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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---- ----
Commission File Number 0-17529
EUROPA CRUISES CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
DELAWARE 59-2935476
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
150 153rd Avenue, Suite 200, Madeira Beach, Florida 33708
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(813) 393-2885 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, 1996
-----------------------------------
19,828,517
-----------------------------------
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EUROPA CRUISES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1 Consolidated Statements of Operations for the Three
- ------ Months Ended June 30, 1996 and 1995. 2
Consolidated Statements of Operations for the Six
Months ended June 30, 1996 and 1995. 3
Consolidated Balance Sheet as of June 30, 1996. 4-5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1995. 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, 1996 and 1995. 12-14
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 15
- ------
ITEM 5 Other Information 15
- ------
ITEM 6 Exhibits and Reports on Form 8K 15
- ------
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1 Financial Statements
The results of operations for the interim periods shown in
this report are not necessarily indicative of results to be
expected for the fiscal year. In the opinion of Management,
the information contained herein reflects all adjustments
necessary to make the results of operations for the interim
periods a fair statement of such operations. All such
adjustments are of a normal recurring nature.
1
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30,
1996 1995
---- ----
Revenues:
Casino revenue $ 3,900,082 $ 3,141,292
Passenger fares 1,064,609 1,189,144
Food and beverage 435,608 387,107
Charter fees 146,805 381,843
Other 59,451 89,108
-------------- --------------
5,606,555 5,188,494
------------- -------------
Costs and Expenses:
Vessel operating 3,330,837 4,022,829
Administrative and general 486,976 1,050,742
Advertising and promotion 403,528 613,319
Depreciation and amortization 346,509 281,257
-------------- -------------
4,567,850 5,968,147
------------- ------------
Other (Income) Expense:
Interest, net 234,351 163,415
Other expense 60,625 61,017
-------------- -------------
294,976 224,432
------------- ------------
Net income (loss) 743,729 (1,004,085)
Preferred stock dividends (75,223) (70,600)
------------- --------------
Net income (loss) applicable to common
stock $ 668,506 $ (1,074,685)
============= ==============
Net income (loss) per common share $ 0.03 $ ($0.06)
============= ==============
Weighted average number of common
shares outstanding 19,782,452 17,510,146
============= =============
2
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended June 30,
1996 1995
---- ----
Revenues:
Casino revenue $ 6,488,396 $ 6,504,778
Passenger fares 2,294,364 2,506,308
Food and beverage 790,036 754,350
Charter fees 384,072 933,848
Other 118,055 160,351
------------- -------------
10,074,923 10,859,635
------------ ------------
Costs and Expenses:
Vessel operating 6,410,045 7,766,940
Administrative and general 1,043,973 1,737,248
Advertising and promotion 794,319 1,150,100
Depreciation and amortization 702,019 473,127
------------- -------------
8,950,356 11,127,415
------------- -------------
Other (Income) Expense:
Interest, net 446,057 360,191
Other expense 106,250 126,017
------------- -------------
552,307 486,208
------------- -------------
Net income (loss) 572,260 (753,988)
Preferred stock dividends (120,105) (141,924)
------------- --------------
Net income (loss) applicable to common
stock $ 452,155 $ (895,912)
============= =============
Net income (loss) per common share $ 0.02 $ ($0.05)
============= =============
Weighted average number of common
shares outstanding 19,238,171 17,475,934
============ ============
3
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
June 30, 1996
-------------
Current Assets:
Cash and cash equivalents $ 1,210,215
Accounts receivable 176,393
Prepaid insurance and other 888,846
-------------
Total current assets 2,275,454
------------
Vessels, equipment and fixtures, less
accumulated depreciation 13,726,596
Land under development for dockside
gaming 4,610,301
Other assets 749,338
-------------
$ 21,361,689
=============
4
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1996
-------------
Current Liabilities:
Accounts payable and accrued liabilities $ 982,576
Current maturities of long-term debt 2,669,368
Unearned cruise revenues 75,459
------------
