<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 June 30, 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
incorporation or organization) Number)
150 153rd Avenue, Suite 200, Madeira Beach, Florida 33708
--------------------------------------------------- ----------
(Address of principal executive offices) (zip code)
(813) 393-2885, Ext. 326
------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Number of Shares Outstanding
At June 30, 1998
----------------------------
27,345,349
----------------------------
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EUROPA CRUISES CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
<S> <C> <C> <C>
ITEM 1 Consolidated Statements of Operations for the Three
Months Ended June 30, 1998 and 1997. 2
Consolidated Statements of Operations for the Six
Months Ended June 30, 1998 and 1997. 3
Consolidated Balance Sheets as of June 30, 1998 4-5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997. 6-7
Notes to Consolidated Financial Statements 8
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
Months Ended June 30, 1998 and 1997. 19
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 23
ITEM 4 Submission of Matters to a Vote of Securities Holders 23
ITEM 5 Other Information 23
ITEM 6 Exhibits and Reports on Form 8-K 24
</TABLE>
<PAGE> 3
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)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Revenues
Gaming revenue $ 3,475,343 $ 3,897,462
Passenger fares 749,200 809,891
Food and beverage 265,455 360,547
Subcharter fees 406,000 55,000
Other 75,768 242,683
----------- ------------
4,971,766 5,365,583
----------- ------------
Costs and Expenses:
Vessel operating 3,136,270 3,166,767
Administrative and general 548,013 541,770
Advertising and promotion 218,559 439,031
Depreciation and amortization 597,013 468,189
Nonrecurring sales tax settlement - 1,284,664
(Note 4)
Interest, net 141,777 193,490
Other operating (Note 1) 77,212 365,903
----------- ------------
4,718,844 6,459,814
----------- ------------
Net (loss) income 252,922 (1,094,231)
Preferred stock dividends (54,273) (52,825)
----------- ------------
Net (loss) income applicable to
Common stock $ 198,649 $ (1,147,056)
=========== ============
Net (loss) income per common $ .01 $ (.05)
=========== ============
Weighted average number of
common and common equivalent
shares outstanding primary and
fully diluted (Note 2) 23,598,440 22,755,718
=========== ============
</TABLE>
2
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Revenues
Gaming revenue $ 7,012,969 $ 8,238,361
Passenger fares 1,520,717 1,945,519
Food and beverage 495,249 749,135
Subcharter fees 406,000 55,000
Other 164,506 441,926
----------- ------------
9,599,441 11,429,941
----------- ------------
Costs and Expenses:
Vessel operating 6,138,568 6,569,601
Administrative and general 1,074,040 1,128,963
Advertising and promotion 501,783 853,640
Depreciation and amortization 1,089,075 924,608
Nonrecurring sales tax settlement (Note 4) - 1,284,664
Interest, net 345,573 424,392
Other operating (Note 1) 158,293 649,850
----------- ------------
9,307,332 11,835,718
----------- ------------
Net (loss) income 292,109 (405,777)
Preferred stock dividends (108,546) (99,712)
----------- ------------
Net (loss) income applicable to common stock $ 183,563 $ (505,489)
=========== ============
Net (loss) income per common $ .01 $ (.02)
=========== ============
Weighted average number of
common and common equivalent
shares outstanding primary and
fully diluted (Note 2) 23,145,135 22,302,413
=========== ============
</TABLE>
3
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CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
Current Assets:
Cash and cash equivalents $ 811,750
Accounts receivable 333,730
Prepaid insurance and other 255,687
-----------
Total current assets 1,401,167
-----------
Vessels, equipment and fixtures, less
accumulated depreciation 12,542,507
Land under development for dockside
Gaming 5,077,805
Deferred drydock costs, less
accumulated amortization 496,277
Other assets 234,950
-----------
19,752,706
</TABLE>
4
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
Current Liabilities:
Accounts payable and accrued liabilities $ 1,452,144
Current maturities of long-term debt 4,711,336
-----------
Total current liabilities 6,163,480
Long-term debt less current maturities 3,136,303
Other liabilities 400,000
-----------
Total liabilities 9,699,783
-----------
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 28,538,588; outstanding 23,163,558 28,537
