<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSBA
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 (I.R.S. Employer
of incorporation or Identification Number)
organization)
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 requires
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Number of Shares Outstanding
At October 30, 1995
----------------------------
17,740,237
----------------------------
<PAGE>
EUROPA CRUISES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1 Consolidated Statements of Operations
- ------ for the Three Months Ended
September 30, 1995 and 1994. 2
Consolidated Statements of Operations
for the Nine Months ended
September 30, 1995 and 1994. 3
Consolidated Balance Sheets as of
September 30, 1995 4-5
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 1995 and 1994. 6-7
Notes to Consolidated Financial
Statements 8-13
ITEM 2 Management's Discussion and Analysis
- ------ of Financial Condition and Results
of Operations. 13-16
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 16
- ------
ITEM 2 Other Information 16
- ------
ITEM 3 Exhibits and Reports on Form 8K 17
- ------
<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.
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues
Casino revenue $ 2,520,830 $ 1,883,501
Passenger fares 1,019,284 1,466,289
Beverage 289,294 429,856
Charter fees 258,666 -0-
Other 46,687 105,096
----------- -----------
4,134,761 3,875,742
----------- -----------
Costs and Expenses
Vessel operating 2,286,631 2,005,005
Casino operations 858,451 32,446
Administrative and general 770,224 960,556
Advertising and promotion 341,689 530,119
Depreciation and amortization 281,257 179,865
----------- -----------
4,538,252 3,707,991
----------- -----------
Other income (expense)
Interest. net (224,054) (89,327)
Other income -0- -0-
Other income -0- -0-
----------- -----------
(224,054) (89,327)
----------- -----------
Net income (loss) before income taxes (627,545) 78,424
Provision for income taxes - current 13,390 -0-
----------- -----------
Net income (loss) (640,935) 78,424
Preferred stock dividends 70,600 -0-
----------- -----------
Net income (loss) applicable to
common stock (711,535) 78,424
=========== ===========
Net income (loss) per common share
(Note 2) $ (.04) $ N/A
=========== ===========
Net income (loss) per common share
equivalents-primary and full diluted
(Note 2) N/A $ 0.01
=========== ===========
Weighted average number of common
and common shares outstanding (Note 2) 17,510,146 15,963,862
=========== ===========
</TABLE>
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues
Casino revenue $ 9,444,547 $ 6,021,101
Passenger fares 3,533,225 5,168,677
Beverage 1,057,313 1,452,747
Charter fees 773,576 -0-
Other 207,038 150,169
------------ ------------
15,015,699 12,792,694
------------ ------------
Costs and Expenses
Vessel operating 7,617,163 7,019,950
Casino operations 3,083,956 77,756
Administrative and general 2,836,850 2,544,190
Advertising and promotion 1,520,633 1,575,803
Depreciation and amortization 754,385 695,444
------------ ------------
15,812,987 11,913,143
------------ ------------
Other income (expense)
Interest, net (584,244) (280,716)
Other income -0- 2,352,758
Other expense -0- (200,000)
------------ ------------
(584,244) 1,872,042
------------ ------------
Net income (loss) before income taxes (1,381,532) 2,751,593
Provision for income taxes-current 13,390 50,000
------------ ------------
Net income (1,394,922) 2,701,593
Preferred stock dividends 212,524 -0-
------------ ------------
Net income (loss) applicable to common
stock $ (1,607,466) $ 2,701,593
============ ============
Net income (loss) per common share
(Note 2) (.09) $ N/A
============ ============
Net income (loss) per common share
(Note 2) $ N/A $ 0.18
============ ============
Weighted average number of common
and common shares outstanding 17,507,498 15,360,175
============ ============
</TABLE>
3
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
------
September 30, 1995
------------------
<S> <C>
Current Assets:
Cash and cash equivalents $ 810,952
Accounts receivable 156,715
Prepaid insurance and other 969,268
-----------
Total current assets 1,936,935
-----------
Vessels, equipment and fixtures, less
accumulated depreciation 13,788,982
Investment in and advances to
unconsolidated affiliate 425,574
Land under development for dockside
gaming 4,100,000
Dockside gaming development costs 615,901
-----------
$20,867,392
===========
</TABLE>
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
September 30, 1995
------------------
<S> <C>
