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 March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-17529
EUROPA CRUISES CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
DELAWARE 59-2935476
- ------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
150 153rd Avenue, Suite 200, Madeira Beach, Florida 33708
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(813) 393-2885 extension 326
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Number of Shares Outstanding
At April 30, 1997
----------------------------------
27,169,985
----------------------------------
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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 March 31, 1997 and 1996. 2
Consolidated Balance Sheets as of March 31, 1997 3-4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996. 5-6
Notes to Consolidated Financial Statements 7-13
ITEM 2 Management's Discussion and Analysis of Financial
------ Condition and Results of Operations for the Three
Months Ended March 31, 1997 and 1996. 13-15
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 15
------
ITEM 4 Submission of Matters to a Vote of Securities Holders 15
------
ITEM 6 Exhibits and Reports on Form 8-K 16
------
<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
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31
1997 1996
---- ----
Revenues
Gaming revenue $ 4,340,899 $ 2,588,314
Passenger fares 1,135,628 1,229,755
Food and beverage 388,588 354,428
Subcharter fees 0 237,267
Other 199,243 58,604
------------ ------------
6,064,358 4,468,368
------------ ------------
Costs and Expenses:
Vessel operating 3,402,834 3,079,209
Administrative and general 587,193 566,135
Advertising and promotion 414,609 390,791
Depreciation and amortization 456,419 346,371
Interest, net 230,902 211,706
Other operating (Note 1) 283,947 45,625
------------ ------------
5,375,904 4,639,837
------------ ------------
Net income (loss) 688,454 (171,469)
Preferred stock dividends (46,887) (29,872)
------------ ------------
Net income (loss) applicable to
common stock $ 641,567 $ (201,341)
============ ============
Net income (loss) per common $ 0.028 $ (0.11)
============ ============
Weighted average number of
common and common equivalent
shares outstanding primary and
fully diluted 22,899,058 18,673,985
============ ============
2
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
March 31, 1997
--------------
Current Assets:
Cash and cash equivalents $ 1,482,903
Accounts receivable 350,949
Prepaid insurance and other 823,468
-----------
Total current assets 2,657,320
Vessels, equipment and fixtures, less
accumulated depreciation 13,752,768
Land under development for dockside
gaming 4,764,295
Deferred drydock costs, less
accumulated amortization 778,143
Other assets 469,673
-----------
$22,422,199
===========
3
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, 1997
--------------
Current Liabilities:
Accounts payable and accrued liabilities $ 1,338,726
Current maturities of long-term debt 1,735,041
Unearned revenues 339,042
------------
Total current liabilities 3,412,809
------------
Long-term debt less current maturities 6,698,837
Other liabilities 150,000
------------
Total liabilities 10,261,646
------------
Stockholder's equity:
Preferred stock, $.01 par value;
shares authorized 5,000,000; outstanding
2,822,467; ($3,992,014 aggregate
liquidation preference) 28,225
Common stock, $.001 par value-
shares authorized 50,000,000;
issued 28,419,985; outstanding 22,732,485 28,419
Additional paid-in-capital 25,475,908
Unearned ESOP Shares (6,616,173)
Deficit (6,565,670)
Treasury stock, at cost,
1,250,000 shares (190,156)
------------
Total stockholders' equity 12,160,553
------------
$ 22,422,199
============
4
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
1997 1996
---- ----
Operating Activities:
Net income (loss) $ 688,454 $(171,469)
Adjustments to reconcile net
income (loss) to net cash used in
operating activities:
Depreciation and amortization 456,419 346,371
Release of ESOP shares 70,625 45,625
Expenses paid in shares of common stock 1,313 -0-
Decrease (increase) in:
Accounts receivable 47,789 79,255
Prepaid and other assets (292,166) 174,734
Increase (decrease) in:
Accounts payable and accrued liabilities (290,841) (191,947)
Unearned revenues 275,215 27,324
--------- ---------
Cash provided by operating activities 956,808 309,893
--------- ---------
Investing activities:
Purchases of property and equipment (214,480) (55,758)
Development costs for dockside gaming (50,478) (25,000)
Decrease in restricted cash 400,000 -0-
--------- ---------
Cash (provided by) investing activities 135,042 $ (80,758)
--------- ---------
5
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
1997 1996
---- ----
Financing activities:
Proceeds from issuance of common stock $ 265,000 $ 230,000
Payment of notes and long-term debt (408,332) (524,159)
Preferred stock dividends (13,695) (6,000)
----------- -----------
Cash (used in) financing activities (157,027) (300,159)
----------- -----------
Net increase (decrease) in cash and cash 934,823 (71,024)
equivalents
Cash and cash equivalents,
beginning of period 548,080 552,061
----------- -----------
Cash and cash equivalents,
end of period $ 1,482,903 $ 481,037
=========== ===========
6
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
(a) Casino Revenue
--------------
Casino revenue is the net win from gaming activities, which is the difference
between gaming wins and losses. Revenue does not include the retail amount of
fares, food, and beverage provided gratuitously to customers, which was $621,000
and $410,000 for the three months ended March 31 in 1997 and 1996 respectively.