Additional paid-in-capital 25,341,815
Unearned ESOP Shares (6,149,064)
Deficit (9,006,287)
Treasury stock, at cost,
1,250,000 shares (190,156)
-----------
Total stockholders' equity 10,052,925
===========
$19,752,708
===========
</TABLE>
5
<PAGE> 8
EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Operating Activities:
Net income (loss) $ 292,109 $ (405,777)
Adjustments to reconcile net
income (loss) to net cash used in
operating activities:
Nonrecurring sales tax settlement - 1,284,664
Depreciation and amortization 1,089,075 924,608
Release of ESOP shares 100,000 127,500
Expenses paid in shares of common stock - 1,313
Decrease (increase) in:
Accounts receivable (7,202) 88,345
Prepaid and other assets 180,987 (129,461)
Increase (decrease) in:
Accounts payable and accrued liabilities 18,224 (555,414)
Unearned revenues and other (46,077) 258,836
----------- ------------
Cash provided by operating activities 1,627,116 1,594,614
----------- ------------
Investing activities:
Purchases of property and equipment, net (65,520) (487,335)
Deferred costs and other (211,036) -
Development costs for dockside gaming (24,792) (63,576)
Decrease in restricted cash - 400,000
----------- ------------
Cash used in investing activities (301,348) (150,911)
=========== ============
</TABLE>
6
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Financing activities:
Proceeds from issuance of common stock $ - $ 227,444
Payment of notes and long-term debt (643,459) (873,251)
Preferred stock dividends (108,546) (30,000)
----------- ------------
Cash (used in) financing activities (752,005) (675,807)
----------- ------------
Net increase (decrease) in cash and cash equivalents
573,763 767,896
Cash and cash equivalents,
beginning of period 237,987 548,080
----------- ------------
Cash and cash equivalents,
end of period $ 811,750 $ 1,315,976
=========== ============
</TABLE>
7
<PAGE> 10
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
$972,000 and $706,000 for the three months ended June 30, 1998 and 1997
respectively, and $1,793,000 and $1,327,000 for the six months ended June 30,
1998 and 1997 respectively.
(b) Other Operating Costs
Other operating costs consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
THREE MONTHS ENDED JUNE 30,
ESOP provision 50,000 $ 56,875
Shareholder litigation 11,184
Proxy costs 196,750
Casinos Austria termination fee 98,630
Other 27,212 2,464
----------- ------------
$ 77,212 $ 365,903
=========== ============
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SIX MONTHS ENDED JUNE 30,
ESOP provision 100,000 $ 127,500
Shareholder litigation 17,254
Proxy costs 335,000
Casinos Austria termination fee 164,384
Other 58,293 5,712
---------- ----------
$ 158,293 $ 649,850
========== ==========
</TABLE>
NOTE 2. NET (LOSS) INCOME PER SHARE
Net income per share for 1998 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 not considered in the fully diluted calculation.
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<PAGE> 11
Net (loss) per share for 1997 is based on net (loss) after preferred stock
dividend requirements and 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.
<TABLE>
<S> <C>
Common shares outstanding includes:
Issued shares 28,538,558
Less: Treasury shares (1,250,000)
Unallocated, uncommitted ESOP shares (4,125,000)
-----------
Outstanding Shares 23,163,558
===========
</TABLE>
NOTE 3. NEW ACCOUNTING STANDARD
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 June 30, 1998 and 1997 and EPS for the six
months ended June 30, 1998 and 1997 would be unchanged 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.
NOTE 4. INCOME TAXES
The Company's taxable income in 1998 and 1997 has been offset by the
utilization of net operating loss contingencies.
NOTE 5 . 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.
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GALVESTON INDEPENDENT SCHOOL DISTRICT, ET AL. V. EUROPA CRUISE LINES OF TEXAS,
INC. ET AL. (In the District Court of Galveston County, Texas (Case No.
95TX0051)
On or about January 31, 1995, the Galveston Independent School District filed a
Petition in the District Court of Galveston County, Texas for ad valorem taxes
allegedly due for the year 1990 in the principal amount of $211,470 and for
interest and penalties in the amount of $177,634. 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 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)
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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 were selected
and discovery was taken.