Total current liabilities 3,727,403
------------
Long-term debt less current maturities 6,134,963
Other liabilities 150,000
------------
Total liabilities 10,012,366
------------
Stockholder's equity:
Preferred stock, $.01 par value;
shares authorized 5,000,000; outstanding
2,872,467; ($4,092,014 aggregate
liquidation preference) 28,725
Common stock, $.001 par value-
shares authorized 50,000,000;
issued 25,828,517; outstanding 19,828,517 25,828
Additional paid-in-capital 24,888,539
Unearned ESOP Shares (6,895,782)
Deficit (6,507,831)
Treasury stock, at cost, 1,250,000 shares (190,156)
------------
Total stockholders' equity 11,349,323
------------
$ 21,361,689
============
5
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1996 1995
---- ----
Operating Activities:
Net income (loss) before income taxes $ 572,260 $(753,988)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 702,019 471,502
Release of ESOP shares 106,250 126,018
Decrease (increase) in:
Accounts receivable 36,181 (54,931)
Prepaid expenses and other assets 422,493 209,372
Increase (decrease) in:
Accounts payable and accrued liabilities (801,598) 217,676
Unearned cruise revenues 3,420 (6,319)
---------- ---------
Cash provided by operating activities 1,041,025 209,330
---------- ---------
Investing activities:
Purchases of property and equipment (457,750) (347,064)
Development costs for dockside gaming (67,623) (160,446)
---------- ---------
Cash (used in) investing activities (525,373) (507,510)
---------- ---------
6
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1996 1995
---- ----
Financing activities:
Proceeds from issuance of common stock $ 997,110 $ -0-
Proceeds from long-term debt -0- 6,446,332
Payment of notes and long-term debt (822,337) (8,200,319)
Preferred stock dividends (32,271) (30,000)
----------- ------------
Cash provided by (used in) financing
activities 142,502 (1,783,987)
------------- ------------
Net increase (decrease) in cash and cash
equivalents 658,154 (2,082,167)
Cash and cash equivalents,
beginning of period 552,061 3,121,794
------------ ------------
Cash and cash equivalents,
end of period $ 1,210,215 $ 1,039,627
============ ============
7
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General
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 $505,000 and $275,000 for the three months ended June 30, 1996 and 1995
respectfully; and $915,000 and $490,000 for the six months ended June 30, 1996
and 1995, respectively.
Certain 1995 amounts have been reclassified to conform to the
classifications for 1996.
Note 2. Net Income (Loss) Per Share
Net income (loss) per share is based on net income (loss) after preferred
stock dividend requirements and the weighted average number of common shares
outstanding during each period. Stock options and warrants considered to be
common stock equivalents for both primary and fully diluted calculations were
not materially dilutive. Convertible preferred which is not a common stock
equivalent was anti-dilutive and therefore not considered in the fully diluted
calculation.
Common shares outstanding include issued shares less shares held in
treasury, 4,625,000 unallocated and uncommitted shares held by the ESOP trust at
June 30, 1996, and 400,000 shares held in escrow by the Company as collateral
for a note with a principal balance of $282,000 at June 30, 1996.
Note 3. Income Taxes
The Company's taxable income in 1996 has been offset substantially by the
utilization of net operating loss carryforwards.
Note 4. Material Contingencies
(a) Sea Lane Bahamas
- --- ----------------
Through December 31, 1993, the Company leased a vessel (the EuropaJet)
under a bareboat charterparty agreement with Sea Lane Bahamas (Marne), an entity
in which the Company previously owned a twenty percent interest. As a result of
continued unprofitable operations of the EuropaJet during the first quarter of
1993, the Company negotiated a lease settlement with Marne, whereby, the lease
was terminated as of December 31, 1993 in exchange for payment of outstanding
lease charges of $888,000, paid as of December 31, 1995.
The Company's liability, for alleged damages arising out of the condition
of the EuropaJet upon its redelivery is in dispute. The lessor claims the
liability for damages to the EuropaJet under the charterparty agreement is in
excess of $1 million. The Company and the lessor were unable to settle this
dispute with respect to the condition of the EuropaJet when it was redelivered,
and the amount of the Company's remaining obligation will be determined in
arbitration. To date, the Company has accrued expenses of $150,000 relating to
this contingency.