(b) Other Operating Costs
---------------------
Other operating costs consists of the following:
Three months ended March 31, 1997 1996
- --------------------------------------------------------------------------------
ESOP provision 70,625 45,625
Shareholder litigation 6,070 -0-
Proxy costs 138,250 -0-
Casinos Austria termination fee 65,754 -0-
Other 3,248 -0-
- --------------------------------------------------------------------------------
283,947 45,625
================================================================================
(c) Reclassification
----------------
Certain 1996 amounts have been reclassified to conform to the classifications
for 1997.
NOTE 2. NET INCOME (LOSS) PER SHARE
Net income per share for 1997 is based on net income after preferred stock
dividend requirements and the weighted average number of common shares
outstanding during each period after giving effect to stock options and warrants
considered to be dilutive common stock equivalents. It is assumed that all
dilutive stock options and warrants are exercised at the beginning of each year
and that the proceeds are used to purchase up to 20 percent of the outstanding
shares of the Company's common stock with any remaining proceeds utilized to
repay indebtedness. Fully diluted earnings per share was not calculated for
1997, since such calculation would be anti-dilutive.
Net (loss) per share for 1996 is based on net (loss) after preferred stock
dividend requirements and weighted average number of commons shares outstanding.
Primary and fully diluted earnings per share were not calculated for 1996 since
such calculation would be anti-dilutive.
Common shares outstanding includes:
Issued shares 28,819,985
Less: Treasury shares (1,250,000)
Unallocated, uncommitted ESOP shares (4,437,500)
Escrow shares (400,000)
----------
Outstanding Shares 22,732,485
==========
7
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Escrowed shares are held as collateral for a note with a principal balance of
$256,370 at March 31, 1997.
NOTE 3. INCOME TAXES
The Company's taxable income in 1997 has been offset substantially by the
utilization of net operating loss contingencies.
NOTE 4 . MATERIAL CONTINGENCIES
TAX-RELATED LITIGATION
----------------------
FLORIDA DEPARTMENT OF REVENUE TAX AUDIT
- ---------------------------------------
On November 28, 1994, the Florida Department of Revenue issued a Notice of
Intent to make Sales and Use Tax Audit Changes to the Company for the period
February 1, 1989 through June 30, 1994. The proposed Audit Changes, including
penalties and interest total approximately $6.5 million. 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 that 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.
In April, 1996, the Florida Department of Revenue and various Florida counties
issued Notices of Proposed Assessment that totaled the $6.5 million from the
November 28, 1994 Notice of Intent plus an additional $.1 million in accrued
interest for a total proposed assessment of $6.6 million of which $1.7 million
and $1.3 million represent interest and penalties respectively accrued through
April 1996. The Company estimates that additional interest accrued through
December 31, 1996, would be approximately $300,000, resulting in a total amount
claimed due at December 31, 1996, of approximately $6.9 million.
In July, 1996, the Company filed a Protest with the Florida Department of
Revenue contesting all amounts assessed. To date, no response has been received
from the Florida Department of Revenue regarding the Companys' Protest. 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. 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 or in resolving and
settling this matter, 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 and results of operations.
8
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GALVESTON INDEPENDENT SCHOOL DISTRICT, ET AL. V. EUROPA CRUISE LINES OF TEXAS,
INC., ET AL. (In the District Court of Galveston County, Texas (Case No.
