<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 September 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 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 extension 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 September 30, 1998
23,434,229
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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 September 30, 1998 and 1997. 2
Consolidated Statements of Operations for the Nine
Months Ended September 30, 1998 and 1997. 3
Consolidated Balance Sheets as of September 30, 1998 4-5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997. 6-7
Notes to Consolidated Financial Statements 8-18
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations. 18-22
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 22
ITEM 5 Other Information 22
ITEM 6 Exhibits and Reports on Form 8-K 23
</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.
1
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1997
------------- -------------
<S> <C> <C>
Revenues
Gaming revenue $ 3,429,723 $ 3,704,557
Passenger fares 329,104 709,213
Food and beverage 200,192 284,974
Subcharter fees -0- 157,500
Other 18,333 109,393
------------ ------------
3,977,352 4,965,637
------------ ------------
Costs and Expenses:
Vessel operating 3,052,803 3,229,139
Administrative and general 566,506 521,921
Advertising and promotion 103,540 364,703
Depreciation and amortization 508,306 462,313
Interest, net 289,984 240,649
Other operating (Note 1) 73,254 195,909
------------ ------------
4,594,393 5,014,634
------------ ------------
Net (loss) income (616,991) (48,997)
Preferred stock dividends (54,273) (65,725)
------------ ------------
Net (loss) income applicable to
common stock $ (671,264) $ (114,722)
============ ============
Net (loss) income per common share
(Note 2) $ (.03) $ *
============ ============
Weighted average number of common and common
equivalent shares outstanding primary and fully 23,375,560 22,876,836
diluted (Note 2) ============ ============
</TABLE>
* Amount is less than $.01
2
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
------------ ------------
<S> <C> <C>
Revenues
Gaming revenue $ 10,469,847 $ 11,942,918
Passenger fares 1,849,821 2,654,732
Food and beverage 695,441 1,034,109
Subcharter fees 406,000 212,500
Other 155,684 551,319
------------ ------------
13,576,793 16,395,578
------------ ------------
Costs and Expenses:
Vessel operating 9,213,580 9,798,740
Administrative and general 1,640,546 1,650,884
Advertising and promotion 583,064 1,218,343
Depreciation and amortization 1,597,381 1,386,921
Nonrecurring sales tax settlement (Note 5) -0- 1,284,664
Interest, net 635,557 665,041
Other operating (Note 1) 231,547 845,759
------------ ------------
13,901,675 16,850,352
------------ ------------
Net (loss) income (324,882) (454,774)
Preferred stock dividends (162,819) (165,437)
------------ ------------
Net (loss) income applicable
to common stock $ (487,701) $ (620,211)
============ ============
Net (loss) income per common share
(Note 2) $ (.02) $ (.03)
============ ============
Weighted average number of common and
common equivalent shares outstanding
primary and fully diluted (Note 2) 23,250,609 22,480,806
============ ============
</TABLE>
3
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, 1998
------------------
<S> <C>
Current Assets:
Cash and cash equivalents $ 206,866
Accounts receivable 311,824
Prepaid insurance and other 230,572
-----------
Total current assets 749,262
Vessels, equipment and fixtures, less accumulated
depreciation 12,240,254
Land under development for dockside
gaming 5,063,645
Deferred drydock costs, less
accumulated amortization 314,581
Other assets 248,237
-----------
$18,615,979
===========
</TABLE>
4
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1998
------------------
<S> <C>
Current Liabilities:
Accounts payable and accrued liabilities $ 1,322,063
Current maturities of long-term debt
(Note 3) 4,385,300
------------
Total current liabilities 5,707,363
Long-term debt less current maturities 3,072,264
Other liabilities 400,000
------------
Total liabilities 9,179,627
------------
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 28,746,729;
outstanding 23,434,229 28,747
Additional paid-in-capital 25,272,963
Unearned ESOP Shares (6,055,314)
Deficit (9,677,548)
Treasury stock, at cost,
1,250,000 shares (190,156)
------------
Total stockholders' equity 9,436,352
------------
$ 18,616,979
============
</TABLE>
5
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended
September 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating Activities:
Net (loss) income $ (324,882) $ (434,774)
Adjustments to reconcile net
income (loss) to net cash used in
operating activities:
Nonrecurring sales tax settlement -0- 1,284,664
Depreciation and amortization 1,597,381 1,386,921
Release of ESOP shares 154,788 174,375
Expenses paid in shares of common stock 1,313
Decrease (increase) in:
Accounts receivable 14,704 47,983
Prepaid and other assets 206,102 (35,190)
Increase (decrease) in:
Accounts payable and accrued liabilities (157,934) (651,572)
Unearned revenues -- 91,434
---------- -----------
Cash provided by operating activities 1,490,159 1,845,154
---------- -----------
Investing activities:
Purchases of property and equipment (208,909) (626,190)
