UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(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, 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 September 30, 1997
----------------------------------
27,288,588
----------------------------------
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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 September 30, 1997 and 1996. 2
Consolidated Statements of Operations for the Nine
Months Ended September 30, 1997 and 1996. 3
Consolidated Balance Sheets as of September 30, 1997 4-5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996. 6-7
Notes to Consolidated Financial Statements 8-15
ITEM 2 Management's Discussion and Analysis of Financial
------ Condition and Results of Operations. 15-20
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 20
------
ITEM 5 Other Information 20
------
ITEM 6 Exhibits and Reports on Form 8-K 21
------
<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 September 30,
1997 1996
---- ----
Revenues:
Gaming revenue $ 3,704,557 $ 3,650,800
Passenger fares 709,213 806,643
Food and beverage 284,974 399,693
Subcharter fees 157,500 -0-
Other 109,393 55,612
----------- -----------
4,965,637 4,912,748
----------- -----------
Costs and Expenses:
Vessel operating 3,229,139 3,263,001
Administrative and general 521,921 515,203
Advertising and promotion 364,703 406,518
Depreciation and amortization 462,313 369,982
Nonrecurring sales tax settlement -0- -0-
(Note 5)
Interest, net 240,649 222,257
Other operating (Note 1) 195,909 69,901
----------- -----------
5,014,634 4,846,862
----------- -----------
Net (loss) income (48,997) 65,886
Preferred stock dividends (65,725) (54,859)
----------- -----------
Net (loss) income applicable to
common stock $ (114,722) $ 11,027
=========== ===========
Net (loss) income per common
share (Note 2) $ * $ *
=========== ===========
Weighted average number of
common and common equivalent
shares outstanding primary and
fully diluted (Note 2) 22,876,836 20,844,954
=========== ===========
* Amount is less than $.01
2
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended September 30,
1997 1996
---- ----
Revenues:
Gaming revenue $ 11,942,918 $ 10,139,196
Passenger fares 2,654,732 3,100,246
Food and beverage 1,034,109 1,180,664
Subcharter fees 212,500 384,072
Other 551,319 173,665
------------ ------------
16,395,578 14,977,843
------------ ------------
Costs and Expenses:
Vessel operating 9,798,740 9,672,751
Administrative and general 1,650,884 1,519,986
Advertising and promotion 1,218,343 1,191,010
Depreciation and amortization 1,386,921 1,071,587
Nonrecurring sales tax settlement 1,284,664 -0-
(Note 5)
Interest, net 665,041 668,318
Other operating (Note 1) 845,759 215,756
------------ ------------
16,850,352 14,339,408
------------ ------------
Net (loss) income (454,774) 638,435
Preferred stock dividends (165,437) (174,954)
------------ ------------
Net (loss) income applicable to
common stock $ (620,211) $ 463,481
============ ============
Net (loss) income per common
share (Note 2) $ (.03) $ 0.02
============ ============
Weighted average number of
common and common equivalent
shares outstanding primary and
fully diluted (Note 2) 22,480,806 19,773,765
============ ============
3
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
September 30, 1997
------------------
Current Assets:
Cash and cash equivalents $ 844,979
Accounts receivable 350,749
Prepaid insurance and other 564,380
Asset held for sale at carrying amount
(Note 3) 3,321,878
-----------
Total current assets 5,081,986
Vessels, equipment and fixtures, less
accumulated depreciation 10,116,647
Land under development for dockside
gaming 4,862,358
Deferred drydock costs, less
accumulated amortization 595,529
Other assets 449,849
-----------
$21,106,369
===========
4
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
September 30, 1997
------------------
Current Liabilities:
Accounts payable and accrued liabilities $ 983,655
Current maturities of long-term debt
(Note 3) 2,729,608
Unearned revenues 155,262
------------
Total current liabilities 3,868,525
------------
Long-term debt less current maturities 6,056,481
Other liabilities 150,000
------------
Total liabilities 10,075,006
Stockholder's equity:
Preferred stock, $.01 par value;
shares authorized 5,000,000; outstanding
2,808,000; ($3,963,080 aggregate liquidation
preference) 28,080
Common stock, $.001 par value-
shares authorized 50,000,000; issued
28,481,033; outstanding 22,976,088 28,481
Additional paid-in-capital 25,424,165
Unearned ESOP Shares (6,429,767)
Deficit (7,829,440)
Treasury stock, at cost,
1,250,000 shares (190,156)
------------
Total stockholders' equity 11,031,363
------------
$ 21,106,369
============
5
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months Ended September 30,
1997 1996
---- ----
Operating Activities:
Net (loss) income $ (454,774) $ 638,435
Adjustments to reconcile net
income (loss) to net cash used in
operating activities:
Nonrecurring sales tax settlement 1,284,664 -0-
Depreciation and amortization 1,386,921 1,071,587
Release of ESOP shares 174,375 162,500
Expenses paid in shares of common stock 1,313 -0-
Decrease (increase) in:
Accounts receivable 47,983 3,997
Prepaid and other assets (35,190) 613,347
Increase (decrease) in:
