<PAGE> 1
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, 1998
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 Number)
incorporation or organization)
150 153rd Avenue, Suite 200, Madeira Beach, Florida 33708
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(Address of principal executive offices) (zip code)
(813) 393-2885, Ext. 326
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Number of Shares Outstanding
At April 30, 1998
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27,345,349
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EUROPA CRUISES CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1997. 2
Consolidated Balance Sheets as of March 31, 1998 3-4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997. 5-6
Notes to Consolidated Financial Statements 7-14
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
Months Ended March 31, 1998 and 1997. 14-16
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 16
ITEM 4 Submission of Matters to a Vote of Securities Holders 16
ITEM 6 Exhibits and Reports on Form 8-K 16
</TABLE>
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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.
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1997
----------- -----------
<S> <C> <C>
Revenues
Gaming revenue $ 3,537,626 $ 4,340,899
Passenger fares 771,517 1,135,628
Food and beverage 229,794 388,588
Other 88,738 199,243
----------- -----------
4,627,675 6,064,358
----------- -----------
Costs and Expenses:
Vessel operating 2,952,298 3,402,834
Administrative and general 576,027 587,193
Advertising and promotion 283,224 414,609
Depreciation and amortization 492,062 456,419
Interest, net 203,796 230,902
Other operating (Note 1) 81,081 283,947
----------- -----------
4,588,488 5,375,904
----------- -----------
Net income (loss) 39,187 688,454
Preferred stock dividends (54,273) (46,887)
----------- -----------
Net income (loss) applicable to
common stock $ (15,086) $ 641,567
=========== ===========
Earnings (loss) per share, basic and
diluted $ (.001) $ 0.028
=========== ===========
Weighted average number of
common and common equivalent
shares outstanding basic and
diluted 23,126,712 22,899,058
=========== ===========
</TABLE>
2
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, 1998
--------------
<S> <C>
Current Assets:
Cash and cash equivalents $ 830,657
Accounts receivable 310,537
Prepaid insurance and other 298,556
-----------
Total current assets 1,439,750
Vessels, equipment and fixtures, less
accumulated depreciation 13,070,841
Land under development for dockside
gaming 4,899,822
Deferred drydock costs, less
accumulated amortization 520,920
Other assets 443,229
-----------
$20,374,562
===========
</TABLE>
3
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1998
--------------
<S> <C>
Current Liabilities:
Accounts payable and accrued liabilities $ 1,731,244
Current maturities of long-term debt 5,036,249
Unearned revenues 192,364
-----------
Total current liabilities 7,209,857
-----------
Long-term debt less current maturities 3,210,428
Other liabilities 400,000
-----------
Total liabilities 10,570,285
-----------
Stockholder's equity:
Preferred stock, $.01 par value;
shares authorized 5,000,000; outstanding
2,808,000; ($3,992,014 aggregate liquidation
preference) 28,080
Common stock, $.001 par value-
shares authorized 50,000,000; issued
28,538,588; outstanding 23,038,588 28,538
Additional paid-in-capital 25,385,565
Unearned ESOP Shares (6,242,814)
Deficit (9,204,936)
Treasury stock, at cost,
1,250,000 shares (190,156)
-----------
Total stockholders' equity 9,804,277
-----------
$20,374,562
===========
</TABLE>
4
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
---------- ---------
<S> <C> <C>
Operating Activities:
Net income $ 39,187 $ 688,454
Adjustments to reconcile net
income (loss) to net cash used in
operating activities:
Depreciation and amortization 492,062 456,419
Release of ESOP shares 50,000 70,625
Expenses paid in shares of common stock -- 1,313
Decrease (increase) in:
Accounts receivable 15,991 47,789
Prepaid and other assets 138,118 (292,166)
Increase (decrease) in:
Accounts payable and accrued liabilities 243,052 (290,841)
Unearned revenues 146,287 275,215
---------- ---------
Cash provided by operating activities 1,124,697 956,808
---------- ---------
Investing activities:
Purchases of property and equipment (199,227) (214,480)
Development costs for dockside gaming (88,379) (50,478)
Decrease in restricted cash -- 400,000
---------- ---------
Cash (required)/ provided by investing
activities (287,606) $ 135,042
---------- ---------
</TABLE>
5
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
--------- ----------
<S> <C> <C>
Financing activities:
Proceeds from issuance of common stock $ -- $ 265,000
Payment of notes and long-term debt (244,421) (408,332)
Preferred stock dividends -- (13,695)
--------- ----------
Cash (used in) financing activities (244,421) (157,027)
--------- ----------
Net increase (decrease) in cash and cash
equivalents 592,670 934,823
Cash and cash equivalents,
beginning of period 237,987 548,080
--------- ----------
Cash and cash equivalents,
end of period $ 830,657 $1,482,903
========= ==========
</TABLE>
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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 $820,506
and $621,000 for the three months ended March 31, 1998 and 1997 respectively.