95TX0051)
On or about January 31, 1995, the Galveston Independent School District filed a
Petition in the District Court of Galveston County, Texas for ad valorem taxes
allegedly due for the year 1990 in the principal amount of $211,470 and for
interest and penalties in the amount of $177,635. The Company maintains that it
is not liable for this alleged tax. The Company believes the tax is a tangible
property tax which cannot be levied on a foreign flag vessel.
GAMING-RELATED LITIGATION
-------------------------
WILLIAM POULOS, ET AL. V. AMBASSADOR CRUISE LINES, INC., ET AL.
(United States District Court, District of Nevada) (Case No. CV-S-95-936-LDG
(RLH)
On or about November 29, 1994, William Poulos filed a class action lawsuit on
behalf of himself and all others similarly situated against approximately
thirty-three defendants, including Europa Cruises of Florida 1, Inc. and Europa
Cruises of Florida 2, Inc. in the United States District Court, Middle District
of Florida, Orlando Division (Case No. 94-1259-CIV-ORL-22). Europa Cruises of
Florida 1, Inc. and Europa Cruises of Florida 2, Inc. were served with the
Complaint on or about March 15, 1995. The suit was filed against the owners,
operators and distributors of cruise ship casinos which utilized casino video
poker machines and electronic slot machines. The Plaintiff alleges violation of
the Federal Civil RICO statute, common law fraud and deceit, unjust enrichment
and negligent misrepresentation. The plaintiff had filed a similar action
against most major, land-based casino operators in the United States. The
earlier action, which did not name the Company or any of its subsidiaries as
defendants, was transferred from the U.S. District Court in Orlando, Florida to
the U.S. District Court in Las Vegas, Nevada. The plaintiff contends in both
actions that the defendant owners and operators of casinos, including cruise
ship casinos, along with the distributors and manufacturers of video poker
machines and electronic slot machines have engaged in a course of fraudulent and
misleading conduct intended to induce people to play their machines based on a
false understanding that the machines operate in a truly random fashion. The
plaintiff alleges that these machines actually follow fixed, preordained
sequences that are not random, but rather are both predictable and subject to
manipulation by defendants and others. The plaintiff seeks damages in excess of
$1 billion dollars against all defendants. Although this action is in the very
early stages of litigation, management believes there is no support for
plaintiff's factual claims and the Company intends to vigorously defend this
lawsuit.
On September 13, 1995, the United States District Court for the Middle District
of Florida, Orlando Division, transferred the case pending in that Court against
Europa Cruises of Florida 1, Inc. and Europa Cruises of Florida 2, Inc. and
other defendants to the United States District Court for the District of Nevada,
Southern Division. Accordingly, the case against Europa and the other defendants
in the cruise ship industry will be litigated and perhaps tried together with
those cases now pending against the land-based casino operators and the
manufacturers, assemblers and distributors of gaming equipment previously sued
in federal court in Nevada. Management believes the Nevada forum provides a more
favorable forum in which to litigate the issues raised in the Complaint. The
Company is sharing the cost of litigation in this matter with other defendants.
ROBERT M. BAER, ET AL V. AMBASSADOR CRUISE LINES, INC. ET AL. (In the Circuit
Court of the Seventeenth Judicial Circuit In and For Broward County, Florida)
Case No. 96-6177 (21)
On May 7, 1995, Robert M. Baer, on Behalf of Himself and All Others Similarly
Situated, filed a class action lawsuit against approximately thirty-eight
defendants, including Europa Cruises of Florida I and Europa Cruises of Florida
II in the Circuit Court of the Seventeenth Judicial Circuit In and For Broward
County, Florida. (Case No. 96-6177 (21) Europa Cruises of Florida 1, Inc. and
9
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Europa Cruises of Florida 2, Inc. were served with the Complaint on or about
July 11, 1996. The suit was filed against the manufacturers, distributors and
promoters of video poker and electronic slot machines and the owners, operators
and promoters of cruise ship casinos which utilized casino video poker machines
and electronic slot machines. The plaintiff alleges fraud in connection with the
labeling, design, promotion and operation of casino video poker machines and
electronic slot machines, violation of the Florida Racketeer Influenced and
Corrupt Organizations Act ("RICO"), common law fraud and deceit, unjust
enrichment, and negligent misrepresentation. The plaintiff contends that the
defendant owners, operators and promoters of cruise ship casinos, along with the
manufacturers, distributors, and promoters of video poker machines and
electronic slot machines, have engaged in a course of fraudulent and misleading
conduct intended to induce people to play their machines based on a false
understanding that the machines operate in a random fashion and are
unpredictable. The plaintiff alleges that these machines actually follow fixed,
preordained sequences that are not random, but rather are both predictable and
subject to manipulation by defendants and others. The plaintiff seeks damages in
excess of one billion dollars, including treble their general and special
compensatory damages, punitive damages, consequential and incidental damages,
interest, costs, attorneys' fees and a preliminary and permanent injunction
requiring defendants to accurately and properly describe their video poker
machines and electronic slot machines. Although this action is in the very early
stages of litigation, management believes there is no support for plaintiff's
factual claims and the Company intends to vigorously defend this lawsuit. The
Company is sharing the cost of this litigation with certain other defendants who
have retained the same law firm to represent them.