Accounts payable and accrued liabilities (651,572) (533,272)
Unearned revenues 91,434 (16,233)
----------- -----------
Cash provided by operating activities 1,845,154 1,940,361
----------- -----------
Investing activities:
Purchases of property and equipment (626,190) (1,343,329)
Development costs for dockside gaming (147,357) (105,126)
Decrease in restricted cash 400,000 -0-
----------- -----------
Cash (used in) investing activities (373,547) $(1,448,455)
----------- -----------
6
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months Ended September 30,
1997 1996
---- ----
Financing activities:
Proceeds from issuance of common stock $ 227,447 $ 1,013,923
Payment of notes and long-term debt (1,357,155) (1,312,549)
Preferred stock dividends (45,000) (47,271)
----------- -----------
Cash (used in) financing activities (1,174,708) (345,897)
----------- -----------
Net increase (decrease) in cash and cash
equivalents 296,899 146,009
Cash and cash equivalents,
beginning of period 548,080 552,061
----------- -----------
Cash and cash equivalents,
end of period $ 844,979 $ 698,070
=========== ===========
7
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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 $783,000
and $570,000 for the three months ended September 30, 1997 and 1996
respectively, and $2,111,000 and $1,495,000 for the nine months ended September
30, 1997 and 1996 respectively.
(b) Other Operating Costs
---------------------
Other operating costs consists of the following:
Three months ended September 30, 1997 1996
- ---------------------------------------------------------------------------
ESOP provision $46,875 $56,250
Shareholder litigation 12,500 -0-
Proxy costs 33,367 -0-
Casinos Austria termination fee 98,630 -0-
Other 4,537 13,651
- ---------------------------------------------------------------------------
$195,909 $ 69,901
===========================================================================
Nine months ended September 30, 1997 1996
- ---------------------------------------------------------------------------
ESOP provision $174,375 $162,500
Shareholder litigation 29,754 32,279
Proxy costs 368,367 -0-
Casinos Austria termination fee 263,014 -0-
Other 10,249 20,977
- ---------------------------------------------------------------------------
$845,759 $215,756
===========================================================================
(c) Reclassification
----------------
Certain 1996 amounts have been reclassified to conform to the classifications
for 1997.
NOTE 2. NET (LOSS) INCOME PER SHARE
Net income per share for 1996 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. 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.
8
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Net (loss) per share for 1997 is based on net (loss) after preferred stock
dividend requirements and the weighted average number of common shares
outstanding. Primary and fully diluted earnings per share were not calculated
for 1997 since such calculation would be anti-dilutive.
Common shares outstanding includes:
Issued shares 28,938,588
Less: Treasury shares (1,250,000)
Unallocated, uncommitted ESOP shares (4,312,500)
Escrow shares (400,000)
----------
Outstanding Shares 22,976,088
==========
Escrowed shares are held as collateral for a note with a principal balance of
$238,594 at September 30, 1997.
NOTE 3. ASSET HELD FOR SALE
On October 1, 1997, the Company entered into a letter agreement to sell the M/V
Stardancer, to the party currently chartering the vessel. The Charterer has a
purchase option under the existing Charter Agreement. The purchase price is
$3,500,000, excluding gaming equipment payable as follows: $340,000 credit for
charter fees paid; $2,560,000 cash and a $600,000 note payable over 3 years with
a fixed rate of interest of 10%. The note is convertible at the Company's option
into publicly traded securities of the buyer. The note will be secured by the
vessel, subject to the buyer obtaining financing. The purchase is expected to
close on or before November 30, 1997.
The M/V Stardancer's cost basis carried on the books at September 30, 1997, is
$3,321,871. The estimated fair value less cost to sell is $3,450,000.
Accordingly, the M/V Stardancer is recorded in the financial statements at
September 30, 1997 at its carrying amount.
Upon the sale of the M/V Stardancer, the Company's credit agreement with First
Union National Bank of Florida requires a payment of $1,300,000 to release First
Union's security interest in the vessel. Accordingly, the current portion of
long term debt at September 30, 1997, includes the $1,300,000 release payment.
The Europa Stardancer had net income, before ESOP and preferred dividends
allocation, of $13,697 for the three months ended September 30, 1997 and net
loss of ($335,963) for the nine months ended September 30, 1997.
NOTE 4. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued a new standard
entitled, " Statement of Financial Accounting Standards ("SFAS") No 128,
Earnings Per Share" (EPS). Statement 128 changes the manner in which EPS is
calculated and represented in the financial statements. Statement 128 is
effective for financial statements issued after December 15, 1997 and requires
that all EPS data presented be restated to reflect the new Standard.