(b) Other Operating Costs
Other operating costs consists of the following:
<TABLE>
<CAPTION>
Three months ended March 31, 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
ESOP provision $50,000 $ 70,625
Shareholder litigation -- 6,070
Proxy costs -- 138,250
Casinos Austria termination fee -- 65,754
Other 31,081 3,248
- ------------------------------------------------------------------
$81,081 $283,947
==================================================================
</TABLE>
(c) Reclassification
Certain 1996 amounts have been reclassified to conform to the classifications
for 1997.
NOTE 2. EARNINGS/(LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share", which simplifies the standards for computing earnings per
share ("EPS") previously found in APB No. 15, "Earnings Per Share". It replaces
the presentation of primary EPS with presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the diluted EPS computation. The Company
adopted SFAS No. 128 in 1997 and its implementation did not have a material
effect on the financial statements. EPS has been restated for all prior periods
presented.
Basic earnings /(loss) per common share is based on the net income/(loss) after
preferred stock dividends divided by the weighted average number of common
shares outstanding during each year. Dilutive earnings per share is computed
based on the net income/(loss) after preferred stock dividends divided by the
weighted average number of common shares and dilutive securities outstanding.
Common shares outstanding includes issued shares less shares held in treasury,
and un-allocated and uncommitted shares held by the ESOP trust.
The Company's potentially issuable shares of common stock pursuant to
outstanding stock purchase options and warrants and convertible preferred stock
are excluded from the Company's diluted computation as their effect would be
antidilutive to the Company's net income/(loss).
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Common shares outstanding includes:
<TABLE>
<S> <C>
Issued shares 28,538,588
Less: Treasury shares (1,250,000)
Unallocated, uncommitted ESOP shares (4,161,876)
----------
Outstanding Shares 23,126,712
==========
</TABLE>
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
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, totaled 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 $1.8 million
including imputed interest of approximately $500,000. 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.
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 $177,634. 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. Management believes there
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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. The motion was denied.
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)
CASE DISMISSED WITHOUT PREJUDICE
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 alleged 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 contended 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 alleged 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 sought damages
in excess of one billion dollars, including treble their general and special
compensatory damages, punitive damages, consequential and incidental damages,
interest, costs, attorneys' fees and a preliminary and permanent injunction
requiring defendants to accurately and properly describe their video poker
machines and electronic slot machines. The Company shared the cost of this
litigation with certain other defendants who retained the same law firm to
represent them.
On March 6, 1998, the Plaintiffs filed a Notice of Voluntary Dismissal Without
Prejudice.
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. However, 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 Settlement Agreement provided that if the Company and
Sea Lane were 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. Sea
Lane contends that substantial expenses, in excess of one million dollars, were
incurred to make repairs for which Europa is responsible. On or about April 10,
1995, the United States District Court entered an Order granting Sea Lane's
Petition to Compel Arbitration. Arbitrators have been selected, discovery has
been taken and the matter is expected to proceed to arbitration in the near
future. The parties are engaged in settlement discussions. The Company has
accrued approximately $400,000 in connection with this litigation.
