase of approximately $100,000 or 2%. This
increase can be attributed to the Company operating four vessels in the current
period as compared to only three vessels in 1994.
Casino Operating Expenses
-------------------------
The Company had a significant increase in the casino operating expenses in
the first six months of 1995 as compared to 1994. The Company began operating
all of the on board casinos effective October 15, 1994. Included in the casino
operating expenses is the 3.5% consulting fee and the expenses associated with
the Casinos Austria pursers on board each cruise.
14
<PAGE>
Administrative and General Expenses
-----------------------------------
The Company had administrative and general expenses, during the first six
months of 1995, of approximately $2,000,000 as compared to approximately
$1,500,000 in the comparable period of 1994, an increase of approximately 33%.
This increase can be attributed to the increases, as previously outlined, that
the Company experienced in the second quarter of 1995. (See management
discussion and analysis for the three months ending June 30, 1995).
Advertising and promotion
-------------------------
The Company had, during the first six months of 1995, advertising and
promotion expenses of approximately $1,100,000, as compared to $1,000,000 during
the comparable period in 1994, an increase of approximately 10%. This increase
is primarily due to the startup costs associated with Miami Beach.
Interest Net
------------
Interests net of interest income of $81,000 amounted to $360,000 as opposed
to $191,000 in the prior period. The increase, in part, is related to increased
borrowing.
Other Income
------------
The other income in 1994 reflects the gain on the sale of the Company's
Back Bay Biloxi, Mississippi site. The other expense of $200,000 relates to the
writeoff of a loan made to Caribe FunKruz Corp., S.A.
Liquidity and Capital Resources
-------------------------------
As a result of the term loan of $6,446,332 from First Union National Bank
of Florida, the Company's working capital deficiency decreased to $1.5 million
at June 30, 1995 from $2.5 million at December 31, 1994. The Company's monthly
payments under the term loan agreement approximate $103,000 per month compared
to approximately $165,000 before the debt restructuring. Cash provided by
operations during the six months ended June 30, 1995 was $209,000. Depreciation,
release of ESOP shares, a decrease in prepaid expenses and an increase in
accounts payable and accrued expense; more than offset changes in accounts
receivable and increased unearned cruise revenues.
On November 28, 1994, the Florida Department of Revenue (DOR) issued to the
Company a Notice of Intent to make Sales and Use Tax Audit Changes for the
period February 1, 1989 through June 30, 1994. The proposed audit changes,
including penalties and interest total $6,515,681. The DOR seeks to assess sales
tax on gaming revenue, passenger fares, the purchase and sale of fixed assets,
repairs and other items. The Company strongly disagrees with the proposed audit
changes and intends to vigorously contest the factual, statutory, and regulatory
issues which form the basis for the proposed audit changes. However, if the
Company is not successful in challenging the proposed audit changes, the
additional tax the Company would be required to pay, would have a major
substantial adverse impact on the Company's financial condition.
On June 28, 1989, the Florida Department of Revenue issued Technical
Assistance Advisement (TAA 89(A) - 034 to Europa Cruise Line, Ltd. (the entity
which is now known as Europa Cruises Corporation). This TAA appeared to resolve
the admissions tax issue and the tax on purchases issued in favor of Europa. The
Department revised this TAA in 1990, purporting to "clarify" that it had
actually intended to conclude that the admissions tax was applicable. The
revision did not revisit the tax on purchases. On April 21, 1995, the Assistant
General Counsel for the Florida Department of Revenue issued a recommendation to
the auditor responsible for the Europa sales tax assessments that the TAA issued
on June 28, 1989 should be honored. Therefore, the Assistant General Counsel
recommended that the assessment for Europa Cruise Line, Ltd., be eliminated for
the period from June 28, 1989 to May 2, 1990. The Assistant General Counsel
further
15
<PAGE>
recommends that the TAA be honored for all purchases made by Europa Cruise Line,
Ltd., if such purchases were for supplies appropriate to carry out the purposes
for which the Vessel was designed. The recommendation is limited to assessments
for Europa Cruise Line, Ltd. However, the Company intends to pursue the argument
that the successor entities are entitled to the benefits of the TAA. The
recommendation of General Counsel for the Florida Department of Revenue
regarding the TAA will reduce the sales tax assessment by the Department of
Revenue. However, it is not possible for the Company to estimate the amount of
the reduction in the sales tax assessment at this time.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
See Note 4 - Material Contingencies.
Item 5. Other Information
-----------------
(a) On March 20, 1995, Lester Bullock, President of Europa Cruises
Corporation was named as a Director of the Company. On March 20, 1995, the Board
of Directors elected Deborah A. Vitale as Chairman of the Board replacing
Stephen M. Turner. On March 20, 1995, Stephen M. Turner resigned as a Director
of the Company.
(b) On or about June 26, 1995, Mr. Ernst G. Walter, a member of the Board
of Directors, was arrested by agents of the U.S. government pursuant to an
extradition request filed by the Austrian government. The Austrian government
requested extradition in connection with an on going criminal investigation
involving the trading by Austroinvest International, Serco International and
their affiliates in the securities of several companies including Europa Cruises
Corporation. The Board of Directors, under the circumstances, requested Mr.
Walter's resignation as a Director of the Company. Mr. Walter denied all
allegations of wrong doing and declined to resign. On or about August 4, 1995,
the U.S. District Court for the Middle District of Florida entered an order
extraditing Mr. Walter.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
No reports on Form 8-K have been filed during the quarter ended June 30,
1995.
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, 1995 By: /s/ Lester E. Bullock
---------------------
Lester E. Bullock
President
By: /s/ Charles M. Kleim
--------------------
Charles M. Kleim
Chief Financial Officer
16
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