EPS for the three months ended September 30, 1997 and 1996 and EPS for the nine
months ended September 30, 1997 and 1996 would not be materially changed if
calculated under new Standard 128. As currently calculated under the old
standard, primary and fully diluted EPS are anti-dilutive for periods when the
Company reports a net loss, and not materially dilutive for periods when the
Company reports net income. As a result, the Company's presentation of EPS in
its financial statements is based on the weighted average number of common
shares outstanding which is generally equivalent to the calculation of basic EPS
under the new Standard.
9
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The FASB has also issued SFAS131, Disclosures About Segments of an Enterprise.
Statement 131 establishes new standards for determining and disclosing
information regarding a segment of a Company. Statement 131 is effective for
fiscal years beginning after December 15, 1997 with earlier application
encouraged. The Company will adapt the new standard for its financial statements
for the period ending December 31, 1997 to provide Segment information regarding
its development efforts.
NOTE 5. SUBSEQUENT EVENT
On June 23, 1997, the Board of Directors offered Deborah Vitale the same salary
that the prior individual responsible for spearheading the Diamondhead,
Mississippi project received, namely $125,000 per year as well as a $50,000
bonus. Ms Vitale accepted the offer in September 1997. Ms. Vitale will receive
her accrued salary and bonus prior to the end of the year.
NOTE 6 . MATERIAL CONTINGENCIES
LEGAL PROCEEDINGS.
TAX-RELATED LITIGATION
----------------------
FLORIDA DEPARTMENT OF REVENUE TAX AUDIT
- ---------------------------------------
SETTLED
On November 28, 1994, the Florida Department of Revenue issued a Notice of
Intent to make Sales and Use Tax Audit Changes to the Company for the period
February 1, 1989 through June 30, 1994. The total proposed assessment, including
estimated penalties and interest, through June 15, 1997, totals approximately
$7.4 million.
In June, 1997, the Company settled this liability by entering into Closing
Agreements with the Florida Department of Revenue. The settlement, which
includes all audits for the covered period, is approximately $1.9 million. The
settlement includes a payment schedule of approximately $21,000 per month for
seven years. The settlement provides for interest for the first 3 years and
interest accruing at a rate of 6% per year for the last 4 years.
GALVESTON INDEPENDENT SCHOOL DISTRICT, ET AL. V. EUROPA CRUISE LINES OF TEXAS,
INC., ET AL. (In the District Court of Galveston County, Texas (Case No.
95TX0051)
On or about January 31, 1995, the Galveston Independent School District filed a
Petition in the District Court of Galveston County, Texas for ad valorem taxes
allegedly due for the year 1990 in the principal amount of $211,470 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
10
<PAGE>
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.
On November 3, 1997, the Court heard various motions in the case, including a
Motion to Dismiss filed by the cruise ship 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
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. On or about August 23, 1996,
the Company and other Defendants filed a Motion to Abate or Stay this Action in
Favor of a Previously Filed and Served Action. On or about October 27, 1997, the
Company and other Defendants filed a Motion to Dismiss the case.
OTHER LITIGATION
----------------
SEA LANE BAHAMAS LIMITED V. EUROPA CRUISES CORPORATION (United States District
Court for the Southern District of Florida)(Case No. 94-10004)
11
<PAGE>
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.
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).
CASE DECIDED
On June 17, 1994, Harrell Z. Browning, Liquidating Trustee under the Chapter 11
plan of Burton Securities, S.A., Debtor, entered into a 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
attempted to obtain the return of its deposit from the Trustee who 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
case was tried on June 13 and 14, 1996. The Court entered an Order in favor of
the Trustee which allows the Trustee to keep Europa's deposit and for attorneys
fees.
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)
CASE SETTLED
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
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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 sought 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 denied the allegations. On August 13, 1996, the
Plaintiff filed a Motion for Class Certification and for Evidentiary Hearing
Relating Thereto seeking to certify a class consisting of all passengers who
were assessed and paid a port charge from June 14, 1992 to June 13, 1996. On
April 28, 1997, a hearing was held on Plaintiff's Motion for Class
Certification. On May 8, 1997, the Court entered an Order denying Plaintiff's
Motion for Class Certification.
On or about September 18, 1997, the parties entered into a Settlement Agreement
and General Release. Under the terms of the Agreement, the Company paid Five
Thousand Dollars ($5,000.00) in full settlement of the matter. On October 1,
1997, the Court entered an Order dismissing this case with prejudice.
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
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. All appellate briefs have been filed in the case.
