FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For Quarter Ended December 31, 1997
Commission File Number: 0-20961
COMMODORE HOLDINGS LIMITED
---------------------------------------
(Exact Name of Registrant as Specified in its Charter)
BERMUDA
-------------------------
(State or other Jurisdiction of incorporation or organization)
N/A
-----
(IRS Employer Identification Number)
4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, FL 33021
-----------------------------------
(Address of Principal Offices)
(954) 967-2100
---------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) been subject to such filing
requirements for the past 90 days.
Yes _x_ No ___
Common Stock $.01 par value
(Class)
5,581,933 Shares of Common Stock outstanding at February 12, 1998
<PAGE>
Commodore Holdings Limited
Table of Contents
Part I Financial Information
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Earnings 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. A - Exhibits 9
B - Reports on Form 8-K 9
<PAGE>
Part I: Financial Information
Item 1: Financial Statements
<TABLE>
<CAPTION>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1997 1997
----------- ------------
(UNAUDITED) (AUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,055,659 $ 3,530,563
Restricted cash 207,660 191,273
Trade and other receivables, net 329,517 321,191
Insurance claim receivable 157,562 305,038
Due from affiliate 594,857 471,294
Inventories 1,661,738 1,870,128
Prepaid expenses 3,967,818 3,050,353
Other current assets 76,290 76,290
------------- -------------
Total current assets 10,051,101 9,816,130
Property and equipment, net 38,522,779 37,193,102
Long-term receivable - affiliate 1,141,928 1,117,913
Investments - restricted 4,629,000 4,629,000
Other assets 1,030,867 361,667
------------- -------------
$ 55,375,675 $ 53,117,812
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 4,392,408 $ 4,392,408
Accounts payable 6,029,546 5,512,270
Accrued liabilities 615,674 1,576,504
Due to affiliate 574,873 574,873
Customer deposits 7,177,649 5,674,811
Accrued interest 79,088 72,934
------------- -------------
Total current liabilities 18,869,238 17,803,800
Long-term debt 15,739,480 16,837,582
Convertible subordinated debentures 2,150,000 -
Minority interest in subsidiary 80,176 135,037
Stockholders' equity
Preferred stock - authorized 10,000,000 shares
of $.01 par value; issued 1,027,230 shares 10,272 10,272
Common stock - authorized 100,000,000 shares
of $.01 par value; issued 5,581,933 shares 55,819 55,819
Paid-in capital 14,024,329 14,012,051
Retained earnings 4,446,361 4,263,251
------------- -------------
Total stockholders' equity 18,536,781 18,341,393
------------- -------------
$ 55,375,675 $ 53,117,812
============= =============
</TABLE>
Page 2
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
<CAPTION>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS MONTHS ENDED DECEMBER 31, 1997 AND 1996
(Unaudited)
Three months ended
December 31,
1997 1996
-------------------------------
<S> <C> <C>
Revenues $ 11,527,823 $ 12,134,487
Expenses
Operating 8,348,675 9,442,889
Marketing, selling and administrative 2,266,855 1,733,594
Depreciation and amortization 509,197 491,699
------------ -----------
11,124,727 11,668,182
------------ -----------
Operating income 403,096 466,305
Other income (expense)
Interest income 145,514 102,808
Interest expense (419,829) (482,343)
Minority interest in loss of
consolidated joint venture 54,329 88,077
------------ -----------
(219,986) (291,458)
------------ -----------
Net earnings before provision for
stock dividend 183,110 174,847
Provision for preferred stock dividend 72,500 70,000
------------ -----------
Net earnings available for
common stockholders $ 110,610 $ 104,847
============ ===========
Earnings per share available for common
stockholders - Basic $ 0.02 $ 0.02
============ ===========
Weighted average number of common stock
outstanding - Basic 5,581,933 5,581,933
============ ===========
Earnings per share available for common
stockholders - Diluted $ 0.02 $ 0.02
============================
Weighted average number of common stock
outstanding - Diluted 6,483,071 5,847,535
============================
Page 3
The accompanying notes are an integral part of these statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
(Unaudited)
Preferred Stock Common Stock
---------------------------------------------------- Additional
Number of Par Number of Par Paid-in Retained
Shares Value Shares Value Capital Earnings Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
September 30, 1997 1,027,230 $10,272 5,581,933 $55,819 $14,012,051 $4,263,251 $18,341,393
Fair value of options
nonemployees - - - - 12,278 - 12,278
Net earnings - - - - - 183,110 183,110
------------------------------------------------------------------------------------------------
Balances at
December 31, 1997 1,027,230 $10,272 5,581,933 $55,819 $14,024,329 $4,446,361 $18,536,781
================================================================================================
</TABLE>
Page 4
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
<CAPTION>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(Unaudited)
1997 1996
------------ --------------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 183,110 $ 174,847
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation of property and equipment 509,197 491,699
Amortization of deferred drydock 414,728 294,862
Fair value of options to nonemployees 12,278 9,600
(Increase) decrease in operating assets
Restricted cash (16,387) 302,078
Trade and other receivables (8,326) (16,502)
Insurance receivable 147,476 272,084
Due from affiliate (123,563) -
Inventory 208,390 (10,766)
Prepaid expenses and other current assets (1,332,193) (211,172)
Other assets - 6,250