OTHER LITIGATION
----------------
SEA LANE BAHAMAS LIMITED V. EUROPA CRUISES CORPORATION (United States District
Court for the Southern District of Florida)(Case No. 94-10004)
In February, 1994, following attachment of one of the Company's vessels by Sea
Lane Bahamas Limited, the Company entered into a partial settlement agreement
with Sea Lane with respect to the Company's obligations under a Bareboat Charter
Agreement. With respect to unpaid charterhire, the Company paid the sum of
$250,000 to Sea Lane plus an additional $386,000 in monthly payments of $30,000
per month plus interest at the rate of six percent (6%) per annum fully paid as
of December 31, 1995. The Company's liability, if any, for damages arising out
of the condition of the EuropaJet upon its redelivery to Sea Lane remains in
dispute. The Company believes its liability for required repairs and maintenance
to the EuropaJet when the vessel was returned to Sea Lane is approximately
$150,000. The Settlement Agreement provided that if the Company and Sea Lane are
unable to settle this dispute with respect to the condition of the EuropaJet
when it was redelivered to Sea Lane, the amount of the Company's remaining
obligation to Sea Lane would be determined in binding arbitration.
On or about September 26, 1994, Sea Lane filed a Petition to Compel Arbitration
in the United States District Court for the Southern District of Florida seeking
damages in excess of one million dollars. Sea Lane contends that it acquired the
EuropaJet from Europa for nonpayment of amounts due on a charterhire agreement
and that substantial expenses were incurred to make repairs for which Europa is
responsible. The Petition requested that the court direct Europa to proceed to
arbitration under the charterhire agreement. Europa objected to the demand for
arbitration and denied that it owed the amount requested by Sea Lane. On or
about April 10, 1995, the United States District Court entered an Order granting
Sea Lane's Petition to Compel Arbitration. The parties have selected arbitrators
and are in the process of taking discovery prior to arbitration. An arbitration
date is expected to be set in the near future. 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.
10
<PAGE>
IN RE BURTON SECURITIES, S.A., DEBTOR/HARRELL Z. BROWNING, LIQUIDATING TRUSTEE
OF BURTON SECURITIES, S.A. V. EUROPA CRUISES CORPORATION (In the United States
Bankruptcy Court for the Southern District of Texas, Corpus Christi Division
(Case No. 94-2199-C).
On June 17, 1994, Harrell Z. Browning, Liquidating Trustee under the Chapter 11
plan of Burton Securities, S.A., Debtor, entered into a binding Memorandum of
Agreement with Europa Cruises Corporation providing for the purchase by Europa
of the Panamanian-flag vessel M/V LE MISTRAL. Paragraph 4 of the Agreement gave
Europa the right to terminate the Agreement in the event closing did not occur
within sixty days from the date of the Agreement in which event, Europa would be
entitled to receive a refund of its full escrow deposit in the amount of
$85,000. Moreover, the Bankruptcy Court entered an Order on July 15, 1994,
approving the terms and condition of the Memorandum of Agreement in all respects
and specifically stating that "[i]f for any reason the closing [had] not taken
place on or before August 16, 1994, Europa may, at its option, terminate the
Europa Agreement and, in such event, the Trustee shall refund the entire escrow
deposit plus any accrued interest to Europa and Europa shall have no obligation
to the Trustee or the estate." The Trustee was notified on August 15, 1994, that
Europa had determined to exercise its right to terminate the Agreement. Europa
has attempted to obtain the return of its deposit from the Trustee who has
refused to return same. On the contrary, on December 15, 1994, the Trustee filed
an action against Europa for breach of contract seeking damages in excess of
$750,000. The Company believes the agreement to purchase Le Mistral was properly
terminated and that the Company is entitled to a full refund of its $85,000
deposit. The case was tried on June 13 and 14, 1996. The Court has not yet
entered an Order as to its decision. The Company intends to appeal any finding
in favor of the Trustee.