BAY ST. LOUIS COMMUNITY ASSOCIATION, INC., PROTECT DIAMONDHEAD QUALITY, INC.,
CONCERNED CITIZENS TO PROTECT THE POINT AND ISLES, INC. AND GULF ISLANDS
CONSERVANCY, INC. V. THE COMMISSION ON ENVIRONMENTAL QUALITY, HANCOCK COUNTY
PORT AND HARBOR AUTHORITY, AND CASINO WORLD, INC. (Chancery Court of Hancock
County, Mississippi) (Case No. 97-0386)
On June 6, 1997, Bay St. Louis Community Association, Inc., Protect Diamondhead
Quality, Inc., Concerned Citizens to Protect the Point and Isles and Gulf
Islands Conservancy, Inc. filed a Notice of Appeal against the Commission on
Environmental Quality, Hancock County Port and Harbor Authority, and Casino
World, Inc., in the Chancery Court of Hancock County, Mississippi (Case No.
97-0386) appealing that Order of the Mississippi Commission on Environmental
Quality dated June 26, 1997, affirming the water quality certification issued to
Casino World, Inc. on January 9, 1997, as modified and clarified on May 22,
1997. On July 11, 1997, Appellants filed an Amended Notice of Appeal. On or
about August 19, 1997, the Administrative Record in the case was filed with the
Court. The opening Brief of Appellants was filed on or about September 9, 1997.
The Brief of Casino World, Inc. was filed on or about October 17, 1997. The
reply Brief of Appellants was filed on or about October 31, 1997.
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.
13
<PAGE>
1. LIBERIS V. EUROPA CRUISES CORPORATION (Court of Chancery of the State of
Delaware in and for New Castle County, C.A. 13103) CASE DECIDED
On July 30, 1993, Charles S. Liberis attempted to exercise 1,417,500 Europa
Common Stock options at $ .15625 per share. The Company refused Liberis' attempt
to exercise these alleged options. On August 30, 1993, Liberis filed a Complaint
for Specific Performance of Stock Options against the Company in the Court of
Chancery of the State of Delaware in and for New Castle County. On or about
October 7, 1993, the Company filed an Answer denying the substantive allegations
of the Complaint and asserting counterclaims against Liberis for breach of
fiduciary duties and mismanagement of corporate assets in connection with the
purchase and sale of Europa's interest in Sea Lane Bahamas/Marne Delaware. On or
about October 27, 1993, Liberis filed his reply to the counterclaims denying the
substantive allegations of the counterclaims. On or about May 2, 1995, Liberis
amended his Complaint seeking damages in the amount of $1,282,948.00 for
Europa's refusal to allow Liberis to exercise his stock options.
The case was tried from May 22, 1995 to May 25, 1995. On February 8, 1996, the
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 November 7, 1996, Liberis filed a Notice of Appeal from the Final Order to
the Supreme Court of Delaware. On February 14, 1997, Liberis filed his Opening
Brief in the Supreme Court of Delaware. On April 18, 1997, the Company filed its
Answering Brief. On May 5, 1997, Liberis filed his Reply Brief. Oral argument
was had on or about July 22, 1997. On July 24, 1997 the Delaware Supreme Court
issued an Order remanding the case to the trial court for further supplemental
findings in explanation of its decision of February 8, 1996 and its Order and
Judgement of October 9, 1996. On September 2, 1997, the Supreme Court issued a
Supplemental Opinion. On September 10, 1997, Liberis filed his Opening
Supplemental Memorandum. On October 2, 1997, the Company filed its Supplemental
Memorandum. On October 2, 1997, the Company filed its Memorandum in Response to
Liberis' Opinion Supplemental Memorandum. On October 9, 1997, Liberis filed his
Reply Supplemental Memorandum.
On November 10, 1997, the Delaware Supreme Court issued an Order affirming the
decision of the lower court.
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, BERTHA GERSH, AS ADMINISTRATOR OF THE ESTATE
OF VICTOR GERSH, PETER MUELLER, EUROPA CRUISES CORPORATION, AND JOHN DOES A-Z.
(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
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
14
<PAGE>
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 Amend, a Second Amended Complaint and a Motion for
Substitution of Parties. On or about October 20, 1997, Liberis filed a Motion
for Leave to File a Third Amended Complaint and to Join Additioanl Party
Plaintiff which motion will be granted. In the Third Amended Complaint, Liberis,
inter alia, adds an additional co- Plaintiff, Ginger Liberis, his former wife;
names new defendants, including Europa Cruises Corporation and Peter Mueller,
Senior Vice President of Casinos Austria Maritime Corporation, and John Does
A-Z; and adds several new theories and claims for relief, including fraud,
breach of fiduciary duties, defamation, slander per se, intentional infliction
of emotional distress, a RICO (Racketeer Influenced and Corrupt Organizations
Act) claim, and other tortious conduct. On or about October 30, 1997, Liberis
filed a Notice of Appeal from the Order of the Court granting the motion of
Defendant Victor Gersh/Estate of Victor Gersh to dismiss the Complaint against
them. Discovery has started. 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 SEPTEMBER 30, 1997
-------------------------------------------------------------------
NONRECURRING ITEMS
- ------------------
During 1997, the Company had several nonrecurring items in net income. These
include an option fee received from Hilton, proxy contest costs and a
termination fee paid to Casinos Austria. If the foregoing were eliminated from
operating results, the Company's 1997 net income, before preferred dividends,
for the three months ended September 30, 1997, would have been $16,333 as
compared to 1996 net income before preferred dividends of $65,886, a decrease of
$49,553 or 75.2%.