Europa took the position in arbitration that the Plaintiff had failed to name
the real party in interest as Plaintiff and that it was too late to do so. On
or about March 18, 1998, Sea Lane filed a Motion to Re-Open the case for the
purpose of adding Marne (Delaware), Inc. as a Plaintiff in the case. On or
about April 16, 1998, Europa
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filed an Opposition to the motion. On June 1, 1998, the District Court entered
an Order Denying Sea Lane's Motion to Re-Open and Amend. On or about June 11,
1998, Sea Lane filed a Motion for Reconsideration. Europa filed a Memorandum in
Opposition to Sea Lane's Motion for Reconsideration. On June 22, 1998, the
District Court entered an Order Denying [Sea Lane's] Motion for
Reconsideration. On or about July 6, 1998, Sea Lane filed a Notice of Appeal to
the United States Court of Appeals for the Eleventh Circuit. The Company has
accrued approximately $400,000 in connection with this litigation.
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
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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.
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.
ASSOCIATION FOR DISABLED AMERICANS, INC., DANIEL RUIZ AND JORGE LUIS RODRIGUEZ
V. EUROPA CRUISES OF FLORIDA 2, INC. AND EUROPA CRUISES CORPORATION (United
States District Court for the Southern District of Florida, Miami Division,
Civil Action No. 98-1836)
On July 31, 1998, the Association for Disabled Americans, Inc., Daniel Ruiz and
Jorge Luis Rodriguez filed suit against Europa Cruises of Florida 2, Inc. and
Europa Cruises Corporation ("Europa") for injunctive relief pursuant to the
Americans with Disabilities Act. The Plaintiffs claim, in part, that Europa has
discriminated against them by denying them access to and full and equal
enjoyment of services, facilities, accommodations, the subject vessel and
premises and that the Company has failed to remove architectural barriers and
erect certain architecturally required improvements. The Plaintiffs have
requested that the Court issue a permanent injunction enjoining Europa from
continuing its alleged discriminatory practices, ordering Europa to alter the
subject vessel and premises, closing the subject vessel and premises until the
alleged required modifications are completed and awarding Plaintiff's
attorney's fees, costs and expenses incurred. No Answer has been filed to date,
but the
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Company intends to vigorously defend this action.
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)
CASE PENDING
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. Oral argument was had on May 19, 1998. On July 23, 1998, the
Supreme Court of Mississippi reversed the lower court's decision and remanded
the case to the lower court for a hearing on the merits. On or about August 6,
1998, Casino World, Inc. filed a Motion for Rehearing. On or about August 23,
1998, the appellants filed an Opposition to the Motion for Rehearing. The
motion is pending.
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
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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.
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. On or
about April 16, 1998, the Defendants (with the exception of the United States
Army Corps of Engineers and United States of America) filed a Motion to Dismiss
the Complaint on grounds, inter alia, that the Court lacks subject matter
jurisdiction and that the Complaint fails to state a claim upon which relief
may be granted. On May 21, 1998, Casino World, Inc. filed a Memorandum Brief in
Opposition to the Motion to Dismiss. To date, three judges have recused
themselves from hearing the case. A Case Management Conference is currently
scheduled for December 2, 1998.
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.
On June 1, 1998, the United States Army Corps of Engineers filed an Answer in
the case in which it maintained, in part, that no Environmental Impact
Statement with respect to the application by Casino World, Inc. was required.
On June 1, 1998, the U.S. Army Corps of Engineers also moved to transfer venue
in the case to the United States District Court for the Southern District of
Mississippi, Southern Division. On August 10, 1998, the District of Columbia
Court denied the motion to transfer venue.
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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 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.
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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 damages. The Company and the former Chief Financial Officer
involved have settled
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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 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. Liberis' appeal was denied. Liberis also filed a separate action against
the Estate of Victor Gersh which remains pending. 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998
The Company operated 544 cruises in 1998, as compared to 559 in 1997, a
decrease of 15 cruises. The Company carried 73,387 passengers in 1998 as
compared to 88,297 passengers in 1997, a decrease of 14,910 passengers, or
20.3%. The average revenue per passenger was approximately $61.18 in 1998 as
compared to $60.77 in 1997, an increase of $.41 per passenger or.7%. Although
the Company carried fewer passengers during the three months, as compared with
the prior year, total on board revenues per passenger increased slightly. The
Company is making a concerted effort toward improving on-board revenues through
management changes.
