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 the Quarterly Period Ended December 31, 1998
Commission File Number: 0-20961
COMMODORE HOLDINGS LIMITED
--------------------------
(Exact Name of Registrant as Specified in its Charter)
BERMUDA
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(State or other Jurisdiction of incorporation or organization)
N/A
---
(IRS Employer Identification Number)
4000 HOLLYWOOD BOULEVARD, SUITE 385, SOUTH TOWER, HOLLYWOOD, FL 33021
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(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 [ ]
7,439,821 Shares of Common Stock outstanding at February 12, 1999.
<PAGE>
Commodore Holdings Limited
Table of Contents
Page No.
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statement 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 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
Part II Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. A - Exhibits 10
B - Reports on Form 8-K 10
<PAGE>
Part I: Financial Information
Item 1: Financial Statements
<TABLE>
<CAPTION>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1998 1998
----------------- ----------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $1,531,000 $3,172,000
Restricted cash 2,492,000 2,326,000
Trade and other receivables, net 313,000 482,000
Due from affiliates 1,352,000 1,061,000
Inventories 1,167,000 1,466,000
Prepaid expenses 3,585,000 2,865,000
Other current assets 285,000 77,000
---------------- ----------------
Total current assets 10,725,000 11,449,000
Property and equipment, net 38,387,000 38,296,000
Investment in Joint Venture 1,171,000 1,481,000
Long-term receivable - affiliate 2,574,000 2,550,000
Investments - restricted 4,629,000 4,629,000
Other assets 745,000 732,000
---------------- ----------------
$58,231,000 $59,137,000
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $2,560,000 $4,393,000
Note payable - 1,300,000
Accounts payable 5,299,000 6,457,000
Accrued liabilities 905,000 710,000
Due to affiliates 1,952,000 1,201,000
Customer deposits 6,983,000 7,741,000
Accrued interest 94,000 73,000
---------------- ----------------
Total current liabilities 17,793,000 21,875,000
Long-term debt 14,821,000 12,445,000
Minority interest in subsidiary 28,000 228,000
Stockholders' equity
Common stock - authorized 100,000,000 shares
of $.01 par value; issued and outstanding
7,439,821 shares in 1999 and 7,264,821 in 1998 74,000 72,000
Paid-in capital 17,083,000 16,348,000
Retained earnings 8,432,000 8,169,000
---------------- ----------------
Total stockholders' equity 25,589,000 24,589,000
---------------- ----------------
$58,231,000 $59,137,000
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2
<PAGE>
<TABLE>
<CAPTION>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
---------------------------------
<S> <C> <C>
Revenues $12,288,000 $11,528,000
Expenses
Operating 9,070,000 8,349,000
Marketing, selling and administrative 1,959,000 2,267,000
Depreciation and amortization 610,000 509,000
---------------------------------
11,639,000 11,125,000
---------------------------------
Operating income 649,000 403,000
Other income (expense)
Interest income 111,000 146,000
Interest expense (386,000) (420,000)
Minority interest share of loss
of consolidated joint venture 199,000 54,000
Equity in net (loss) of unconsolidated
joint venture (310,000) -
---------------------------------
(386,000) (220,000)
---------------------------------
Net earnings before provision for
preferred stock dividend 263,000 183,000
Provision for preferred stock dividend - 72,000
---------------------------------
Net earnings available for
common stockholders $ 263,000 $ 111,000
=================================
Earnings per share available for common
stockholders - Basic $ 0.04 $ 0.02
=================================
Weighted average number of common stock
outstanding - Basic 7,355,000 5,582,000
=================================
Earnings per share available for common
stockholders - Diluted $ 0.03 $ 0.02
=================================
Weighted average number of common stock
outstanding - Diluted 8,641,000 6,483,000
=================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE>
<TABLE>
<CAPTION>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
COMMON STOCK
------------------------ ADDITIONAL
NUMBER OF PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at
September 30, 1998 7,264,821 $72,000 $16,348,000 $8,169,000 $24,589,000
Fair value of options to
nonemployees - - 230,000 - 230,000
Issuance of common stock 175,000 2,000 505,000 - 507,000
Net earnings - - - 263,000 263,000
---------------------------------------------------------------------------
Balances at
December 31, 1998 7,439,821 $74,000 $17,083,000 $8,432,000 $25,589,000
===========================================================================
</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, 1998 AND 1997
(UNAUDITED)
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 263,000 $ 183,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation of property and equipment 610,000 509,000