Development costs for dockside gaming (10,632) (147,357)
Decrease in restricted cash -0- 400,000
Long term note and other (105,389) -0-
---------- -----------
Cash (used in) investing activities (324,930) $ (373,547)
========== ===========
</TABLE>
6
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
---------------- ----------------
<S> <C> <C>
Financing activities:
Proceeds from issuance of common stock $ -0- $ 227,447
Payment of notes and long-term debt (1,033,534) (1,357,155)
Preferred stock dividends (162,816) (45,000)
---------------- --------------
Cash (used in) financing activities (1,196,350) (1,174,708)
---------------- --------------
Net increase (decrease) in cash and
cash equivalents (31,121) 296,899
Cash and cash equivalents,
beginning of period 237,987 548,080
---------------- ---------------
Cash and cash equivalents,
end of period $ 206,866 $ 844,979
================ ===============
</TABLE>
7
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EUROPA CRUISES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
(a) Casino Revenue
Casino revenue is the net win from gaming activities, which is the difference
between gaming wins and losses. Revenue does not include the retail amount of
fares, food, and beverage provided gratuitously to customers, which was
$984,000 and $783,000 for the three months ended September 30, 1998 and 1997
respectively, and $2,776,245 and $2,111,000 for the nine months ended September
30, 1998 and 1997 respectively.
(b) Other Operating Costs
Other operating costs consists of the following:
<TABLE>
<CAPTION>
Three months ended September 30, 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
ESOP provision $54,788 $ 46,875
Shareholder litigation -- 12,500
Proxy costs -- 33,367
Casinos Austria termination fee -- 98,630
Other 18,466 4,537
- ----------------------------------------------------------------------------
$73,254 $195,909
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
ESOP provision 154,788 $174,375
Shareholder litigation -- 29,754
Proxy costs -- 368,367
Casinos Austria termination fee -- 263,014
Other 76,759 10,249
- ----------------------------------------------------------------------------
$231,547 $845,759
============================================================================
</TABLE>
(c) Reclassification
Certain 1997 amounts have been reclassified to conform to the classifications
for 1998.
NOTE 2. NET (LOSS) INCOME PER SHARE
Net income per share for 1997 is based on net income after preferred stock
dividend requirements and the weighted average number of common shares
outstanding during each period after giving effect to stock options and
warrants considered to be dilutive common stock equivalents. It is assumed that
all dilutive stock options and warrants are exercised at the beginning of each
year and that the proceeds are used to purchase up to 20 percent of the
outstanding shares of the Company's common stock with any remaining proceeds
utilized to repay indebtedness. Stock options and warrants considered to be
common stock equivalents for both primary and fully diluted calculations were
not materially dilutive. Convertible preferred, which is not a common stock
equivalent, was anti-dilutive and, therefore, not considered in the fully
diluted calculation.
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Net (loss) per share for 1998 is based on net (loss) after preferred stock
dividend requirements and the weighted average number of common shares
outstanding. Primary and fully diluted earnings per share were not calculated
for 1998 since such calculation would be anti-dilutive.
<TABLE>
<S> <C>
Common shares outstanding includes:
Issued shares 28,746,729
Less: Treasury shares (1,250,000)
Unallocated, uncommitted ESOP shares (4,062,500)
----------
Outstanding Shares 23,434,229
==========
</TABLE>
Escrowed shares are held as collateral for a note with a principal balance of
$200,942 at September 30, 1998.
NOTE 3. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued a new standard
entitled, "Statement of Financial Accounting Standards ("SFAS") No 128,
Earnings Per Share" (EPS). Statement 128 changes the manner in which EPS is
calculated and represented in the financial statements. Statement 128 is
effective for financial statements issued after December 15, 1997 and requires
that all EPS data presented be restated to reflect the new Standard.
The FASB has also issued SFAS131, Disclosures About Segments of an Enterprise.
Statement 131 establishes new standards for determining and disclosing
information regarding a segment of a Company. Statement 131 is effective for
fiscal years beginning after December 15, 1997 with earlier application
encouraged. The Company will adapt the new standard for its financial statements
for the period ending December 31, 1997 to provide Segment information regarding
its development efforts.
NOTE 4. SUBSEQUENT EVENT
During the last week of September, all ports were forced to close for several
days due to the effects created by Hurricane Georges. This event had a
devastating effect on revenues and, therefore, cash flow. To bridge the gap
between cash on hand versus cash needs, the Company President and Chairwoman,
Deborah A. Vitale, advanced the Company, interest free, approximately $275,000
in early October, 1998.