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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 AND DISMISSED
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 alleged 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 was one of a number of
class action lawsuits relating to "port charges" 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.
TURNER V. EUROPA CRUISES CORPORATION, ET AL. (IN THE CHANCERY COURT OF THE STATE
OF DELAWARE IN AND FOR NEW CASTLE COUNTY (CIVIL ACTION NO. 14482)
CASE SETTLED AND DISMISSED.
On or about August 15, 1995, Stephen M. Turner, former Chairman of the Board of
Europa Cruises Corporation, filed suit in the Chancery Court of the State of
Delaware in and for New Castle County, against Europa Cruises Corporation and
its then-three Directors, Deborah A. Vitale, Ernst Walter and Lester Bullock. On
or about September 1, 1995, Mr. Turner withdrew his claims against the
individual Directors. Mr. Turner was seeking a declaratory judgment from the
Court declaring him to be a member of the Board of Directors of Europa Cruises
Corporation. The Board of Directors maintained that Mr. Turner unequivocally
resigned on March 20, 1995 in the presence of four witnesses and that his
actions immediately following his resignation confirmed same. The Board of
Directors maintained that Mr. Turner's attempt to unilaterally resurrect himself
as a Director of the Company after having resigned was of no force and effect.
Depositions were taken on or about September 26, 1995. Trial in the matter was
scheduled for October 3, 1995. However, the parties agreed to a settlement under
the terms of which Mr. Turner would receive $17, 500. Settlement documents were
signed on January 19, 1997. These contained a written confirmation of the
resignation of Mr. Turner from the Company and its subsidiaries effective March
20, 1995. A Stipulation of Dismissal was filed on February 18, 1997.
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. 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 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 allowed the
Trustee to keep Europa's deposit and for attorneys fees and costs in the amount
of $31,683.59. The $31,683.59 was paid, by agreement, by the insurance carrier
for the lawyer who represented Europa in the litigation.
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DANA V. CATALANO V. EUROPA CRUISES CORPORATION(IN THE CHANCERY COURT OF THE
STATE OF DELAWARE, NEW CASTLE COUNTY, CIVIL ACTION NO. 15455)
CASE RESOLVED
On January 8, 1997, Dana V. Catalano filed an action against the Company in the
Court of Chancery of the State of Delaware, New Castle County, Civil Action No.
15455 seeking an order pursuant to 8 Del. C. S211(c) scheduling an annual
meeting for the election of Directors of the Company. The Board had previously
voted on December 11, 1996, to hold the next annual meeting at which an election
of directors would take place on June 4, 1997. The Company advanced the date of
the annual meeting to April 18, 1997 and set the record date as March 14, 1997.
A Stipulation and Order was entered to that effect.
MISSISSIPPI-RELATED LITIGATION
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)
CASINO WORLD, INC. PREVAILED IN LOWER COURT
CASE ON APPEAL TO SUPREME COURT OF MISSISSIPPI
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 appealing the
decision of the Chancery Court to the Supreme Court of Mississippi. All
appellate briefs have been filed in the case. Oral argument is set for May 19,
1998.
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)
CASE DECIDED
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. All briefs were filed in the case on or before October 31, 1997. On
February 27, 1998, the Chancery Court filed a Memorandum Opinion and Order
denying the appeal and entering judgment in favor of the Appellees, including
Casino World, Inc. No appeal from the decision of the lower court was filed. The
time period for appealing has expired.