PER PASSENGER REVENUE
- ---------------------
The Company operated 565 cruises in 1997 and 1996. The Company carried 75,694
passengers in 1997 as compared to 86,199 passengers in 1996, a decrease of
10,505 passengers. The average revenue per passenger was approximately $65.60 in
1997 as compared to $57.00 in 1996, an increase of $8.60 per passenger or 15.1%.
The principal components of this per passenger increase in revenue are $6.59 or
15.6% increase in casino revenue, an $.86 or 18.6% decrease in food and beverage
revenue, a $2.08 per passenger increase in charter fees and an $.80 or 123%
increase in other income. The change in each of these material components is
described below. The Company carried an average of 134 and 153 passengers per
cruise respectively in 1997 and 1996.
TOTAL REVENUES/GAMING REVENUES
- ------------------------------
The Company earned total revenues of $4,965,637 in 1997 as compared to total
revenues of $4,912,748 in 1996, an increase of 1.1%. Gaming revenue was
15
<PAGE>
$3,704,557 in 1997 as compared to 15 $3,650,800 in 1996, an increase of 1.5%.
The increase in casino revenue and related decrease in passengers carried
highlights the Company's efforts to attract VIP passengers resulting in an
increase in casino revenue per passenger.
PASSENGER FARES
- ---------------
Passenger fares fell from $806,643 in 1996 to $709,213 in 1997, a decrease of
$97,430 or 12.1%. The average passenger fare in 1997 was $9.37 compared to $9.36
in 1996. The VIP programs also aim to insure non-VIP customers pay full fare.
FOOD AND BEVERAGE REVENUES
- --------------------------
Revenue from food and beverage sales decreased from $399,693 in 1996 to $284,974
in 1997, a decrease of $114,719 or 28.7%. The decrease is attributable to
reduced passenger counts at the west coast ports and an increase in VIP
passengers resulting in additional complimentary fares to VIP's and an increase
in the number of passengers in Miami Beach which has the lowest net fares.
CHARTER FEES
- ------------
Charter fees increased $157,500. In the same period last year, the M/V
Stardancer was used as a replacement vessel while the ports operating vessels
went into drydock.
On June 12, 1997, the Company entered into a Charter Agreement with an unrelated
party to Charter the Stardancer for a six month period beginning July 15, 1997
for a total charter fee of $510,000. The Agreement gives the Charterer the right
to charter the vessel for an additional six months and an option to purchase the
vessel for $4,000,000 with gaming equipment and $3,500,000 without gaming
equipment. In October, 1997, the Charterer exercised its option to purchase the
M/V Stardancer for $3,500,000 without gaming equipment. The Company agreed to
credit all charter revenue received to date, a total of $340,000 towards the
purchase price. The Charterer has until November 30, 1997, to obtain financing
and close the purchase. In the interim, the Charter Agreement is in full force
and effect. If the Charterer fails to obtain financing and meet the November 30,
1997 closing date, the Charter Agreement remains in effect and the Charterer may
still extend the Charter period the additional six months.
See Note 3 to the financial statements.
OTHER REVENUE
- -------------
Other revenue increased from $55,612 in 1996 to $109,393 in 1997, an increase of
$53,781 or 96.7%. Other income in 1997 includes $66,667 which represents one
month of the $400,000 paid by Hilton Gaming Corporation to the Company in return
for the exclusive right to negotiate a joint venture agreement with respect to
the Company's Diamondhead, Mississippi, property for a 180-day period of time,
which time period has expired.
COSTS AND EXPENSES
- ------------------
VESSEL OPERATING EXPENSES
- -------------------------
Vessel operating costs and expenses decreased from $3,263,001 in 1996 to
$3,229,139 in 1997, a decrease of $33,862 or 1.0%.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
Administrative and general costs and expenses increased from $515,203 in 1996 to
$521,921 in 1997, or $6,718, an increase of 1.3%. Other operating expenses
16
<PAGE>
increased from $69,901 in 1996 to $195,909 in 1997 or $126,008, an increase of
180%. This increase is attributable primarily to proxy costs and the write-off
of the Casinos Austria termination fee. See Note 1 to the financial statements.