LONNIE AVANT, ET AL. V. EUROPA CRUISES CORPORATION (In the United States
District Court for the Middle District of Florida (Case No.96-217-CIV-FTM-24D)
On June 13, 1996, Lonnie Avant, on behalf of herself and all others similarly
situated, filed a class action lawsuit against Europa Cruises Corporation, d/b/a
Europa SeaKruz, Lester Bullock and John Does 1-10 (Europa's other directors,
officers and managers) in the United States District Court for the Middle
District of Florida, Fort Myers Division, Case No. 96-217-CIV-FTM-24D). The
Company was served with the Complaint on or about June 19, 1996. The suit was
filed against the Company and its directors, officers and managers. The
Plaintiff alleges that the Company and its directors, officers and managers
intentionally charged fictitious "port charges" and thereby overcharged numerous
customers and that this practice violated the federal Racketeer Influenced and
Corrupt Organizations Act (RICO). The plaintiff seeks treble damages, attorneys
fees, litigation expenses, costs and restitution. This is one of a number of
class action lawsuits relating to "port charges" recently filed against cruise
ship companies. The Company denies the allegations and intends to defend this
lawsuit vigorously. The parties are conducting discovery. A Pretrial Conference
is scheduled in the case for August 14, 1997. The case is set for a jury trial
for the trial term commencing September, 1997.
BAY ST. LOUIS COMMUNITY ASSOCIATION, PRESERVE DIAMONDHEAD QUALITY, INC., GULF
ISLANDS CONSERVANCY, INC. AND CONCERNED CITIZENS TO PROTECT THE ISLES AND POINT,
INC. V. THE COMMISSION ON MARINE RESOURCES, HANCOCK COUNTY PORT AND HARBOR
COMMISSION AND CASINO WORLD, INC. (Chancery Court of Hancock County,
Mississippi)(Case No. 960707)
On September 18, 1996, Bay St. Louis Community Association, Preserve Diamondhead
Quality, Inc., Gulf Islands Conservancy, Inc. and Concerned Citizens to Protect
the Isles and Point, Inc. filed a Notice of Appeal and Complaint against the
Commission on Marine Resources, Hancock County Port and Harbor Commission and
Casino World, Inc., in the Chancery Court of Hancock County, Mississippi (Case
No. 960707), appealing the administrative decision of the Commission on Marine
Resources in granting Permit No. DMR-M 9612281- W and COE No. MS96-01566-U. On
11
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October 17, 1996, the Mississippi Commission on Marine Resources filed a
Response to Notice of Appeal and Answer in which it maintained, in pertinent
part, that it had complied with all procedural requirements relevant to grants
of permits and use adjustments at issue, that its decision to grant the permit
and use adjustment was grounded upon legally sufficient evidentiary grounds and
that there was no proper ground at law warranting reversal of its decision. On
October 16, 1996, Casino World, Inc. and the Hancock County Port and Harbor
Commission filed a Joint Motion to Dismiss for Untimely Appeal in which they
alleged that the appellants had failed to file their Notice of Appeal and
Complaint within the proper time period. The Joint Motion to Dismiss was granted
on December 31, 1996.
On January 15, 1997, the Bay St. Louis Community Association, Preserve
Diamondhead Quality, Inc., Gulf Islands Conservancy, Inc. and Concerned Citizens
to Protect the Isles and Point, Inc. filed a Notice of Appeal from the decision
of the Chancery Court.
LIBERIS-RELATED LITIGATION
--------------------------
The following litigation relates to Charles S. Liberis, the founder of the
Company, a former Chairman of the Board of Directors, President, Director and
Chief Operating Officer of the Company.