TOTAL REVENUES/GAMING REVENUES
The Company earned total revenues of $3,475,343 in 1998 as compared to total
revenues of $3,897,462 in 1997, a decrease of $422,119 or 10.8%. This reflects
the increased competition in the current market. However, the per passenger
gaming revenue increased from $44.14 in 1997 to $47.36 in 1998 or 7.3%.
PASSENGER FARES
Passenger fares fell from $809,891 in 1997 to $749,200 in 1998, a decrease of
$60,691 or 7.5%. The average passenger fare in 1998 was $10.21 compared to
$9.71 in 1997 an increase of $.50 per passenger or 5.1%.
FOOD AND BEVERAGE REVENUES
Revenue from food and beverage sales decreased from $360,547 1997 to $265,455
in 1998, a decrease of $95,092 or 26.4%. 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
During the second quarter, the Company reported revenues from Charter fees in
the amount of $406,000, of which $80,000 is still outstanding. The Company is
in receipt of an $80,000 deposit on same. The Charter agreement involves the
M/V Stardancer and expired in June 1998.
COSTS AND EXPENSES
VESSEL OPERATING EXPENSES
Vessel operating costs and expenses decreased from $3,166,767 in 1997 to
$3,136,270 in 1998, a decrease of $30,497 or 1.0%. The per cruise vessel
operating cost in 1998 is $5,765 compared to $5,665 in 1997, an increase of
$100 per cruise.
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ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
Administrative and general costs and expenses increased from $541,770 in 1997
to $548,013 in 1998, an increase of $6,243, or 1.15%. Other operating expenses,
which include certain litigation costs, decreased from $365,903 in 1997 to
$77,212 in 1998, a decrease of $288,691, or 78.9%. See Note 1 to the financial
statements.
ADVERTISING AND PROMOTION
Advertising and promotion decreased from $439,031 in 1997 to $218,559 1998, a
decrease of $220,472, or 50.21%.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $468,189 in 1997 to $597,013 in
1998. This increase results from an increase in amortization resulting from
deferred drydock costs incurred over the last twelve months.
NONRECURRING SALES TAX SETTLEMENT
In June, 1997, the Company settled its sales tax liability with the State of
Florida Department of Revenue. See Note 4 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.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
The Company operated 1,048 cruises in 1998, as compared to 1,127 in 1997, a
decrease of 79 cruises, or 7.53%. The Company carried 143,191 passengers in
1998 as compared to 187,494 passengers in 1997, a decrease of 44,303
passengers, or 23.62%. Revenue per passenger was $64.20 in 1998 as compared to
$60.96 in 1997, an increase of $3.24 per passenger or 5.3%, principally related
to an increase in per passenger gaming revenue of 11.5%. The Company carried an
average of 137 passengers per cruise in 1998 as compared to 166 in 1997.
TOTAL REVENUES/GAMING REVENUES
The Company earned total revenues of $9,599,441 in 1998 as compared to total
revenues of $11,429,941 in 1997, a decrease of 1,830,500, or 16.0%. Gaming
revenue was $7,012,969 in 1998 compared to $8,238,361 in 1997, a decrease of
$1,225,392 or 14.9%. The majority of revenue decrease occurred primarily in the
first quarter where approximately two-thirds of the total decrease took place.
This was due to the combined effect of poor weather conditions and increased
competition, particularly in Ft. Myers. The Company improved in the second
quarter, but is still feeling the effects of competition.
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EFFECT OF COMPETITION IN FT. MYERS
The Company previously enjoyed somewhat of a monopoly in Ft. Myers, Florida.
However, two vessels, the "Big M" and the "Royal Princess" arrived in Ft. Myers
in or about December 1997. The Royal Princess left in April 1998. Thus, in the
first quarter of 1998, the Company had competition from two competitors in Ft.
Myers. In the second quarter of 1998, the Company had competition from one
competitor. The Big M advertises "free" cruises and has a more luxurious vessel
than does the Europa Star. The operators of the Big M have sufficient funds to
maintain operations indefinitely.
The introduction of two competitors in the Ft. Myers market has severely
affected the Company's passenger counts and revenues and, accordingly, the
Company's net income from operations in 1998. The Company has taken steps to cut
expenses in Ft. Myers and is taking affirmative steps to increase revenues from
gaming and other operations in Ft. Myers. There can be no assurance that the
Company's efforts will be sufficient to compensate for the substantial loss of
revenue and decrease in net operating income suffered to date during 1998 due to
competition.