Current Liabilities:
Accounts payable and accrued liabilities $ 1,987,755
Current maturities of long-term debt 2,311,220
Unearned cruise revenues 117,797
-----------
Total current liabilities 4,416,772
-----------
Long-term debt less current maturities
(Note 5) 6,827,566
Total liabilities 11,244,338
-----------
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
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
Additional paid-in-capital 23,461,898
Unearned ESOP Shares (6,991,200)
Deficit (6,713,165)
Treasury stock, at cost,
1,300,000 shares (190,156)
-----------
Total stockholders' equity 9,623,054
-----------
$20,867,392
===========
</TABLE>
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
---- ----
<S> <C> <C>
Operating Activities:
Net Income (loss) before income taxes ($1,381,532) $2,701,594
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 752,764 695,444
Release of ESOP shares 122,522 -0-
Decrease (increase) in:
Accounts receivable (72,994) 1,092,574
Prepaid expenses 499,509 24,544
Other current assets (154,552) -0-
Amount due from affiliate -0- 197,437
Increase (decrease) in:
Accounts payable and accrued liabilities (561,796) (2,120,307)
Unearned cruise revenues (59,760) 106,214
Deposits -0- (85,000)
----------- -------------
Cash provided by (used in) operating
activities (855,839) 2,612,500
----------- -------------
Investing activities:
Purchases of property and equipment (515,215) (3,948,317)
Development costs for dockside gaming (160,446)
Proceeds from sale of gaming equipment -0- 428,566
----------- -------------
Cash (used in) investing activities $ (675,661) $ (3,519,751)
----------- -------------
</TABLE>
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
1995 1994
---- ----
<S> <C> <C>
Financing activities:
Issuance of common stock $ -0- $ 4,160,367
Issuance of units -0- 2,793,900
Purchase of treasury stock -0- (41,406)
Proceeds from long-term debt 7,646,332 1,027,343
Payment of notes and long-term debt (8,370,395) (2,852,329)
Preferred stock dividends (55,279) (22,702)
---------- -----------
Cash provided by (used in) financing
activities (779,342) 5,065,173
---------- -----------
Net increase (decrease) in cash and cash
equivalents (2,310,842) 4,157,922
Cash and cash equivalents,
beginning of period 3,121,794 228,915
---------- -----------
Cash and cash equivalents,
end of period $ 810,952 $ 4,386,837
========== ===========
Supplemental schedule of noncash
investing and financing activates:
Payment of preferred dividends in stock $ 55,600
==========
</TABLE>
<PAGE>
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
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 $286,000
and $192,000 for the three months ended September 30 in 1995 and 1994
respectively; and $737,000 and $663,000 in the nine months ended September 30 in
1995 and 1994 respectively.
Change in Accounting Principle
- ------------------------------
The Company is required to adopt FAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" in 1996.
Management does not expect that the adoption of FAS 121 will have a material
effect on the carrying value of the Company's long lived assets including its
vessels, land under development for dockside gaming or its dockside gaming
development costs.
Note 2. Net Income (Loss) Per Share
Net income (loss) per share is based on net incomes (loss) after preferred stock
divided 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. Primary and fully diluted earnings per share were not
calculated for 1995, since such calculation would be anti-dilutive.
Common shares outstanding includes issued shares less shares held in treasury
and the 4,729,167 unallocated and uncommitted shares held by the ESOP trust at
September 30, 1995.
Fully diluted earnings per common and common equivalent share is not materially
different from primary net income 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. 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 interests in accounts
receivable, inventories, equipment and intangibles. The Company entered into an
interest swap agreement with First Union to fix the rate at 11.35%. The notional
amount of the swap is equal to the outstanding principal balance of the loan.
8
<PAGE>
At September 1995, the Company did not meet the tangible net worth covenant
required by the loan with First Union National Bank of Florida. First Union has
waived the default, reduced the amount of the tangible net worth covenant and
provided a grace period to March 31, 1996 to cure the violation. Management
believes it is probable the default will be cured before March 31, 1996.