LEGAL PROCEEDINGS.
TAX-RELATED LITIGATION
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
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of Revenue. The settlement, which includes all audits for the covered period,
is approximately $1.9 million. The settlement includes a payment schedule of
approximately $21,000 per month for seven years. The settlement provides for 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 $211,470.00 and for
interest and penalties in the amount of $177,634.80. 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.
10
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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 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, the Plaintiff filed a Motion to Re-Open the case for
the purpose of considering Plaintiff's proposed Motion for Leave to Amend the
Complaint to Join Marne (Delaware), Inc. as a Party Plaintiff and for Relation
Back of [the] Amendment. The Plaintiff was attempting to add Marne (Delaware),
11
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Inc. as a Plaintiff in the case. On or about April 16, 1998, Europa 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.
Europa believes that if Sea Lane is unsuccessful on appeal, this matter will be
concluded inasmuch as Sea Lane's failure to have filed suit in the name of
Marne (Delaware) Inc. may have been fatal to their claim. Europa believes that
if Sea Lane is successful on appeal, this matter will be returned to
arbitration for further proceedings.
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, flied 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
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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 $31,682.59. The $31,682.59 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, seeking an order
pursuant to Del.Code Section 211(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 for
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, close the subject vessel and premises until the
alleged required modifications are completed and to award Plaintiffs attorneys'
fees, costs and expenses incurred. The Company intends to vigorously defend
this action.
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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. 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 which was denied on October 15, 1998. The case was remanded to
the lower court for a hearing on the merits.
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 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. 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. UNTIED 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 Engineeers 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. The Company was not named as a party in the
action. On or about August 31, 1998, the Company filed a motion for leave to
intervene as a party defendant in the action. On November 4, 1998, the Court
granted the Company's motion.
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
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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.
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. (CAI) 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 CAI to the
stockholders of Europa and selling 60% of CAI 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 CAI. 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
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and CAI and to enjoin Reddien, the then Chief Executive Officer of both Europa
and CAI 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 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 RECENTLY DISMISSED/MOTIONS 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.
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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 other claims for other
tortious conduct. On or about October 30, 1997, Liberis filed an 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).
On September 30, 1998, the Honorable Susan C. Bucklew, granted the Motions to
Dismiss filed by Europa and Casinos Austria Maritime Corporation. The Judge
ordered the Court Clerk to close the case. Liberis filed a motion to have the
Court reconsider its ruling and to have certain claims remanded to the state
court. The Company filed a motion for attorneys' fees. Various other
post-ruling motions were filed.
WAREHOUSE FIRE/GAMBLING EQUIPMENT SEIZURE
On or about September 18, 1998, the Company was informed there had been one or
two fires in a Madeira Beach warehouse used by the Company. Investigators have
informed the Company that the fire was the result of arson. A former employee
of the Company has been arrested and charged with First Degree Arson and
Burglary by the Pinellas County Sheriff's Office. The Company has been informed
that this employee has confessed to committing a burglary to the warehouse and
setting the fire to cover up this criminal activity.
During the course of the fire investigation, the investigators seized all
gambling equipment and paraphernalia found in the warehouse pursuant to a
search warrant, and Chapters 849.15 and 849.231 of the Florida Code which
prohibits, among other things, the manufacture, sale or possession of certain
gambling devices except under certain exemption for those registered with the
United States Government pursuant to 15 U.S.C. ss 1171 et. seq. The Company is
registered with the United States Government pursuant to 15 U.S.C. ss 1171 -
1178, and believes it falls within the exemption. The Company believes the
investigators who seized the equipment did not know that the Company was so
registered. The Company has retained an attorney to handle this matter and to
obtain the return of the seized equipment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
NONRECURRING ITEMS
During 1997, the Company had several nonrecurring items in net income. These
included an option fee received from Hilton, proxy contest costs and a
termination fee paid to Casinos Austria. If the foregoing were eliminated from
operating results, the Company's 1997 net income, before preferred dividends,
for the three months ended September 30, 1997, would have been $16,333.
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PER PASSENGER REVENUE
The Company operated 524 cruises in 1998 versus 565 for the three months ended
one year ago. The Company carried 65,808 passengers in 1998 as compared to
75,694 passengers in 1997, a decrease of 9,886 passengers. The average revenue
per passenger was approximately $60.44 in 1998 as compared to $63.52 in 1997, a
decrease of $3.08 per passenger or 4.8%. The Company carried an average of 126
and 153 passengers per cruise respectively in 1998 and 1997.