Amortization of deferred drydock 400,000 415,000
Fair value of options to nonemployees 88,000 12,000
Undistributed equity in loss of joint venture 310,000 -
(Increase) decrease in operating assets
Restricted cash (166,000) (16,000)
Trade and other receivables 169,000 140,000
Due from affiliate (291,000) (124,000)
Inventory 299,000 208,000
Prepaid expenses and other current assets (1,120,000) (1,332,000)
Other assets 258,000 -
Increase (decrease) in operating liabilities
Accounts payable (1,158,000) 517,000
Accrued liabilities 195,000 (961,000)
Due to affiliate 751,000 -
Customer and other deposits (758,000) 1,503,000
Accrued interest 21,000 6,000
------------ -----------
Net cash provided by (used in) operating activities (129,000) 1,060,000
Cash flows from investing activities
Capital expenditures (701,000) (1,839,000)
Long-term receivable-affiliate (24,000) (24,000)
Decrease in minority interest in subsidiary (200,000) (55,000)
------------ -----------
Net cash provided by (used in) investing activities (925,000) (1,918,000)
Cash flows from financing activities
Principal payments on debt (10,757,000) (1,098,000)
Proceeds from long-term debt, net 9,663,000 -
Proceeds from exercise of warrants 507,000 -
Proceeds from sale of convertible subordinated debentures - 1,481,000
Net cash provided by (used in) financing activities (587,000) 383,000
Net decrease in cash and cash equivalents (1,641,000) (475,000)
Cash and cash equivalents at beginning of period 3,172,000 3,531,000
------------ -----------
Cash and cash equivalents at end of period $1,531,000 $ 3,056,000
============ ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 365,000 $ 414,000
============ ===========
Cash paid during the period for taxes $ - $ -
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Financial Statements for the three months ended December 31, 1998 and
1997, 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, 1998, contained in the
Company's annual report on Form 10-K.
2. FAIR VALUE OF OPTIONS TO NONEMPLOYEES. The Company issued warrants to
purchase 132,000 shares of common stock to unrelated third parties in the first
quarter of Fiscal 1999, in payment for consulting services (see note G to the
Company's financial statements for the year ended September 30, 1998). Under the
application of FASB #123 the Company has valued these warrants at approximately
$230,000; $88,000 of which was recorded as part of marketing, selling and
administrative expenses in the first quarter of Fiscal 1999.
3. EARNINGS PER SHARE. The Company's basic earnings per share is 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 NET
MONTHS ENDED EARNINGS- BASIC BASIC EARNINGS- DILUTED DILUTED
DECEMBER 31, BASIC SHARES EPS DILUTED SHARES EPS
- ------------ --------- ------ --- --------- ------ ---
<S> <C> <C> <C> <C> <C> <C>
1998 $263,000 7,355,000 $0.04 $263,000 8,641,000 $0.03
1997 $111,000 5,582,000 $0.02 $117,000 6,483,000 $0.02
</TABLE>
Included in diluted shares are common stock equivalents relating to options and
warrants of 1,286,000 and 214,000 for the three months ended December 31, 1998
and 1997, 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 $6,000 of interest expense, relating to the convertible debentures,
to net earnings for the three months ending December 31, 1997.
4. INVESTMENT IN JOINT VENTURE. In March 1998, the Company chartered the M/V
Enchanted Capri (formerly the Island Holiday) for a period ending on January 1,
2003 (see note B to the Company's financial statements for the year ended
September 30, 1998). The Company is accounting for the joint venture under the
equity method. The Company's 50% investment in Capri Cruises resulted in a net
loss of $310,000 for the three months ended December 31, 1998. These losses were
due to continued costs related to the start up operation. The Company expects
Capri Cruises to become profitable in the future, however, Capri Cruises is
expected to continue to incur losses, on a declining basis, in the near future
as it defines its market.
Page 6
<PAGE>
A condensed summary of the assets and liabilities and results of operations of
the joint venture follows:
AS OF
DECEMBER 31,
1998
------------
Current assets $ 2,805,000
Property and equipment, net 4,139,000
Other assets 667,000
------------
Total assets $ 7,611.000
============
Current liabilities $ 4,712,000
Other liabilities 556,000
Partners' capital accounts 2,343,000
------------
Total liabilities and
partners' capital $ 7,611,000
============
QUARTER
ENDING
DECEMBER 31,
1998
-------------
Revenues $ 4,969,000
Expenses 5,589,000
------------
Net loss $ 620,000
============
Page 7
<PAGE>
ITEM 2.
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, 1998, Compared to Three Months Ended December
31, 1997
Revenues increased by $760,000, or 6.6%, for the quarter ended December 31, 1998
compared to the quarter ended December 31, 1997 primarily due to 21 more
operating days in the first quarter of fiscal 1998. The Enchanted Isle was in
drydock during the first quarter of fiscal 1998 to effect the necessary repairs
and modifications to comply with the SOLAS requirements for the vessel.