Note 5. 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 $6,515,618. 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." On June 8, 1995, the Florida
Department of Revenue issued the First Revised Notice of Intent to Make Sales
and Use Tax Audit Changes to the Company for the period February 1, 1989 through
June 30, 1995. This revision reduced the tax assessed by $150,000,00.
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. 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 & Stoup. 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.
9
<PAGE>
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 manufactures 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.
On September 13, 1995, the Honorable Anne C. Conway entered an Order in the
United States District Court for the Middle District of Florida, Orlando
Division, where the above-referenced case was currently pending against Europa
Cruises Corporation and other cruise ship companies, transferring the case
pending in the United States District Court for the Middle District of Florida,
Orlando Division, to the United States District Court for the District of
Nevada, Southern Division. Europa intends to move the court to consolidate those
cases now pending against the land-based casino operators and the manufactures,
assemblers and distributors of gaming equipment previously sued in federal court
in Nevada with those cases filed against the cruise ship companies. Management
believes the Nevada forum provides a more favorable forum in which to litigate
the issues raised in the Complaint.
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. Discovery in the case is to be concluded by November 17,
1995.
10
<PAGE>
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 Officer 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 on trial on May 22, 1995 and continued through May 25, 1995
before Judge Berger. Post-trial briefs have been filed and the Court has taken
the matter under consideration.
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-C1-008)
- -----------------------------------
On or about May 5, 1993, Liberis filed suit in the Circuit Court in and for
Pinellas County, Florida (Case No. 93-001626-C1-008) 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 and 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 has
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 as 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
directors sought to be removed were reelected, thus rendering the case moot.
11
<PAGE>
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 or 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 States 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 requested 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.
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
conditions 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.
12
<PAGE>
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.
Turner v. Europa Cruises Corporation
- ------------------------------------
On or about August 15, 1995, Stephen M. Turner, former Chairman of the Board of
Europa Cruises Corporation, filed suit in the Chancery Court of the State of
Delaware in and for New Castle County, against Europa Cruises Corporation and
its three Directors, Deborah A. Vitale, Ernst Walter and Lester Bullock. On or
about September 1, 1995, Mr. Turner withdrew his claims against the individual
Directors. Mr. Turner sought a declaratory judgement from the Court declaring
him to be a member of the Board of Directors of Europa Cruises Corporation. The
Company maintained that Mr. Turner unequivocally resigned on March 20, 1995 in
the presence of four witnesses after the Board removed him as Chairman of the
Board and replaced him with Deborah A. Vitale and that his actions during the
meeting and following his resignation confirmed same. The Company maintained
that Mr. Turner's attempt to unilaterally resurrect himself as a Director of the
Company after having resigned was of no force and effect. Following depositions
taken on or about September 26, 1995, Mr. Turner agreed to settle for $17,500
and certain assurances regarding his existing stock options. Counsel for the
parties are in the process of preparing the settlement documents.
Item 2. Management's Discussion and Analysis of Financial conditions and
----------------------------------------------------------------
Results of Operations
---------------------
Results of Operations for the Three Months Ended September 30, 1995
- -------------------------------------------------------------------
Revenues
- --------
The Company operated 513 cruises and carried 63,917 passengers in the current
period in 1995 generating revenues of $4,134,761 or $64.68 per passenger. This
compares to 475 cruises and 69,451 passengers in 1994 on revenues of $3,875,742
or $55.81 per passenger. This significant increase in per passenger revenue
results from the Company's continuing marketing efforts to find the best
complement of passenger fare prices relative to casino patronage. For example,
the retail value of complementary drinks, meals and tickets given away in the
current period in 1995 was $267,732. This compares to $192,364. Complementary
packages are generally given to VIP gamblers to attract their patronage on the
vessel. As a result, even though total passenger count decreased, per passenger
revenue increased due to increased casino revenues.
The decrease in passengers relates to the west coast ports and is the direct
result of port weather and new competition.