8
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(b) Liberis Litigation
- --- ------------------
On or about May 5, 1993, Charles S. Liberis, the founder of the Company
and a former Chairman of the Board, filed suit in the Circuit Court in and for
Pinellas County, Florida (Case No. 93-0016126-CI-008) against Steve Turner,
Deborah A. Vitale, William A. Herold, Ernst G. Walter, Sharon E. Petty, Charles
H. Reddien, Victor B. Gersh, Serco International Limited, Casinos Austria
Maritime Corporation (CAMC), and Austroinvest International Limited seeking
unspecified damages for rescission, fraud and conspiracy for which the Company
may be required to indemnify its directors. On or about August 4, 1993, Liberis
filed an Amended Complaint, naming additional defendants and adding a count for
defamation. On or about April 22, 1996, Liberis filed a motion for Leave to File
a Second Amended Complaint to add a claim for intentional infliction of
emotional distress. The Court has not yet granted Liberis' motion for leave to
file a Second Amended Complaint. No trial date has been set.
The Company's litigation, including the foregoing, may have an adverse impact on
the Company's ability to secure financing for its planned Mississippi expansion
and on licensing by the Mississippi Gaming Commission. The ultimate outcome of
these matters cannot presently be determined. Accordingly, the financial
statements do not include any adjustments that might result from litigation
uncertainty.
(c) Sales and Use Taxes
- --- -------------------
On November 28, 1994, the Florida Department of Revenue issued to the
Company, a Notice of Intent to make Sales and Use Tax Audit Changes for the
period February 1, 1989 through June 30, 1994. The proposed audit Changes,
including penalties and interest total $6,515,681. The Florida Department of
Revenue seeks to assess sales tax on gaming revenue, passenger fares, the
purchase, sale and lease of fixed assets, repairs, and other items.
On June 28, 1989, the Department of Revenue issued Technical Assistance
Advisement (TAA 89 (A) - 034) to Europa Cruise Line, Ltd. (the entity which is
now known as Europa Cruises Corporation). This TAA appeared to resolve the
admissions tax issue and the tax on purchases issued in favor of Europa. The
Department revised this TAA in 1990, purporting to "clarify" that it had
actually intended to conclude that the admissions tax was applicable. The
revision did not revisit the tax on purchases. On April 21, 1995, the Assistant
General Counsel for the Florida Department of Revenue issued a recommendation to
the auditor responsible for the Europa sales tax assessments that the TAA issued
on June 28, 1989, should be honored. Therefore, the Assistant General Counsel
recommended that the assessment for Europa Cruise Line, Ltd., be eliminated for
the period from June 28, 1989 to May 2, 1990. For the period following May 2,
1990, the Company relies on Florida statutes that provide that vessels are not
establishments subject to admission sales tax. The Assistant General Counsel
further recommends that the TAA be honored for all purchases made by Europa
Cruise Line, Ltd., if such purchases were for supplies appropriate to carry out
the purposes for which the Vessel was designed. The recommendation is limited to
assessments for Europa Cruise Line, Ltd. However, the Company intends to pursue
the argument that the successor entities are entitled to the benefits of the
TAA. The recommendation of General Counsel for the Department of Revenue
regarding the TAA will reduce the sales tax assessment by the Department of
Revenue. However, it is not possible for the Company to estimate the amount of
the reduction in the sales tax assessment at this time. In late April 1996, the
Florida Department of Revenue issued a Final Notice of Intent to make Audit
Changes that totals $6.6 million of which $1.7 million and $1.3 million
represent interest and penalties respectively. The Company strongly disagrees
9
<PAGE>
with the proposed Audit Changes and intends to vigorously contest the factual,
statutory, and regulatory issues which form the basis for the proposed Audit
Changes. The Company believes many of the proposed Audit Changes will be
resolved in the Company's favor. However, the outcome of this matter is
uncertain and if the Company is not successful in challenging the proposed Audit
Changes by the Florida Department of Revenue, the additional Sales and Use Tax
the Company will be required to pay would have a major substantial adverse
impact on the Company's financial condition. In July 1996, the Company's legal
counsel filed a Protest with the Florida Department of Revenue contesting all
amounts assessed.