ADVERTISING AND PROMOTION
- -------------------------
Advertising and promotion decreased from $406,518 in 1996 to $364,703 in 1997,
or $41,815, a decrease of 10.3%.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization increased from $369,982 in 1996 to $462,313 in
1997, or $92,331, an increase of 25%. This increase results from the addition of
new gaming equipment to the vessels during the last half of 1996, increased
depreciation on structural and other improvement to the vessels, and an increase
in amortization resulting from 1996 deferred drydock costs.
NONRECURRING SALES TAX SETTLEMENT
- ---------------------------------
In June, 1997, the Company settled its sales tax liability with the State of
Florida Department of Revenue. See Note 5 to the Financial Statements. The
settlement, which includes all audits for the covered period, is approximately
$1.9 million. The settlement includes a payment schedule of approximately
$21,000 per month for seven years. The settlement provides for no interest for
the first 3 years and interest accruing at a rate of 6% per year for the last 4
years. Using the Company's average cost of funds as the discount rate, the
Company recorded a one-time charge to income of $1,284,664.
MISSISSIPPI DEVELOPMENT COST
- ----------------------------
Development soft costs including payroll, office expenses, taxes, allocated
interest expense, and other miscellaneous costs were $92,808 in 1997 compared to
$88,972 in 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------------------------
NONRECURRING ITEMS
- ------------------
During 1997, the Company had several nonrecurring items in net income. These
include an option fee received from Hilton, proxy contest costs, a termination
fee paid to Casinos Austria, and settlement of the State of Florida sales tax
liability. If the foregoing were eliminated from operating results, the
Company's 1997 net income before preferred dividends would have been $1,061,271
as compared to 1996 net income before preferred dividends of $638,435, an
increase of $422,836 or 66.2%.
PER PASSENGER REVENUE
- ---------------------
The Company operated 1,692 cruises in 1997, as compared to 1,621 in 1996, an
increase of 71 cruises. The Company carried 263,188 passengers in 1997 as
compared to 260,592 passengers in 1996, an increase of 2,596 passengers. The
Miami port showed a strong increase in passenger counts, offset by a decrease
for the west coast ports. Management believes that the decrease in west coast
passenger counts was due to the fact that Easter fell in March rather than
April, resulting in an earlier return north of winter tourists. Revenue per
passenger was $62.30 in 1997 as compared to $57.48 in 1996, an increase of $4.82
per passenger or 8.4%, principally related to an increase in per passenger
gaming revenue of 16.6%. The Company carried an average of 156 passengers per
cruise in 1997 as compared to 161 in 1996.
17
<PAGE>
TOTAL REVENUES/GAMING REVENUES
- ------------------------------
The Company earned total revenues of $16,395,578 in 1997 as compared to total
revenues of $14,977,843 in 1996, an increase of 9.5%. Gaming revenue was
$11,942,918 in 1997 compared to $10,139,196 in 1996, an increase of $1,803,722
or 17.8%. This increase is a result of higher VIP passenger counts and a
stronger hold percentage in the casino. Due to the limited gaming time on the
vessels, significant fluctuations in the casino hold percentage occur over the
short term. Therefore, the casino hold percentage may decline over the remainder
of the year.
PASSENGER FARES
- ---------------
Passenger fares fell from $3,100,246 in 1996 to $2,654,732 in 1997, a decrease
of $445,514 or 14.4%. The average passenger fare in 1997 was $10.08 compared to
$11.90 in 1996 a decrease of 15.3%. This decrease is attributable to a VIP
program resulting in additional complimentary fares to VIP's, and an increase in
the number of passengers in Miami Beach, which has the lowest net fares.
FOOD AND BEVERAGE REVENUES
- --------------------------
Revenue from food and beverage sales decreased from $1,180,664 in 1996 to
$1,034,109 in 1997, a decrease of $146,555 or 12.4%. The decrease is
attributable primarily to reduced passenger counts at the west coast ports and
an increase in VIP passengers resulting in additional complimentary meals and
beverages to VIP's.
CHARTER FEES
- ------------
Charter fees decreased 44.7%. From November, 1996 through January, 1997, the M/V
Stardancer was operated by the Company in Tierra Verde, Florida. The Company
ceased operations due to noise pollution problems and began looking for an
alternate use for the vessel. In June, the M/V Stardancer was drydocked for its
bi-annual coast guard inspection.
On June 12, 1997, the Company entered into a Charter Agreement with an unrelated
party to Charter the Stardancer for a six month period beginning July 15, 1997
for a total charter fee of $510,000. The Agreement gives the Charterer the right
to charter the vessel for an additional six months and an option to purchase the
vessel for $4,000,000 with gaming equipment and $3,500,000 without gaming
equipment. The Charterer has exercised the purchase option. See Note 3 to the
financial statements and previous discussion under results of operations for the
three months ended September 30, 1997.