Increase (decrease) in operating liabilities
Accounts payable 517,276 (1,037,194)
Accrued liabilities (960,830) (95,439)
Due to affiliate - 550,369
Customer and other deposits 1,502,838 (1,619,230)
Accrued interest 6,154 (12,370)
----------- ----------
Net cash provided by (used in) operating activities 1,060,148 (900,884)
Cash Flows from investing activities
Capital expenditures (1,838,874) (408,277)
Long-term receivable-affiliates (24,015) -
Decrease in minority interest in subsidiary (54,861) (88,078)
----------- ----------
Net cash used in investing activities (1,917,750) (496,355)
Cash flows from financing activities
Principal payments of long-term debt (1,098,102) (63,105)
Proceeds from sale of convertible subordinated debentures 1,480,800 -
Net cash provided by (used in) financing activities 382,698 (63,105)
Net decrease in cash and cash equivalents (474,904) (1,460,344)
Cash and cash equivalents at beginning of period 3,530,563 3,476,165
----------- ----------
Cash and cash equivalents at end of period $ 3,055,659 $2,015,821
=========== ==========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 413,675 $ 492,976
=========== ==========
Cash paid during the period for taxes $ - $ -
=========== ==========
</TABLE>
Page 5
The accompanying notes are an integral part of these statements
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Financial Statements for the three months ended December 31, 1997 and
1996, included herein have been prepared by Commodore Holdings Limited (the
"Company") without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. All adjustments which are, in the opinion of
management, necessary for a fair statement for the results of the three months
are included. Certain information and footnote disclosure normally included in
Financial Statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. These financial statements should be read in conjunction with the
financial statements for the year ended September 30, 1997, contained in the
Company's annual report on Form 10-K.
2. Fair value of options to nonemployees. The Company issued warrants to
purchase 150,000 shares of common stock to an outside consultant in October,
1996, in payment for consulting services (see note G to the Company's financial
statements for the year ended September 30, 1997). Under the application of FASB
#123 the Company has valued these warrants at approximately $75,000.
Accordingly, this amount is being charged to operating expense over the vesting
period (between the issue date and November 1997).
3. Earnings Per Share. The Company's basic earnings per share are calculated by
dividing Net Earnings available for common shareholders by the weighted average
shares outstanding during the period. The computation of diluted earnings per
share includes all dilutive common stock equivalents in the weighted average
shares outstanding.
Financial Accounting Standards Board (FASB) Statement No. 128 "Earnings Per
Share" requires the dual presentation of basic and diluted earnings per share
on the face of the statement of earnings. The reconciliation between the
computation is as follows:
<TABLE>
<CAPTION>
Three Net
months ended Net Basic Basic Earnings- Diluted Diluted
December 31, Earnings-Basic Shares EPS Diluted Shares EPS
------------ -------- ------ --- --------- ------ ---
<S> <C> <C> <C> <C> <C> <C>
1997 $110,610 5,581,933 $0.02 $116,764 6,483,071 $0.02
1996 $104,847 5,581,933 $0.02 $104,847 5,847,535 $0.02
</TABLE>
Included in diluted shares are common stock equivalents relating to options and
warrants of 214,456 and 265,602 for the three months ended December 31, 1997 and
1996, respectively. Also included are common stock equivalents relating to
convertible securities of 686,682 for the three months ended December 31, 1997.
Net earnings were adjusted to calculate the diluted earnings per share by adding
back $6,154 of interest expense, relating to the convertible debentures, to net
earnings for the three months ended December 31, 1997.
4. Debt offering. In December, 1997 the Company sold $2,150,000 of its 7%
convertible subordinated debentures that become due on December 31, 2003. The
Company sold these debentures at a 20% discount. The net proceeds to the Company
were $1,480,800 after deducting brokers' commissions and expenses of the
offering. The discount and expenses of the offering totaled approximately
$669,000 and are included in Other assets. This amount is being charged to
interest expense over the term of the debentures.
Page 6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is an analysis of the Company's results of operations, liquidity
and capital resources. To the extent that such analysis contains statements
which are not of a historical nature, such statements are forward-looking
statements, which involve risks and uncertainties. These risks include competing
in a saturated industry against modern and larger fleets; the ability of the
Company to obtain additional financing for the acquisition of additional ships;
a high percentage of debt on assets owned by the Company, the potential for
additional governmental regulations; the need for expensive upgrades and/or
maintenance to aging vessels; general economic factors in markets where the
Company operates; and other factors discussed in the Company's filings with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1997, Compared to Three Months Ended December
31, 1996
Revenues decreased by $606,664, or 5.0%, for the quarter ended December 31, 1997
compared to the quarter ended December 31, 1996 primarily due to 21 fewer
operating days in the first quarter of fiscal 1998. The Enchanted Isle was in
drydock during the quarter to effect the necessary repairs and modifications to
comply with the SOLAS requirements for the vessel.