The major differences in components of income were a decrease in paid fares of
$380,000, a decrease in casino revenue of $275,000 and charter fees in 1997
totaling $157,500.
TOTAL REVENUES/GAMING REVENUES
The Company earned total revenues of $3,977,352 in 1998 as compared to total
revenues of $4,965,637 in 1997, a decrease of 19.9%. Gaming revenue was
$3,429,723 in 1998 as compared to $3,704,557 in 1997, a decrease of 7.4%. The
revenue drop was most significantly impacted by 28 cruise cancellations due to
hurricane Georges.
PASSENGER FARES
Passenger fares fell from $709,213 in 1997 to $329,104 in 1998, a decrease of
$380,109 or 53.6%. The average passenger fare in 1997 was $9.37 compared to
$5.00 in 1998. Strong competition for VIP players contributed to this decline.
FOOD AND BEVERAGE REVENUES
Revenue from food and beverage sales decreased from $284,974 in 1997 to
$200,192 in 1998, a decrease of $84,782 or 29.75%. 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.
OTHER REVENUE
Other revenue decreased from $109,393 in 1997 to $18,333 in 1998, a decrease of
$91,060. Other income in 1997 includes $66,667 which represented one month of
the $400,000 paid by Hilton Gaming Corporation to the Company in return for the
exclusive right to negotiate a joint venture agreement with respect to the
Company's Diamondhead, Mississippi, property for a 180-day period of time,
which time period has expired.
COSTS AND EXPENSES
VESSEL OPERATING EXPENSES
Vessel operating costs and expenses decreased from $3,229,139 in 1997 to
$3,052,803 in 1998, a decrease of $176,336 or 5.5%.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
Administrative and general costs and expenses increased from $521,921 in 1997
to $566,506 in 1998, or $44,585, an increase of 8.5%. Other operating expenses
decreased from $195,909 in 1997 to $73,254 in 1998 or $122,655 a decrease of
62.6%. This decrease is attributable primarily to proxy costs and the write-off
of the Casinos Austria termination fee in 1997. See Note 1 to the financial
statements.
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ADVERTISING AND PROMOTION
Advertising and promotion decreased from $364,703 in 1997 to $103,540 in 1998,
or $261,163, a decrease of 71.6%.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $462,313 in 1997 to $508,306 in
1998, or $45,993, an increase of 9.9%. This increase results from the drydock
costs incurred in 1997 receiving a full compliment of amortization in 1998.
NONRECURRING SALES TAX SETTLEMENT
In June, 1997, the Company settled its sales tax liability with the State of
Florida Department of Revenue. See Note 5 to the Financial Statements. The
settlement, which includes all audits for the covered period, was 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 in 1997.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
NONRECURRING ITEMS
During 1997, the Company had several nonrecurring items in net income. These
included an option fee received from Hilton, proxy contest costs, a termination
fee paid to Casinos Austria, and settlement of the State of Florida sales tax
liability. If the foregoing were eliminated from operating results, the
Company's 1997 net income before preferred dividends would have been
$1,061,271.
PER PASSENGER REVENUE
The Company operated 1,572 cruises in 1998, as compared to 1,692 in 1997, a
decrease of 120 cruises or 7%. The Company carried 263,188 passengers in 1997
as compared to 209,240 passengers in 1998, a decease of 53,948 passengers. The
Miami port showed a strong increase in passenger counts, offset by a decrease
for the west coast ports. The cancellations due to hurricane Georges were a
major contributor to the decrease, as well as the effects of El Nino in the
first quarter. Revenue per passenger was $62.95 in 1998 as compared to $61.49
in 1997, an increase of $1.46 per passenger or 2.4%. The Company carried an
average of 133 passengers per cruise in 1998 as compared to 156 in 1997.
TOTAL REVENUES/GAMING REVENUES
The Company earned total revenues of $16,395,578 in 1997 as compared to total
revenues of $13,376,793 in 1998, a decrease of 3,018,785 or 17.2%. Gaming
revenue was $10,469,847 in 1998 compared to $11,942,918 in 1997, a decrease of
$1,473,071 or 12.3%. Contributing to the casino revenue decrease were the 120
fewer cruises in the current year.
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PASSENGER FARES
Passenger fares fell from $2,654,732 in 1997 to $1,849,821 in 1998, a decrease
of $804,911 or 30.3%. The average passenger fare in 1998 was $8.84 compared to
$10.08 in 1997, a decrease of 12.3%. This decrease is attributable to a VIP
program resulting in additional complimentary fares to VIP's, and an increase
in the number of passengers in Miami Beach, which has the lowest net fares.