(d) Government Regulation - Day Cruise Gaming Vessels
- --- -------------------------------------------------
Federal legislation enacted in 1948, (the "Gambling Act"), prohibits any
person within the jurisdiction of the United States from establishing, operating
or owning an interest in a gambling ship on the high seas or otherwise within
the jurisdiction of the United States. There are no formal or informal
regulations or legal or administrative opinions as to the application of the
Gambling Act to business operations such as those conducted by the Company.
Federal Legislation enacted in 1992 specifically authorized U.S. registered
vessels to carry gambling equipment to and from U.S. ports for use in
international waters. The 1992 Federal Legislation would appear to conflict in
certain respects with the Gambling Act. However, there are no reported judicial
decisions or administrative opinions reconciling any potential conflicts between
the Gambling Act and the 1992 Federal Legislation.
Though no litigation is presently contemplated, if the Company's
operations were ever found by a court of law in a litigation commenced by a
United States Attorney's Office to violate the Gambling Act, the vessels owned
and operated by the Company could be forfeited to the United States Government
without compensation to owners or the Company or the Company could be required
to change its operations. A material change in the Company's operation, such as
the removal of casinos from the vessels, would have a material adverse impact on
the Company's financial condition.
(e) Casino Industry Litigation
- --- --------------------------
On or about November 29, 1994, William Poulos filed a class action lawsuit
on behalf of himself and all others similarly situated against approximately
thirty-three defendants, including Europa Cruises of Florida 1, Inc. and Europa
Cruises of Florida 2, Inc. in the United States District Court, Middle District
of Florida, Orlando Division (Case No. 94-1259-CIV-ORL-22). Europa Cruises of
Florida 1, Inc. and Europa Cruises of Florida 2, Inc. were served with the
Complaint on or about March 15, 1995. The suit was filed against the owners,
operators and distributors of cruise ship casinos which utilized casino video
poker machines and electronic slot machines. The Plaintiff alleges violation of
the Federal Civil RICO statute, common law fraud and deceit, unjust enrichment
and negligent misrepresentation. The plaintiff had filed a similar action
against most major, land-based casino operators in the United States. The
earlier action, which did not name the Company or any of its subsidiaries as
defendants, was transferred from the U.S. District Court in Orlando, Florida to
the U.S. District Court in Las Vegas, Nevada. The plaintiff contends in both
actions that the defendant owners and operators of casinos, including cruise
ship casinos, along with the distributors and manufacturers of video poker
machines and electronic slot machines have engaged in a course of fraudulent and
misleading conduct intended to induce people to play their machines based on a
false understanding that the machines operate in a truly random fashion. The
plaintiff alleges that these machines actually follow fixed, preordained
sequences that are not random, but rather are both predictable and subject to
manipulation by defendants and others. The plaintiff seeks damages in excess of
$1 billion dollars against all defendants.
10
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On September 13, 1995, the United States District Court for the Middle
District of Florida, Orlando Division, transferred the case pending in that
Court against Europa Cruises of Florida 1, Inc. and Europa Cruises of Florida 2,
Inc. and other defendants to the United States District Court for the District
of Nevada, Southern Division. Accordingly, the case against Europa and the other
defendants in the cruise ship industry will be litigated and perhaps tried
together with those cases now pending against the land-based casino operators
and the manufacturers, assemblers and distributors of gaming equipment
previously sued in federal court in Nevada. Management believes the Nevada forum
provides a more favorable forum in which to litigate the issues raised in the
Complaint. The Company is sharing the cost of litigation in this matter with
other defendants.