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CASINO WORLD, INC. AND MISSISSIPPI GAMING CORPORATION V. GULF ISLANDS
CONSERVANCY, INC.; CONCERNED CITIZENS TO PROTECT THE ISLES AND POINT, INC.;
PRESERVE DIAMONDHEAD'S QUALITY, INC.; BAY ST. LOUIS COMMUNITY ASSOCIATION; AND
THE SIERRA CLUB, INCORPORATED AND UNITED STATES ARMY CORPS OF ENGINEERS AND
UNITED STATES OF AMERICA (In the United States District Court of the Southern
District of Mississippi (Biloxi Division (Case No. 1:98CV147BrR).
On March 26, 1998, Casino World, Inc. and Mississippi Gaming Corporation filed
suit against the above-named parties, inter alia, to declare a Permit issued by
the U.S. Army Corps of Engineers to the Hancock County Port and Harbor
Commission on March 26, 1998, which was transferred to Casino World, Inc. and
Mississippi Gaming Corporation, to be valid under Section 10 of the Rivers and
Harbors Act and to enjoin the defendants from delaying, interfering or
infringing on protected rights the Plaintiffs have under the Permit.
FRIENDS OF THE EARTH, INC. AND GULF ISLANDS CONSERVANCY, INC. V. UNITED STATES
ARMY CORPS OF ENGINEERS (In the United States District Court for the District of
Columbia) (Case No. 1:98CV00801)
On March 27, 1998, Friends of the Earth, Inc. and Gulf Islands Conservancy, Inc.
filed a Complaint for Declaratory and Injunctive Relief against the United
States Army Corps of Engineers to, inter alia, declare the Corps' approval of
the Casino World, Inc. Permit without prior preparation of an environmental
impact statement, to be arbitrary, capricious, an abuse of discretion and in
violation of the National Environmental Policy Act, applicable Council on
Environmental Quality regulations and applicable U.S. Army Corps of Engineers
regulations and to enjoin the U.S. Army Corps of Engineers from permitting
Casino World, Inc. or its successors-in-interest and all other casino developers
from proceeding with future development of any dockside gambling facilities or
related infrastructure in certain areas, including the Company's site on the Bay
of St. Louis, in Mississippi, until the Corps prepares an environmental impact
statement. No Answer has been filed to date.
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.
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
trial 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 required
Liberis to return 250,000 shares of common stock to the Company. On October 9,
1996, the trial Court entered an Order and Judgment. On November 7, 1996,
Liberis filed a Notice of Appeal from the Final Order to the Supreme Court of
Delaware.
Oral argument was heard in the Supreme Court of Delaware 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
12
<PAGE> 15
decision of February 8, 1996 and its Order and Judgment of October 9, 1996. On
September 2, 1997, the trial court filed a Supplemental Opinion. On September
10, 1997, the Supreme Court issued an Order requesting additional supplemental
briefs from the parties. On November 10, 1997, the Supreme Court issued an Order
affirming the judgment of the lower court.
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)
CASE DISMISSED
On March 12, 1996, Charles S. Liberis filed a 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 maintained
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. Mr. Liberis agreed to dismiss the case. A
Stipulation and Order of Dismissal was signed on March 24, 1998.