1. LIBERIS V. EUROPA CRUISES CORPORATION (Court of Chancery of the State of
Delaware in and for New Castle County, C.A. 13103) CASE ON APPEAL
On July 30, 1993, Charles S. Liberis attempted to exercise 1,417,500 Europa
Common Stock options at $ .15625 per share. The Company refused Liberis' attempt
to exercise these alleged options. On August 30, 1993, Liberis filed a Complaint
for Specific Performance of Stock Options against the Company in the Court of
Chancery of the State of Delaware in and for New Castle County. On or about
October 7, 1993, the Company filed an Answer denying the substantive allegations
of the Complaint and asserting counterclaims against Liberis for breach of
fiduciary duties and mismanagement of corporate assets in connection with the
purchase and sale of Europa's interest in Sea Lane Bahamas/Marne Delaware. On or
about October 27, 1993, Liberis filed his reply to the counterclaims denying the
substantive allegations of the counterclaims. On or about May 2, 1995, Liberis
amended his Complaint seeking damages in the amount of $1,282,948.00 for
Europa's refusal to allow Liberis to exercise his stock options.
The case was tried from May 22, 1995 to May 25, 1995. On February 8, 1996, the
Court entered a Memorandum Opinion in which it ruled, in pertinent part, that
Liberis, who had filed suit to enforce an alleged stock option agreement to
purchase 1,417,500 shares of stock at $.15625 per share, "ha[d] no right to
enforce the alleged stock option agreement." The decision further requires
Liberis to return 250,000 shares of common stock to the Company. On October 9,
1996, the Court entered an Order and Judgment. Liberis filed a Notice of Appeal
from the Final Order on November 7, 1996. Liberis filed his appellate brief on
February 14, 1997. Europa's appellate brief is due on April 18, 1997.
2. LIBERIS V. STEVE TURNER, DEBORAH A. VITALE, WILLIAM A. HEROLD, ERNST G.
WALTER, SHARON E. PETTY, CHARLES H. REDDIEN, VICTOR B. GERSH, SERCO
INTERNATIONAL LIMITED, CASINOS AUSTRIA MARITIME CORPORATION (CAMC), and
AUSTROINVEST INTERNATIONAL LIMITED (Circuit Court in and for Pinellas County,
Florida)(Civil Action No. 93-001626-CI-008)
On or about May 5, 1993, Liberis filed suit in the Circuit Court in and for
Pinellas County, Florida (Case No. 93-001626-CI-008) for rescission, fraud and
conspiracy. On or about August 4, 1993, Liberis filed an Amended Complaint,
naming additional defendants and adding a count for defamation. Liberis alleges
12
<PAGE>
that the defendants conspired to defraud, coerce and trick Liberis into
resigning his position as Chief Executive Officer and Chairman of the Board of
Europa Cruises Corporation and defamed him. Liberis seeks compensatory,
punitive, treble damages and attorneys' fees from the above-named defendants.
The defendants filed a motion to stay the action on grounds that Liberis had
filed a substantially similar action in the Court of Chancery of the State of
Delaware in and for New Castle County, styled Liberis v. Reddien, et al. (Civil
Action No. 12955) and that any substantive issues decided in Delaware would be
binding as to this case. On December 13, 1993, the Court entered an Order
staying this action as to all parties until the cases of LIBERIS V. REDDIEN,ET
AL (Civil Action No. 12955) and Liberis v. Europa Cruises Corporation (Civil
Action No. 13103) pending in Delaware were dismissed or final judgment on the
merits was entered with respect to all claims alleged in Count I of Civil Action
No. 12955 and as to all claims in Civil Action No. 13103. Count I of Delaware
Civil Action No. 12955 was for "Removal of Wrongfully Elected Directors and
Officers and Reinstatement of Liberis" (against Europa and Director Defendants).
On March 25, 1996, the Court of Chancery of the State of Delaware in and for New
Castle County entered an Order of Dismissal dismissing LIBERIS V. REDDIEN, ET
AL.(Civil Action No. 12955) as moot. On or about August 7, 1995, the defendants
agreed to lift the stay in the Pinellas County case for discovery purposes and
for the purpose of finalizing the pleadings. On or about April 22, 1996, Liberis
filed a motion for Leave to File a Second Amended Complaint to add a claim for
intentional infliction of emotional distress. The Court has not yet granted
Liberis' motion for leave to file a Second Amended Complaint. No trial date has
been set.