(f) Robert M. Baer, et al. v. Ambassador Cruise Lines, Inc., et al. (In the
- --- --------------------------------------------------------------------------
Circuit Court of the Seventeenth Judicial Circuit In and For Broward County,
- --------------------------------------------------------------------------------
Florida ) Case No. 96-6177 (21)
- -------------------------------
On May 7, 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 County of the Seventeenth Judicial Circuit
In and For Broward County., Florida. (Case No. 96-6177 (21). Europa Cruises of
Florida I, Inc. and Europa Cruises of Florida II, Inc., were served with the
Complaint on or about July 11, 1996. The suit was filed against the
manufacturers, distributors and promoters of video poker and electronic slot
machines and the owners, operators and promoters of cruise ship casinos which
utilized casino video poker machines and electronic slot machines. The plaintiff
alleges fraud in connection with the labeling, design, promotion and operation
of casino video poker machines and electronic slot machines, violation of the
Florida Racketeer Influenced and Corrupt Organizations Act ("RICO"), common law
fraud and deceit, unjust enrichment, and negligent misrepresentation. The
plaintiff contends that the defendant owners, operators and promoters of cruise
ship casinos, along with the manufacturers, distributors, and promoters of video
poker machines and electronic slot machines, have engaged in a course of
fraudulent and misleading conduct intended to induce people to play their
machines based on a false understanding that the machines operate in a random
fashion and are unpredictable. The plaintiff alleges that these machines
actually follow fixed, preordained sequences that are not random, but rather are
both predictable and subject to manipulation by defendants and others. The
plaintiff seeks damages in excess of one billion dollars, including treble their
general and special compensatory damages, punitive damages, consequential and
incidental damages, interest, costs, attorneys' fees and a preliminary and
permanent injunction requiring defendants to accurately and properly describe
their video poker machines and electronic slot machines. The Company intends to
vigorously defend this lawsuit. The Company is sharing the cost of this
litigation with certain other defendants who have retained the same law firm to
represent them. The ultimate outcome of these matters cannot presently be
determined. Accordingly, the financial statements do not include any adjustments
that might result from litigation uncertainty.
(g) Lonnie Avant, et al. v. Europa Cruises Corporation (In the United States
- --- --------------------------------------------------------------------------
District Court for the Middle District of Florida (Cases No. 96-217-CIV-FTM-24D)
- --------------------------------------------------------------------------------
On June 13, 1996, Lonnie Avant, on behalf of herself and all others
similarly situated, filed a class action lawsuit against Europa Cruises
Corporation, d/b/a/ Europa Seakruz, Lester Bullock and John Does 1-10 (Europa's
other directors, officers and managers) in the United States District Court for
the Middle District of Florida, Fort Myers Division, Case No.
96-217-CIV-FTM-24D). The Company was served with the Complaint on or about June
19, 1996. The suit was filed against the Company and its directors, officers and
managers. The Plaintiff alleges that the Company and its directors, officers,
and managers intentionally charged fictitious "port charges" and thereby
11
<PAGE>
overcharged numerous customers and that this practice violated the federal
Racketeer Influenced and Corrupt Organizations Act (RICO). The plaintiff seeks
treble damages, attorneys fees, litigation expenses, costs and restitution. This
is one of a number of class action lawsuits relating to "port charges" recently
filed against cruise ship companies. The Company intends to vigorously defend
this lawsuit. The ultimate outcome of these matters cannot presently be
determined. Accordingly, the financial statements do not include any adjustments
that might result from litigation uncertainty.
Note 5. Long-term debt
As of June 30, 1996, the Company was in compliance with its tangible net
worth covenant but was not in compliance with its cash flow covenant required
under the terms of its bank loan agreement. The bank has waived the Company's
default by deferring compliance with the cash flow covenant requirement.
Item 2. Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------------
Results of Operations
- ---------------------
Results of Operations for the Three Months Ended June 30, 1996
- --------------------------------------------------------------
Revenues
- --------
Revenue from casino operations increased by approximately $759,000 or 24%
over the comparable period of 1995. This increase in revenue was the result of a
strong casino hold percentage and a 6% increase in passenger count from 83,194
in 1995 to 88,755 in 1996. The Company's east coast port in Miami Beach had a
22% increase in passenger count and a 33% increase in casino revenue over the
comparable period of 1995. This increase is primarily the result of a change in
the marketing approach for the Miami port instituted in April 1996 and reduced
competition from the temporary closure of a competitor.
Passenger revenue decreased by approximately $125,000 or 11% over the
comparable period in 1995 due to decreased fares in the Madeira Beach port which
has the greatest number of competitors and decreased fares in Miami where the
marketing approach was recently changed to decrease the passenger fare charge.
The decrease in passenger fares in Miami is partially offset by a separate
charge for food to passengers interested in dining.
Food and beverage revenue increased by approximately $49,000 or 12% over
the comparable period in 1995 primarily due to charging separately for meals in
the Miami port.