LIBERIS V. EUROPA CRUISES CORPORATION, CASINO WORLD, INC., CASINOS AUSTRIA
MARITIME CORPORATION (CAMC), SERCO INTERNATIONAL LIMITED, CHARLES H. REDDIEN,
STEPHEN M. TURNER, DEBORAH A. VITALE, WILLIAM A. HEROLD AND SHARON E. PETTY (IN
THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY)
(CASE NO. 12955)
CASE DISMISSED
On April 22, 1993, Charles S. Liberis filed an action in the Court of Chancery
of the State of Delaware in and for New Castle County against Europa and its
subsidiary, Casino World, Inc. (CWI) and the above-named entities and directors
of Europa. In the action, Liberis alleged a scheme on the part of CAMC and Serco
acting with Petty, Reddien and others to seize control of Europa by changing the
membership of the Board and transferring power to the directors nominated by
Serco, an alleged entrenchment by that Board by means of a proposed issuance of
Preferred Stock of Europa and an alleged scheme by that Board to entrench itself
in Casino World, Inc. by spinning off CWI to the stockholders of Europa and
selling 60% of CWI to outside investors and improper actions relating to the
retention of the services of CAMC. Count I of the Complaint sought the removal
of allegedly wrongfully elected directors and two officers and the reinstatement
of Liberis as CEO. Counts II and III sought relief against the issuance of the
Europa Preferred Stock. Count IV sought injunctive relief as to the proposed
spinoff of CWI. Count V sought relief against CAMC and Serco for civil
conspiracy. Liberis sought a preliminary injunction to enjoin three directors
elected at Europa's Board meeting on December 12, 1992 from acting on behalf of
Europa and CWI and to enjoin Reddien, the then Chief Executive Officer of both
Europa and CWI from taking any action on behalf of those entities. On May 17,
1993, the Court denied Liberis' application for a preliminary injunction finding
that Liberis had failed to establish a likelihood of success on the merits as
well as irreparable harm that would result in the event an injunction were not
entered. On March 25, 1996, an Order was entered dismissing this case as moot.
CHARLES S. LIBERIS, AS TRUSTEE OF THE CHARLES S. LIBERIS, P.A., PROFIT SHARING
PLAN V. EUROPA CRUISES CORPORATION (IN THE CIRCUIT COURT IN AND FOR ESCAMBIA
COUNTY, FLORIDA) (CASE NO. 93-1187- CA-01-J)
CASE DISMISSED
In or about March, 1993, Charles S. Liberis, as Trustee of the Charles S.
Liberis, P.A. Profit Sharing Plan, filed suit against Europa for amounts
allegedly due from Europa in connection with a promissory note Liberis received
from Europa in conjunction with a purported December 1990 transfer to Europa of
Liberis' interest in Sea Lane. The Complaint alleged that a principal balance of
approximately $141,000.00 was owed on the note. On or about April 9, 1996, the
parties filed a Stipulation of Dismissal dismissing this case without prejudice
on grounds that the action was moot.
EUROPA CRUISES CORPORATION V. LIBERIS, ET AL. (IN THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF FLORIDA (CASE NO. 93-30158)
CASE DISMISSED
On or about May 11, 1993, the Company filed an action in the United States
District Court for the Northern District of Florida against Charles S. Liberis
and one of the Company's former Chief Financial Officers, seeking compensatory
and punitive
13
<PAGE> 16
damages. The Company and the former Chief Financial Officer involved have
settled this and other disputes between them. The Company was seeking damages
from Liberis for substantially the same events and transactions alleged in
Europa's counterclaim in Delaware Case No. 13103. Liberis also filed a
counterclaim requesting the same relief sought in Delaware Case No. 13103. Most
of Europa's claims against Liberis and all of Liberis' pending claims against
Europa in this case were the subject of Delaware Case No. 13103. Europa also
made a claim for securities fraud against Liberis in this Florida case which was
not made in the Delaware case. On or about April 9, 1996, the parties filed a
Stipulation of Dismissal of all claims and counterclaims as moot.