PASSENGER FARES
Passenger fares fell from $1,945,519 in 1997 to $1,520,717 in 1998, a decrease
of $424,802 or 2.18%. The average passenger fare in 1998 was $10.62 compared to
$10.38 in 1997, an increase of 2.3%.
FOOD AND BEVERAGE REVENUES
Revenue from food and beverage sales decreased from $749,135 in 1997 to
$495,249 in 1998, a decrease of $253,886, or 33.89%. The decrease is
attributable primarily to reduced passenger counts at the west coast ports and
an increase in VIP passengers which resulted in additional complimentary meals
and beverages to VIPS's.
CHARTER FEES
During the second quarter, the Company reported revenues from Charter fees in
the amount of $406,000, of which $80,000 is still outstanding. The Company is
in receipt of an $80,000 deposit on same. The Charter agreement involves the
M/V Stardancer and expired in June 1998.
OTHER REVENUE
Other revenue decreased from $441,926 in 1997 to $164,506 in 1998, a decrease
of $277,420. This is a function
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of the 1997 revenue derived from Hilton Gaming Corporation in conjunction
with their interest in the Mississippi property in the amount of $333,000.
COSTS AND EXPENSES
VESSEL OPERATING EXPENSES
Vessel operating costs and expenses decreased from $6,569,601 in 1997 to
$6,138,568 in 1998, a decrease of $431,033 or 6.6%. The per cruise vessel
operating costs in 1998 is $5,857 compared to $5,829 in 1997.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
Administrative and general costs and expenses decreased from $1,128,963 in 1997
to $1,074,040 or $54,923 a decrease of 4.9%. Other operating expenses, which
include certain litigation costs, decreased from $649,850 in 1997 to $158,293
in 1998 or $491,557. See Note 1 to the financial statements.
ADVERTISING AND PROMOTION
Advertising and promotion decreased from $853,640 in 1997 to $501,783 in 1998,
or $351,857, a decrease of 41.2%. This decrease is attributable to a decrease
in radio, paper and television advertising.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $924,608 in 1997 to $1,089,075 in
1998, or $164,467, an increase of 17.8%. This increase results from the
increase in amortization resulting from 1997 and 1998 deferred drydock costs.
NONRECURRING ITEMS
During 1997, the Company had several nonrecurring items in net income. These
include the revenue received from Hilton, proxy contest costs, amortization of
the Casinos Austria termination fee, and the State of Florida sales tax
settlement charge to income. If the foregoing were eliminated from operating
results, the Company's 1997 net income would have been $1,044,938.
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 half of 1998.
The Company's working capital deficiency is approximately $4,762,313 at June
30, 1998 as compared to $755,000 at June 30, 1997.
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Investing activities (principally vessel improvements, major vessel repair and
maintenance, gaming equipment purchases and Mississippi development costs)
required cash of approximately $301,348 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
Election of Board of Directors
The annual meeting of Europa Cruises Corporation was held on July 10, 1998. The
election of a Board of Directors was submitted to a vote of the securities
holders. The annual meeting was reconvened to July 24, 1998, for the purpose of
receiving the official results of the election of the Board of Directors. The
Company reported that a total of 19,757,791 shares voted. Of those, 12,866,980,
or approximately 65%, voted for the incumbent Board of Directors, Deborah A.
Vitale, John R. Duber, Paul J. DeMattia and Gregory A. Harrison. A total of
6,757,658 shares, or approximately 34%, voted for the opposition slate.
Approximately 133,000 votes were withheld.
ITEM 5. OTHER INFORMATION
Options Granted
None
State of Florida Tax Audit
On May 1, 1998, the State of Florida, Department of Revenue, notified the
Company that it intended to audit its books and records as authorized pursuant
to Chapter 212 of the Florida Code (sales and use tax) for the period July 1,
1994 through March 31, 1998. The audit commenced in July.
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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., 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended
June 30, 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: August 19, 1998 By: /s/ Deborah A. Vitale
----------------------------
Deborah A. Vitale
President
By: /s/ Robert L. Zimmerman
----------------------------
Robert L. Zimmerman
Chief Financial Officer
24
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