During the three months ended June 30, 1996 the Company received $147,000
under a charter agreement of the M/V Stardancer compared to $256,000 in the
second quarter of 1995, a decrease of 43%. The charter agreement expired on June
30, 1996 and the M/V Stardancer is currently being utilized as a replacement
vessel at the Company's operating ports during the third quarter in order to
drydock the Company's three operating vessels. It is anticipated that drydocks
will be completed by approximately October 1, 1996. The Company is currently
seeking another charter hire for the M.V. Stardancer as well as other
alternatives for use of the Stardancer after October 1, 1996. During the three
months ended June 30, 1995, the Company received approximately $131,000 under a
charter hire casino management agreement. This agreement was terminated in June
1995.
12
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Vessel Operating Expenses
- -------------------------
Vessel operating expenses, including casino operations, costs of food and
beverage sales, marine operations and other vessel-related expenses, decreased
by approximately $692,000, or 17% as a result of cost cutting measures
instituted by the Company in the fourth quarter of 1995. In the second quarter
of 1996, meal costs were reduced by approximately $236,000, a savings of
approximately 31%.
Administration and General
- --------------------------
Administrative and general expenses decreased by approximately $564,000,
or 54%, primarily due to a $485,000 decrease in corporate overhead from reduced
payroll costs and decreases in legal and professional fees. Reduced
administrative and general expenses at the port level primarily reflect reduced
payroll costs.
Advertising and Promotion
- -------------------------
Advertising and promotion decreased by approximately $210,000 or 34%. The
most significant decrease occurred in the Miami port where advertising and
promotion decreased by approximately 70% compared to the same period in 1995.
Alternatives to media marketing where instituted in April 1996 in Miami due to
the high costs of media advertising in the Miami area and as a final attempt at
increasing passenger counts at the Miami Port. This new marketing approach,
along with the Company's absence of a local competitor, resulted in an 8%
increase in the passenger count for the 3 months ended June 30, 1996 compared to
the same period in 1995.
Results of Operations for the Six Months Ended June 30, 1996
- ------------------------------------------------------------
Revenues
- --------
Casino revenue from the three operating ports remained constant compared
to the same period of 1995.
Passenger revenue decreased by approximately $212,000 or 9% over the
comparable period in 1995. Though, to date, there have been no new specific
competitors entering into the Company's existing markets, the Florida market is
very fluid with port openings and closings happening throughout the state. Even
in its established markets, the Company's customer base is very sensitive to
changes in passenger fare pricing. The Company believes that decreases in
passenger fares are necessary to remain competitive and can be more than offset
by other vessel revenues.
The $550,000 decrease in charter fees is primarily related to a $425,000
decrease in charter hire management fee income which terminated in June 1995.
Net operating income from charter of the M/V Stardancer was approximately
$260,000 for the six months ended June 30, 1996 compared to $322,000 for the
same period in 1995.
Vessel Operating Expenses
- -------------------------
Vessel operating expenses, including casino operations, costs of food and
beverage sales, marine operations and other vessel-related expenses, decreased
by approximately $1,357,000, or 17%, as a result of cost cutting measures
instituted by the Company in the fourth quarter of 1995. Casino operating costs
were reduced approximately $372,000 including a $285,000 one-time reduction for
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casino costs related to the Stardancer Charter hire management agreement which
was terminated in June 1995.. The Company took over operations of the casino in
October 1994. The costs of providing meals on board was reduced by approximately
$430,000. The Company took over operations of food preparation in September
1995. Recreation and entertainment costs were reduced approximately $369,000 and
reduction in payroll and payroll related expenses in all other departments
accounted for the remaining vessel operating costs reductions.
Administration and General
- --------------------------
Administrative and general expenses decreased by approximately $693,000,
or 40%, primarily due to reduced payroll and payroll related expenses of
approximately $200,000 and decreases in legal and professional fees of
approximately $450,000.
Two new legal cases have recently been brought against the Company. See
Note 4, Material Contingencies, Items (f) (g). The Company does not anticipate
that these cases will materially increase its legal and professional fee costs
for the remainder of the year. The Company is actively defending these cases
and does not expect that either case will have a material adverse impact on the
Company's results of operations or financial condition.