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), AUSTROINVEST INTERNATIONAL
LIMITED, PETER MUELLER AND EUROPA CRUISES CORPORATION (CIRCUIT COURT IN AND FOR
PINELLAS COUNTY, FLORIDA)(CIVIL ACTION NO. 93-001626-CI-008)
CASE PENDING
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 case was stayed pending the outcome of certain other cases involving several
of the parties. On or about August 7, 1995, the defendants agreed to lift the
stay 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 Additional Party Plaintiff which motion was 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 claims for other tortuous 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. On or about December 31, 1997, the case was
removed to the United States District Court for the Middle District of Florida,
Tampa Division (Case No. 97-3062-CIV-T-24-E). Discovery has started.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The Company operated 504 cruises in 1998, as compared to 568 in 1997, a decrease
of 11% or 64 cruises. The Company carried 69,804 passengers in 1998 as compared
to 99,197 passengers in 1997, a decrease of 29,393 passengers or 30%. This
decrease in total passengers is due to fewer cruises and a decrease in the
number of passengers sailing due to inclement weather experienced during the
first quarter of 1998. In addition, this decrease is attributable to new
competition in both Ft. Myers and the Miami market. The average revenue per
passenger was approximately $66.30 in 1998 as compared to $61.13 in 1997, an
increase of $5.17 per passenger or 8.5%. The Company carried an average of 139
passengers per cruise in 1998 as compared to 175 in 1997, a decrease of 36
passengers per cruise or 20.6%.
14
<PAGE> 17
TOTAL REVENUES/GAMING REVENUES
The Company earned total revenues of $4,627,675 in 1998 as compared to total
revenues of $6,064,358 in 1997, a decrease of $1,436,683. The Company's gaming
revenue decreased from $4,340,899 in 1997 to $3,537,626 in 1998, a decrease of
$803,273 or 18.5%. The Company attributes the substantial decrease in gaming
revenues to decreased passenger counts.
PASSENGER FARES
Passenger fares fell from $1,135,628 in 1997 to $771,517 in 1998, a decrease of
$364,111 or 32.1%. The average passenger fare in 1998 was $11.05 compared to
$11.45 in 1997 a decrease of 3.5%. This decrease is attributable to decreased
passenger counts.
FOOD AND BEVERAGE REVENUES
Revenue from food and beverage sales decreased from $388,588 in 1997 to $229,794
in 1998, a decrease of $158,794 or 40.9%. The decrease is attributable to
decreased passenger counts.
OTHER REVENUE
Other revenue decreased from $199,243 in 1997 to $88,738 in 1998, a decrease of
$110,505 or 55.5%. The decrease is attributable to decreased passenger counts.
COSTS AND EXPENSES
VESSEL OPERATING EXPENSES
Vessel operating costs and expenses decreased from $3,402,834 in 1997 to
$2,952,298 in 1998, a decrease of $450,536 or 13.2%. The per cruise vessel
operating costs in 1998 is $5,858 compared to $5,991 in 1997, a decrease of $133
per cruise or a 2.2% decrease.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
Administrative and general costs and expenses decreased from $587,193 in 1997 to
$576,027 in 1998, or $11,166, a decrease of 1.9%. Other operating expenses,
which include certain litigation costs, decreased from $283,947 in 1997 to
$81,081 in 1998 or $202,866, a decrease of 71.4%.
ADVERTISING AND PROMOTION
Advertising and promotion decreased from $414,609 in 1997 to $283,224 in 1998,
or $131,385, a decrease of 31.7%. The decrease is primarily due to a reduction
of print, radio and newspaper advertising.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $456,419 in 1997 to $492,062 in
1998, or $35,643, an increase of 7.8%. This increase results from the 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.
15
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
In 1998, the Company expects to meet its normal operating costs and expenses
from its 1998 cash flow from operations. The Company, however, may be unable to
meet any unusual or unanticipated cash requirements should they arise during
1998 except through the sale of common stock or borrowing. No sales of stock
have been made in the first quarter 1998.
The Company's working capital deficiency is approximately $5,770,107 at March
31, 1998 as compared to $755,000 at March 31, 1997.
Investing activities (principally vessel improvements, major vessel repair and
maintenance, gaming equipment purchases and Mississippi development costs)
required cash of approximately $287,606 in 1998, which was met through operating
cash.
In November, 1998 the Europa Sun is scheduled for drydock. The estimated cost
for this drydock is $300,000.
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
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8K have been filed during the quarter ended March
31, 1998.
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 20, 1998 By: /s/Deborah A. Vitale
-------------------------
Deborah A. Vitale
President
16
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