3. LIBERIS V. EUROPA CRUISES CORPORATION (In the Court of Chancery of the
State of Delaware In and For New Castle County) (Civil Action No. 14889)
On March 12, 1996, Charles S. Liberis filed Complaint Under 8 Delaware Code
Section 220 to inspect and/or copy the Company's shareholders' list and other
materials, books and records of the Company and for attorneys fees incident to
the action. On April 8, 1996, the Company filed an Answer denying that Mr.
Liberis was entitled to inspect and/or copy the Company's shareholders' list
and/or other materials, books and records of the Company. The Company maintains
that Mr. Liberis was not entitled to the inspection sought inasmuch as he was
not a shareholder of record, as required under the statute, at the time the
request to inspect was made. There have been no further proceedings in this
case.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
- ---------------------------------------------------------------
The Company operated 568 cruises in 1997, as compared to 503 in 1996, an
increase of 12.92% or 65 cruises. The Company carried 99,197 passengers in 1997
as compared to 85,638 passengers in 1996, or an additional 13,559 passengers, an
increase of 15.83%. This increase in total passengers is due in significant part
to significantly fewer cruises lost to inclement weather in 1997. The average
revenue per passenger was approximately $61.13 in 1997 as compared to $57.96 in
1996, an increase of $3.17 per passenger of 5.47%. The Company carried an
average of 175 passengers per cruise in 1997 as compared to 170 in 1996, an
increase of 25 passengers per cruise or 2.94%.
TOTAL REVENUES/GAMING REVENUES
- -------------------------------
The Company earned total revenues of $6,064,358 in 1997 as compared to total
revenues of $4,468,368 in 1996, an increase of 35.72%. The Company increased its
gaming revenues from $2,588,314 in 1996 to $4,340,899 in 1997, an increase of
$1,752,585 or 67.71%. The Company attributes the substantial increase in gaming
revenues to increased passenger counts and an increase in the number of gaming
positions available on the Company's vessels.
13
<PAGE>
PASSENGER FARES
- ---------------
Passenger fares fell from $1,229,755 in 1996 to $1,135,628 in 1997, a slight
decrease of $94,127 or 7.65%. The average passenger fare in 1997 was $11.45
compared to $14.36 in 1996 a decrease of 20.26%. This decrease is attributable
to an enhanced VIP program resulting in additional complimentary fares to VIP's.
FOOD AND BEVERAGE REVENUES
- --------------------------
Revenue from food and beverage sales increased from $354,428 in 1996 to $388,588
in 1997, a slight increase of $34,160 or 9.64%. The increase is attributable to
the increase in passengers.
CHARTER FEES
- ------------
There was no charter fee income in 1997. In December, 1996 the M/V Stardancer
began operations in the Company's newest port, Tierra Verde, Florida. In
February, 1997, however, the Company was cited for noise pollution at the Tierra
Verde port and voluntarily ceased operations. In April, 1997, the Company
determined it would not restart operations in Tierra Verde and is currently
seeking a party to charter hire the vessel.
OTHER REVENUE
- -------------
Other revenue increased from $58,604 in 1996 to $199,243 in 1997, an increase of
$140,639 or 240%. Other income in 1997, includes $133,333 which represents two
month's or one-sixth (1/6) of the $400,000 paid by Hilton Gaming Corporation to
Europa Cruises Corporation in return for a six-month exclusive period of time
within to negotiate a joint venture partnerhsip with respect to the Company's
Diamondhead, Mississippi property. These funds are earmarked for Diamondhead,
Mississippi related expenses and development costs.
COSTS AND EXPENSES
------------------
VESSEL OPERATING EXPENSES
- -------------------------
Vessel operating costs and expenses increased from $3,079,209 in 1996 to
$3,402,834 in 1997, an increase of $323,625 or 10.51%. The per cruise vessel
operating costs in 1997 is $5,991 compared to $6,122 in 1996, a decrease of $131
per cruise or a 2.14% decrease.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
- ----------------------------------------------
Administrative and general costs and expenses increased from $566,135 in 1996 to
$587,193 in 1997, or $21,058, an increase of 3.72%. This increase is principally
related to the operation of a fourth port in Tierra Verde for two months in
1997. Other operating expenses, which include certain litigation costs,
increased from $45,625 in 1996 to $283,947 in 1997 or $238,322, an increase of
522%. This increase is caused by the proxy contest costs and the write-off of
the Casinos Austria termination fee. See Note 1 to the financial statements.