Net Income Before Taxes
- -----------------------
Effect on 1994 Third Quarter Results for 1994 Fourth Quarter Adjustments
- ------------------------------------------------------------------------
The Company reported a 1994 fourth-quarter loss of $1,622,000. Included in this
fourth quarter loss was the effect of year end adjustments which reduced net
income by approximately $1,600,000. The
<PAGE>
fourth quarter adjustments were primarily related to normal and recurring
adjustments that were omitted in the prior quarters of 1994. These adjustments
are described more fully in the 1994 Form 10-KSB.
The Company reported net income of $78,424 for the three months ended September
30, 1994. If the above described 1994 fourth quarter adjustments are considered,
the Company would have reported a net loss for the three months ended September
30, 1994 of approximately $(820,000).
This compares to a net loss before tax of $(627,545) for the same period in
1995. The decrease in loss results from the increase in revenue discussed above
and a decrease in operating costs described under the results of operations for
the nine-month ended.
September Meal Costs
- --------------------
Beginning in September 1995, the Company internalized the meal service on all
vessels. This includes all aspects of meal preparation and service. Meal costs
were internalized because the Company believes it can provide meals on the
vessels at a lower unit costs and allows the Company the flexibility to consider
alternative meal structures in its marketing efforts to find the best complement
of passenger fares to casino revenues.
In September 1994, when the Company out-sourced its meal service, the per
passenger meal costs was $9.68. In September 1995, the internal per passenger
meal costs is $6.87 or a per passenger savings of $2.81. The Company's goal is
to reduce foods costs per passenger to $6.25 by year-end.
Results of Operations for the Nine Months Ended September 30, 1995
- ------------------------------------------------------------------
Revenues
- --------
The Company, during the first nine months in 1995, operated 1,771 cruises,
carried 258,516 passengers, and earned revenue of $15,015,699 or $58.08 per
passenger. The compares to 1,422 cruises with 234,537 passengers on revenue of
$12,792,694 or $54.54 for the same period in 1994. The difference is the result
in a swing in revenues from passenger fares to casino revenues. Per passenger
fare revenue dropped to $13.74 in 1995 from $22.03 in 1994 or a per passenger
decrease of $8.29. This if offset by an increase in per passenger casino revenue
of $39.53 in 1995 compared to $25.67 in 1994 or a per passenger increase of
$13.86.
In 1994, the per passenger gross casino revenue (before reduction for the casino
concessionaire fees) was $39.00 and the Company's per passenger proportionate
share of the casino revenues was $25. In 1995, when the Company internalized
casino operations, net casino revenue before reduction for a casino management
fee paid to the former concessionaire is $29.75.
Net Income Before Tax
- ---------------------
Nine-month net income before tax for 1994 was $2,751,594 which includes a
nonrecurring gain on the sale of unimproved land of $2,253,124. The nine month
net income before tax adjusted for this gain and the 1994 fourth quarter
adjustments described above (under the caption 1994 Fourth Quarter Adjustment)
would be a net loss approximately $(1,225,000). This compares to the nine month
loss for 1995 of $(1,381,532).
Other Significant Operating Results
- -----------------------------------
14
<PAGE>
Miami Port
- ----------
The Miami port had a net loss from operations for the three months ended June
1995 and September 1995 of $(434,000) and $(284,000) respectively. The reduction
in loss between the quarters of $150,000 results primarily from a reduction in
operating costs. Further costs reductions and increased marketing are expected
to further benefit this ports operating results for the quarter ended December
31, 1995. The Miami port revenue per passenger of $61.24 and its casino revenue
per passenger of $42.03 is in-line with the other profitable ports. However, its
passenger count has not met with expectations. If improvements in passenger
count are not significant in the fourth quarter, other alternatives for the
Miami port may be considered.
Seasonal Earnings
- -----------------
The Company's earnings are seasonal with the best months running between
December and May, the Florida tourist season, and the slowest months running
from June to October.
Net income before tax and preferred dividends for the quarters ended March,
June, and September 1995 were $250,097; $(1,004,084); and $(365,934)
respectively. Despite the expected seasonal decrease in passenger revenues, the
company reduced its losses in the third quarter by $638,000. The most
significant reduction was in Corporate General and Administrative expenses which
were reduced by approximately $478,000. This reduction is primarily related to
the internalization and elimination of certain legal, accounting and other
professional fees as well as nonrecurring legal fees. The remaining reduction
relates to operating costs on the vessels.