Advertising and Promotion
- -------------------------
Advertising and promotion decreased by approximately $356,000 or 31%. The
Company expects that advertising and promotional expenses may increase over the
next quarter. The Company's markets are seasonal with the third quarter
historically a slow quarter, relying heavily on local market patrons. Therefore,
advertising and promotional costs increase to attract repeat customers.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital deficiency was approximately $1.5 million at
June 30, 1996 primarily consisting of a $1.1 million loan due to First Union
Bank of Florida on February 1, 1997. The Company is actively seeking refinancing
of this loan.
During the third quarter of 1996 the Company anticipates spending $1
million to drydock three of its vessels. The $1 million in drydock costs will be
funded from cash received during the second quarter of 1996 from the issuance of
stock and operating cash flow.
As of June 30, 1996, the Company was in compliance with its tangible net
worth covenant but was not in compliance with its cash flow covenant required
under the terms of its bank loan agreement. The bank has waived the Company's
default by deferring compliance with the cash flow covenant.
Except for historical information contained herein, the matters discussed
in this Item 2, in particular, statements that use the words, "expects" or
"anticipates" are intended to identify forward looking statements that are
subject to risk and uncertainties, including inclement weather, mechanical
failures, increased competition, governmental action, environmental opposition
and other unforeseen factors. The results expected this quarter are not
necessarily an indication of future prospects of the Company. Actual results
may differ materially.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
See Note 4, Material Contingencies.
Item 5. Other Information
-----------------
On July 16, 1996, the Mississippi Commission on Marine Resources granted
approval of the Hancock County Port and Harbor Commission/Casino World, Inc.
application for an adjustment to the coastal wetlands use plan and a wetlands
permit. This approval allows Europa Cruises Corporation, through its wholly
owned subsidiary, Casino World, Inc., to develop a destination casino resort on
its 404 acre site in Diamondhead, Mississippi. The Company expects to receive
further required permits and certifications necessary to develop the Diamondhead
site from the U.S. Army Corps of Engineers and the Mississippi Department of
Environmental Quality. Casino World, Inc. plans to develop a destination resort
at the Diamondhead site which is expected to include a 450 room luxury hotel and
spa, a 2500-4000 seat sports and entertainment center, two 60,000 square foot
casinos, a nine hole executive golf course and a state-of-the-art recreational
vehicle park.
On July 16, 1996, the Mississippi Commission on Marine Resources also
granted approval of the application for an adjustment to the coastal wetlands
use plan, a variance and a wetlands permit to Pine Hills Development
Corporation, with whom Circus Circus Enterprises, Inc. intends to develop a
casino resort on property adjacent to the Casino World site. The development of
the two casino resorts by Circus Circus and Casino World is expected to make the
Diamondhead location a significant factor in the Mississippi gaming industry.
This Item 5 contains certain forward looking statements that are subject
to risk and uncertainties. The development of the Diamondhead, Mississippi
project, is subject to risk and uncertainties including political, environmental
and financial risks, including but not limited to those arising from permitting,
government agencies, and the activities of environmental groups.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
No reports on Form 8-K have been filed during the quarter ended June 30,
1996.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1996 EUROPA CRUISES CORPORATION
By: /s/Debra Gladstone By: /s/Lester E. Bullock
---------------------- ---------------------------
Debra Gladstone Lester E. Bullock
Chief Financial Officer President
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EUROPA CRUISES CORPORATION FOR THE SIX MONTHS ENDED JUNE
30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,210,215
<SECURITIES> 0
<RECEIVABLES> 176,393
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,275,454
<PP&E> 18,478,144
<DEPRECIATION> 4,761,648
<TOTAL-ASSETS> 21,361,689
<CURRENT-LIABILITIES> 3,727,403
<BONDS> 0
<COMMON> 25,828
0
28,725
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,361,689
<SALES> 0
<TOTAL-REVENUES> 10,074,923
<CGS> 0
<TOTAL-COSTS> 8,950,356
<OTHER-EXPENSES> 106,250
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446,057
<INCOME-PRETAX> 452,155
<INCOME-TAX> 0
<INCOME-CONTINUING> 452,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 452,155
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