The Company's operating expenses decreased by $1,094,214, or 11.6%, primarily
due to 21 fewer operating days in the first quarter of fiscal 1998. The
Company's marketing, selling and administrative expenses increased by $533,261,
or 30.8%, for the three months ended December 31, 1997 compared to the three
months ended December 31, 1996, due to increased marketing efforts related to
the Universe Explorer Caribbean program.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficiency was $8,818,137, and $7,987,670, for
December 31, 1997 and September 30, 1997, respectively. The Company's working
capital deficiency was primarily due to the inclusion, in non-current assets, of
a $4,629,000 deposit securing the Company's FMC bond. The corresponding
liability, customer's deposits, is included in current liabilities. The increase
in the Company's working capital deficit was the result of cash flow used in
investing activities, primarily capital expenditures to the Enchanted Isle for
SOLAS modifications.
Cash flows from operations provided $1,060,148 for the first three months of
fiscal 1998 and used $900,884 for the first three months of fiscal 1997. Cash
flows for the first three months of fiscal 1998 consisted primarily of increases
in customer deposits and accounts payable and was offset by increases in prepaid
expenses.
At December 31, 1997, the Company owed $20,131,888 to the Company's lender. The
loan is secured by substantially all the assets of the Company and bears
interest at LIBOR plus 2%.
During Fiscal 1998 the Company will make capital improvements to the Universe
Explorer estimated to cost approximately $400,000, in order to have that vessel
in full compliance with U.S. Coast Guard interpretations of the SOLAS
requirements. The Company intends to fund these costs out of cash from
operations.
Page 7
<PAGE>
During fiscal 1998, the Company will also continue to explore the possible
acquisition of additional vessels. In this regard, in December 1997, the Company
completed a private offering (the "Private Offering") of $2,150,000 in principal
amount of 7% convertible debentures (the "Debentures"). The Company sold these
debentures at a 20% discount. The Debentures are convertible into shares of
Common Stock of the Company at the option of the holder thereof based on the
average closing sale price of the Common Stock for the five trading days
immediately prior to conversion, but in no event less than $3.131 or more than
$4.00 per share. The Debentures are also convertible at the option of the
Company, provided the Common Stock trades above a certain price for a specified
period. The Company has agreed to register the shares of Common Stock issuable
upon conversion of the Debentures, under the Securities Act of 1933, as amended
(the "Securities Act"). The Company generated approximately $1,480,800 in
proceeds after deducting brokerage commissions and expenses of the Private
Offering.
The Company plans to use the proceeds from the Private Offering for general
working capital purposes and may use a portion of such proceeds towards the
purchase of an additional vessel. The Company is currently in preliminary
negotiations regarding the purchase of several different vessels and has not yet
reached an agreement in principle regarding the purchase of any specific vessel.
In the event the Company reaches such an agreement, it anticipates that such
purchase will require additional debt or equity financing, which the Company
will attempt to procure at such time.
The Company's computerized reservation system and accounting system have already
been reprogrammed to be Year 2000 compliant. The Company has additional
computerized systems onboard its vessels that will require some reprogramming
which is expected to be carried out during the current fiscal year. The cost of
the reprogramming, which is being done by an outside vendor, is not expected to
exceed $5,000 per vessel.
INFLATION
The impact of inflation on the Company's operations has not been significant to
date. There can be no assurance that a high rate of inflation in the future
would not have an adverse effect on the Company's operations.
Page 8
<PAGE>
Part II: Other Information
Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 2. CHANGES IN SECURITIES
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ -----------
27 Financial Data Schedule
B. Reports on Form 8-k
No reports on Form 8-k were filed during the quarter ended December 31,
1997.
Page 9
<PAGE>
SIGNATURE
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.
COMMODORE HOLDINGS LIMITED
(Registrant)
/S/ ALAN PRITZKER
---------------------------
Alan Pritzker
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
February 12, 1998
Page 10
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,055,659
<SECURITIES> 0
<RECEIVABLES> 329,517
<ALLOWANCES> 0
<INVENTORY> 1,661,738
<CURRENT-ASSETS> 10,051,101
<PP&E> 42,852,888
<DEPRECIATION> 4,330,109
<TOTAL-ASSETS> 55,375,675
<CURRENT-LIABILITIES> 18,869,238
<BONDS> 17,889,480
0
10,272
<COMMON> 55,819
<OTHER-SE> 18,470,690
<TOTAL-LIABILITY-AND-EQUITY> 55,375,675
<SALES> 0
<TOTAL-REVENUES> 11,527,823
<CGS> 0
<TOTAL-COSTS> 11,124,727
<OTHER-EXPENSES> 365,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 183,110
<INCOME-TAX> 0
<INCOME-CONTINUING> 183,110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183,110
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