Casino Operations
- -----------------
October 14, 1995 marks the one year anniversary for the Company's
internalization of casino operations. Total one-year drop for tables and slots
was $50 million. The Company's total hold percentage on tables was 15.59% and on
slots was 43.36% for a total overall hold of 22.34%. This hold percentage is
comparable to land based casinos which are not hindered by opening and closing
their casinos every six hours and who are not hindered by rough weather, such as
hurricanes, in Florida.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital deficiency at September 30, 1995 was $2.47 million
compared to $2.5 million at December 31, 1994. The Company has historically been
met through a combination of debt and equity sources.
In October 1995, the Company received a firm committment for the purchase of
$500,000 of the Company's common stock under a regulation S offering.
In September 1995, the Company entered into a letter of intent with an unrelated
third party to charter or purchase the Europa Sun. The third party paid a
$25,000 nonrefundable deposit under the letter of intent. The terms of the
agreement call for a $1 million advance charter deposit to be paid in November.
The third-party has an option to purchase the Europa Sun for $4.1 million in
December 1995 with full credit for the $1 million advance charter payment. After
that date, the charter agreement calls for a purchase option at the end of each
year with a purchase price of $4.1 million and no credit for the advance charter
payment. The purchase option price decreases by $200,000 a year. The charter
15
<PAGE>
is renewable for three years. The third party is currently in default under the
letter of intent. There can be no assurance the third party will obtain
financing to complete the transaction. The Company continues to seek alternative
purchasers.
Prior to September 1995, the Company used an outside vendor to provide meals on
its vessels. In August, 1995 the Company had fallen behind in its payments to
the food vendor. The food vendor demanded payment of the outstanding payable and
seized three of the companies vessels. The Company borrowed $1.2 million dollars
from First Union National Bank of Florida to release the ships and pay off the
vendor in full.
The $1.2 million is included in current liabilities. The full amount of the loan
is due September 1996. The Company is currently seeking alternative long-term
financing arrangements for this note and other debt restructuring alternatives
with various finance companies. There can be no assurance any refinancing will
be made available.
The Company has implemented several costs cutting programs in the third quarter
which are expected to have a positive impact on cash flow. These cost reduction
programs are described more fully in Management's Discussion and Analysis.
The Company's charter agreement on the Stardancer was not renewed and will
terminate in November 1995. Cash flow from the charter agreement was
approximately $70,000 per month. Once the charter terminates, the Company will
have four vessels available for its three operating ports.
The Company's operations are seasonal with its strongest revenues occurring from
December to May -- Florida's heavy tourist season. Absent a purchaser for the
Europa Sun (see discussion above), the Company will supplement its vessel
activity at an existing port to take advantage of the 1995-96 tourist season.
After May, 1996 a purchase, charter or new port will be considered for the
fourth vessel.
EBITDA
- ------
Earnings before interest, taxes, depreciation and amortization is a measure
often considered by financial analysts to scrutinize a Company's ability to
meet debt repayments. The Company's EBITDA and its ESOP expense (which is a non
cash item) for the nine-months ended September 30, 1995 is approximately
$245,000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
See Note 5 - Material Contingencies.
Item 5. Other Information
-----------------
On November 14, 1995, the Company announced that Ernst Walter, a Director of the
Company who was recently extradited to Austria, has resigned his position as a
Director of Europa and those subsidiaries of Europa Cruises Corporation on which
he served as a Director.
Piers Hedley, an investment banker, has been named by the Board of Directors to
succeed Mr. Walter. Mr. Hedley, whose home is in England, has extensive
international financial experience and banking expertise as well as investment
banking experience in the casino industry.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
No reports on Form 8-K have been filed during the quarter ended September 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.
Date: February 14, 1996 EUROPA CRUISES CORPORATION
By: /s/ Debra Gladstone By: /s/ Lester E. Bullock
--------------------------- --------------------------------
Debra Gladstone Lester E. Bullock
Chief Financial Officer President
17