FOOD AND BEVERAGE REVENUES
Revenue from food and beverage sales decreased from $1,034,109 in 1997 to
$695,441 in 1998, a decrease of $338,668 or 32.7%. The decrease is attributable
primarily to reduced passenger counts at the west coast ports and an increase
in VIP passengers resulting in additional complimentary meals and beverages to
VIP's.
OTHER REVENUE
Other revenue decreased from $551,319 in 1997 to $155,684 in 1998, a decrease
of $395,635 or 71.8%. Other income in 1997 included $400,000 paid by Hilton
Gaming Corporation to the Company in return for the exclusive right to
negotiate a joint venture agreement with respect to the Company's Diamondhead,
Mississippi, property for a 180-day period of time, which time period expired.
COSTS AND EXPENSES
VESSEL OPERATING EXPENSES
Vessel operating costs and expenses decreased from $9,798,740 in 1997 to
$9,213,580 in 1998, a decrease of $585,160 or 6.0%. The per cruise vessel
operating costs in 1998 is $5,861 compared to $5,791 in 1997, an increase of
$70 per cruise or a 1.2%. The increase in per cruise costs is due to fixed
costs of operations spread over fewer cruises.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
Administrative and general costs and expenses decreased from $1,650,884 in 1997
to $1,640,546 in 1998, a decrease of $10,338 or .6%. Other operating expenses
decreased from $845,759 in 1997 to $231,547 in 1998 or $614,212, a decrease of
72.6%. This decrease is caused primarily by the proxy contest costs and the
write-off of the Casinos Austria termination fee in the prior year. See Note 1
to the financial statements.
ADVERTISING AND PROMOTION
Advertising and promotion decreased from $1,218,340 in 1997 to $583,064 in
1998, or $635,276, a decrease of 52.1%. The decrease is a planned management
cost reduction.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $1,386,921 in 1997 to $1,597,381
in 1998, or $210,460, an increase of 15.2%. This increase results from drydock
costs incurred in 1997 receiving a full complement of amortization in the
current year.
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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. However, subsequent to September 30,
1998, the Company received an advance from its Chairwoman as described in Note
4 to the accompanying consolidated statements.
The Company's working capital deficiency is approximately $4,958,101 at
September 30, 1998. The deficiency incorporates $3,803,423 of debt due First
Union National Bank as described below.
Investing activities (principally vessel improvements, major vessel repair and
maintenance, gaming equipment purchases and Mississippi development costs)
required cash of approximately $324,930 in 1998, which was met through
operating cash.
On or about November 6, 1998 the Europa Sun went to drydock. The estimated cost
for this drydock is $350,000.
As of September 30, 1998, the Company was not in compliance with the cash flow
and tangible net worth covenants required under the terms of its bank loan
agreement. The bank has waived the Company's default through October 31, 1998,
at which time the bank may demand repayment if the Company remains out of
compliance. The loan balance of $3,803,423 has been classified as a current
liability in the accompanying 1998 consolidated balance sheet.
In the event that the Company remains out of compliance with the loan covenants
and payment is demanded, the Company believes that the value of the underlying
collateral is sufficient to refinance or extinguish the debt. The ultimate
outcome of the matter may have a material adverse effect on the Company's
financial position and operations.
Except for historical information contained herein, the matters discussed in
this Item 2, in particular, statements that use the words "believes,"
"intends," "anticipates" or "expects" are intended to identify forward looking
statements that are subject to risks and uncertainties including, but not
limited to, inclement weather, mechanical failures, increased competition,
governmental action, environmental opposition, legal actions, and other
unforeseen factors. The development of the Diamondhead, Mississippi project, in
particular, is subject to additional risks and uncertainties, including, but
not limited to, risks relating to permitting, financing, legal actions, 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 PROCEEDINGS
See note 6, Material Contingencies
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter
ended September 30, 1997.
22
<PAGE> 25
ITEM 3. 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.
ITEM 4. STOCK LISTING
The Company announced that on November 5, 1998 NASDAQ notified it that
its request for continued inclusion on the NASDAQ Small Cap Market
pursuant to an exception to the new $1.00 minimum bid price
requirement, which became effective February 23, 1998, had been denied.
Thus, effective with the close of business November 5, 1998, the
Company's securities were no longer traded on NASDAQ. Effective
November 6, 1998, the Companies securities began trading on the over
the counter bulletin board (OTCBB).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EUROPA CRUISES CORPORATION
Date: November 16, 1998 By: /s/ Deborah A. Vitale
----------------------------------
Deborah A. Vitale
President
By: /s/ Robert L. Zimmerman
----------------------------------
Robert L. Zimmerman
Chief Financial Officer
23
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