ADVERTISING AND PROMOTION
- -------------------------
Advertising and promotion remained relatively constant from $390,791 in 1996 to
$414,609 in 1997, or $23,818, an increase of 6.09%.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization increased from $346,371 in 1996 to $456,419 in
1997, or $110,048 , an increase of 31.77%. This increase results from the
14
<PAGE>
addition of new gaming equipment to the vessels, increased depreciation on
structural and other improvement to the vessels, and from the increase in
amortization resulting from 1996 deferred drydock costs.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In 1997, the Company expects to meet its normal operating costs and expenses
from its 1997 cash flow from operations. The Company, however, may be unable to
meet any unusual or unanticipated cash requirements should they arise during
1997 except through the sale of common stock or borrowing. No sales of stock
have been made in the first quarter 1997. In January, 1997, the Company received
$265,000 in proceeds from a 1996 stock subscription. In the first quarter of
1997, the Company issued 47,289 shares of common stock as payment for services
and 31,887 shares of common stock as payment for preferred stock dividends.
The Company's working capital deficiency is approximately $755,000 at March 31,
1997 as compared to $2.4 million at March 31, 1996.
Investing activities (principally vessel improvements, major vessel repair and
maintenance, gaming equipment purchases and Mississippi development costs)
required cash of approximately $264,000 in 1997, which was met through operating
cash.
In May, 1997 the M/V Stardancer is scheduled for drydock. The estimated cost is
$100,000, which is expected to be funded from operations.
Except for historical information contained herein, the matters discussed in
this Item 2, in particular, statements that use the words "believes," "intends,"
"anticipates" or "expects" are intended to identify forward looking statements
that are subject to risks and uncertainties including, but not limited to,
inclement weather, mechanical failures, increased competition, governmental
action, environmental opposition, legal actions, and other unforeseen factors.
The development of the Diamondhead, Mississippi project, in particular, is
subject to additional risks and uncertainties, including, but not limited to,
risks relating to permitting, financing, the activities of environmental groups
and government-related action. The results of financial operations reported
herein are not necessarily an indication of future prospects of the Company.
Future results may differ materially.
PART II - OTHER INFORMATION
Item 1. Legal Proceeding's
------------------
See note 4, Material Contingencies
Item 4. Submission of Matters to a Vote of Securities Holders
-----------------------------------------------------
On April 18, 1997, the Company held its annual meeting. The only matter
voted on at the meeting involved the contested election of directors. The
Company reported that a total of 21,005,735 shares voted. Of those, 16,130,469
or 76.8%, voted for the incumbent Board of Directors, Deborah A. Vitale, Lester
Bullock and Piers Hedley. A total of 4,755,433 shares, or 22.6%, voted for the
opposition slate. A total of 119,333 votes were withheld.
15
<PAGE>
At the meeting the votes cast for each of the nominees for director were as
follows:
Number of Votes
---------------
Nominee for office In Favor Withheld
- ------------------ -------- --------
Lester E. Bullock 16,125,469 98,893
Deborah A. Vitale 16,130,909 93,453
Piers Hedley 16,135,609 88,753
Peter J. Catalano 4,755,433 20,940
Stephen A. Fitch 4,755,433 20,940
John H. Glassey 4,755,933 20,440
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
No reports on Form 8K have been filed during the quarter ended March 31,
1997.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EUROPA CRUISES CORPORATION
Date: May 15, 1997 By: /s/Lester E. Bullock
---------------------------
Lester E. Bullock
President
By: /s/Debra Gladstone
---------------------------
Debra Gladstone
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EUROPA CRUISES CORPORATION FOR THE THREE MONTHS ENDED
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,482,903
<SECURITIES> 0
<RECEIVABLES> 350,949
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,657,320
<PP&E> 18,760,169
<DEPRECIATION> 5,007,401
<TOTAL-ASSETS> 22,422,199
<CURRENT-LIABILITIES> 3,412,809
<BONDS> 0
0
28,225
<COMMON> 28,419
<OTHER-SE> 12,103,909
<TOTAL-LIABILITY-AND-EQUITY> 22,422,199
<SALES> 0
<TOTAL-REVENUES> 6,064,358
<CGS> 0
<TOTAL-COSTS> 5,375,904
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 230,902
<INCOME-PRETAX> 641,567
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<NET-INCOME> 641,567
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