OTHER REVENUE
- -------------
Other revenue increased from $173,665 in 1996 to $551,319 in 1997, an increase
of $337,654 or 217.5%. Other income in 1997, includes $400,000 paid by Hilton
Gaming Corporation to the Company in return for the exclusive right to negotiate
a joint venture agreement with respect to the Company's Diamondhead,
Mississippi, property for a 180-day period of time, which time period has
expired.
COSTS AND EXPENSES
- ------------------
VESSEL OPERATING EXPENSES
- -------------------------
Vessel operating costs and expenses increased from $9,672,751 in 1996 to
$9,798,740 in 1997, an increase of $125,989 or 1.3%. The per cruise vessel
operating costs in 1997 is $5,791 compared to $5,967 in 1996, a decrease of $176
per cruise or a 3.0% decrease. This decrease is principally attributable to a
reduction in casino operating costs due to the termination of the Casinos
Austria consulting fee.
18
<PAGE>
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
- ----------------------------------------------
Administrative and general costs and expenses increased from $1,519,986 in 1996
to $1,650,884 in 1997, or $130,898 an increase of 8.6%. This increase is
principally related to the one-time write-down of certain corporate assets and
corporate overhead. Other operating expenses increased from $215,756 in 1996 to
$845,759 in 1997 or $630,003, an increase of 292%. This increase is caused
primarily 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 increased from $1,191,010 in 1996 to $1,218,343 in
1997, or $27,333 , an increase of 2.3%. This increase is attributable to the
Miami port which had a 25% increase in passenger counts over last year.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization increased from $1,071,587 in 1996 to $1,386,921 in
1997, or $315,334, an increase of 29.4%. This increase results from the addition
of new gaming equipment to the vessels during the last half of 1996, increased
depreciation on structural and other improvements to the vessels, and from the
increase in amortization resulting from 1996 deferred drydock costs.
MISSISSIPPI DEVELOPMENT COSTS
- -----------------------------
Development soft costs, including payroll, office expenses, taxes and allocated
interest expense, and other miscellaneous cost were $292,642 in 1997 compared to
$264,951 in 1996. Legal and engineering costs were $209,544 in 1997 compared to
$95,894 in 1996. Total development costs in Mississippi were $502,000.
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 1997. In January, 1997, the Company received $265,000 in
proceeds from a 1996 stock sale. In February, the Company received $400,000 from
Hilton. In June, 1997, the Company received $255,000 in prepaid charter fees and
deposits on the M/V Stardancer. In the first nine months of 1997, the Company
issued 78,460 shares of common stock as payment for preferred stock dividends.
The Company's working capital is approximately $1.2 million at September 30,
1997 as compared to a deficit of $1.1 million at September 30, 1996. Included in
current assets is the carrying amount of the M/V Stardancer which is currently
under a purchase commitment. However, the buyer may not be able to obtain
financing to complete the purchase. See Note 3 to the financial statements.
Included in current liabilities is $1.3 million which must be paid to First
Union National Bank of Florida from sale proceeds if the sale of the M/V
Stardancer closes. Anticipated cash proceeds from the sale, after the payment to
First Union National Bank of Florida, are $1.2 million. The buyers must close on
or before November 30, 1997.
Investing activities (principally vessel improvements, major vessel repair and
maintenance,) required cash of approximately $636,000 in 1997, which was met
through operating cash. Investment in the Mississippi property required cash of
approximately $147,000.
The Company pays dividends quarterly on its Series S-PIK Preferred Stock.
Pursuant to the Series S-PIK Preferred Stock subscription agreement, "At the
19
<PAGE>
option of the Company, for a period of three years, dividends on the Preferred
Stock [could] be paid by issuing shares of the Company's common stock to the
holders of the Preferred Stock". The Company's option to pay quarterly dividends
on the Series S-PIK Preferred Stock in common shares expired March 15, 1997.
However, the Company is not in a position to pay the dividends due for June 15,
and September 15, 1997 in cash. Therefore, the Company has requested that the
Series S-PIK Preferred Stock shareholders accept payment of their dividends now
due in stock instead of cash. If any Series S-PIK Preferred Stock shareholder
declines to accept payment of dividends due in stock, the accrued dividend will
be paid in cash in the future.
At September 30, 1997, the Company was not in compliance with its cash flow
covenant required under its loan agreement with First Union National Bank of
Florida. First Union has waived the covenant requirement through October 30,
1998.
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 6, Material Contingencies
ITEM 5. OTHER INFORMATION
-----------------
State of Florida Litigation Relating to the Florida Day Cruise Industry
- -----------------------------------------------------------------------
On July 2, 1997, Robert A. Butterworth, the Attorney General for the State of
Florida, and Neil Perry, Sheriff of St. Johns County, Florida ("Plaintiffs")
filed a Complaint for Injunctive Relief Against the Illegal Possession of Slot
Machines and the Continuance of a Public Nuisance against Chances Casino
Cruises, Inc. and Mark Morrow, ("Defendants") operators of the Royal Princess,
in the Circuit Court of the Seventh Judicial Circuit In and For St. Johns
County, Florida (Case No. CIV-97-1088). The Plaintiffs sought a temporary and
permanent injunction restraining the Defendants from continuing to possess slot
machines in the State of Florida. On July 2, 1997, the Plaintiffs filed a Motion
for a Temporary Injunction. The Court heard argument on the Motion for a
Temporary Injunction on July 18, 1997. The Florida Day Cruise Association of
Florida, Inc., of which Europa Cruises Corporation is a member, filed a Motion
to Appear as Amicus Curiae and a Memorandum in Opposition to the Motion for
Temporary Injunction. On July 22, 1997, the Court denied the Plaintiffs' Motion
for Temporary Injunction, without prejudice to a final adjudication on the
merits. The Court also granted the Defendants' Motion to stay enforcement by
Plaintiffs and subordinate agencies through criminal process of the "slot
machine" issue raised.
BAY CASINO, LLC V. ZACHARY CARTER, UNITED STATES ATTORNEY FOR THE EASTERN
DISTRICT OF NEW YORK (UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF
NEW YORK) (CASE NO. 97-6069)
The Company is informed, based upon briefs filed in the above-referenced court
case, that on or about August 8, 1997, the U.S. Attorney's Office for the
Eastern District of New York, notified Bay Casino, LLC, which began operating
cruises to nowhere out of Sheepshead Bay, New York, in or about December 1996,
that its activities were in violation of federal criminal law and that its ship
20
<PAGE>
could not engage in gambling activities consistent with federal law without
traveling twelve nautical miles from shore. The U.S. Attorney's office based its
conclusion on a provision of the Antiterrorism and Effective Death Penalty Act
of 1996 that applied a 1988 Presidential Proclamation extending the territorial
sea of the United States to twelve miles for purposes of the federal criminal
code. According to the briefs filed in the case, the letter demanded that Bay
Casino immediately comply with the U.S. Attorney's reading of the law or the
U.S. Attorney would "take such actions as are appropriate under federal law, up
to and including seizure of the Company's vessel."
According to the briefs filed in the case, on October 1, 1997, the Department of
Justice informed Bay Casino that, although it had no policy objection to day
cruises, it would not interfere with the U. S. Attorney's reading of the
applicable laws. On October 2, 1997, the U.S. Attorney informed Bay Casino that,
to qualify as a "covered voyage" exempt from the prohibition on gambling ships,
a vessel must travel twelve nautical miles from shore and that "effective 24
hours from [the] letter, [the U.S. Attorney's] Office intend[ed] to enforce the
prohibition."
Bay Casino subsequently complied by traveling twelve miles and filed the
above-referenced lawsuit seeking declaratory judgment and other relief. Shortly
thereafter, however, Bay Casino ceased operating in New York and moved its
vessel to Ft. Myers, Florida where it intends to compete with the Europa Star.
As far as the Company is aware, a ruling from the Court relating to the U.S.
Attorney's position has not yet been issued. What effect, if any, a ruling from
the Court adverse to Bay Casino, LLC, will have on the U.S. Attorney's
interpretation of the law in Florida and, subsequently, on Europa's operations,
is unknown. However, any attempt by a U.S. Attorney in Florida to impose a
similar twelve mile requirement on this Company's vessels, would have an
adverse, material and severe impact on the business of this Company, its
revenues, expenses and profitability.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended September
30, 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: November 20, 1997 By: /s/Lester E. Bullock
--------------------------------
Lester E. Bullock
President
By: /s/Debra Gladstone
--------------------------------
Debra Gladstone
Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EUROPA CRUISES CORPORATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 844,979
<SECURITIES> 0
<RECEIVABLES> 350,749
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,081,986
<PP&E> 18,984,526
<DEPRECIATION> 5,674,534
<TOTAL-ASSETS> 21,106,369
<CURRENT-LIABILITIES> 3,868,525
<BONDS> 0
0
28,080
<COMMON> 28,481
<OTHER-SE> 10,974,802
<TOTAL-LIABILITY-AND-EQUITY> 21,106,369
<SALES> 0
<TOTAL-REVENUES> 16,395,578
<CGS> 0
<TOTAL-COSTS> 16,850,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 665,041
<INCOME-PRETAX> (620,211)
<INCOME-TAX> 0
<INCOME-CONTINUING> (620,211)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (620,211)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