The Company's operating expenses increased by $721,000, or 8.6%, primarily due
to 21 more operating days in the first quarter of fiscal 1998. The Company's
marketing, selling and administrative expenses decreased by $308,000, or 13.6%,
for the three months ended December 31, 1998 compared to the three months ended
December 31, 1997. This decline was due primarily to marketing expenses
associated with the Universe Explorer, which operated a Caribbean cruise program
in January 1998. In the comparable period in fiscal 1999, the vessel was out of
service in the shipyard having a sprinkler system installed. Accordingly, the
Company incurred no marketing expenses for that program in the first quarter of
fiscal 1999.
"Equity in loss of unconsolidated joint venture" during the first quarter of
fiscal 1999 represents losses associated with the Company's Capri Cruises joint
venture, which began operations in June 1998. The Company accounts for the Capri
Cruises joint venture under the equity method. The Company's 50% investment
resulted in a net loss of $310,000 for the quarter ended December 31, 1998.
These losses were due to costs related to the start up operation and continuing
operational losses as Capri Cruises defines its market. Capri Cruises operates
one vessel on two- and five-day cruises from New Orleans. Capri Cruises is
expected to continue to incur losses, on a declining basis, in the near future
as it defines its market.
Seawise's interest in the Company's Sea-Comm joint venture is reflected in the
$199,000 and $54,000 line item for "Minority interest in loss of consolidated
joint venture" for the three months ended December 31, 1998 and 1997,
respectively. Sea-Comm lost $398,000 during the three months ended December
31, 1998 compared to a loss of $108,000 during the three months ended
December 31, 1997.
The provision for preferred stock dividend decreased from $72,000 in the first
quarter of fiscal 1998 to nothing in the first quarter of fiscal year 1999 as a
result of the conversion of all of the Company's Series A Preference Shares into
Common Stock in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficiency was $7,068,000, and $10,426,000, for
December 31, 1998 and September 30, 1998, 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 decrease
in the Company's working capital deficit is the result of increases in prepaid
expenses and reductions in current portion of long-term debt, note payable,
accounts payable and customer deposits (see note M to the Company's financial
statements for the year ended September 30, 1998).
Cash flows from operations used $129,000 for the first three months of fiscal
1999 and provided $1,060,000 for the first three months of fiscal 1998. Cash
flows for the first three months of fiscal 1999 consisted primarily of an
increase in prepaid expenses (due to the drydock of the Universe Explorer), as
well as decreases in customer deposits and accounts payable.
The Company's cash flow used in investing activities in the first quarter of
fiscal 1999 declined from that of the same quarter in the prior fiscal year by
$993,000. The primary reason for such decline was the decline in capital
improvements to the Company's vessels during the first quarter of fiscal 1999.
Page 8
<PAGE>
The Company's cash flow used in financing activities was $587,000, as compared
to $383,000 provided by financing activities during the first quarter of fiscal
1998. This decline is due in large part to the Company's refinancing of a
portion of the EffJohn Loan with Key in fiscal 1999, the payment of the
outstanding $1.3 million note payable, and the net proceeds from the issuance of
the Company's convertible debentures in fiscal 1998.
At December 31, 1998, the Company owed $7,381,000 to the EffJohn lender and
$10,000,000 to KeyCorp Leasing Co. Inc. The EffJohn loan is secured by the
Enchanted Isle and bears interest at LIBOR plus 2% (7.75% at December 31,
1998). The Key Loan is secured by the Universe Explorer and bears interest at
9.14% per annum.
In January 1999, the Company took the Universe Explorer out of service primarily
for the installation of a sprinkler system aboard the vessel. The installation
of the sprinkler system, which will bring the ship into compliance with SOLAS
work to be completed on or before October 1, 2005, is expected to be completed
in February 1999. The cost of the installation of the sprinkler system is
estimated at $4.2 million. The Company expects to pay for such costs with the
proceeds of the Key Loan and the proceeds of an additional financing to be
obtained by the Company with the assistance of its joint venture partner,
Seawise. The Company expects to service such additional debt through payments
that will be received by the Company, from Seawise, that become due pursuant to
an agreement between the Company and Seawise.
The Company expects to fund the cash needs for its new Capri Cruises operation
from cash from its established operations until such venture becomes profitable.
Capri Cruises is continuing to experience losses related to its start-up as it
defines its market. The Company expects that such losses will decline as Capri
Cruises establishes its market niche. There can be no assurance that Capri
Cruises' losses will not have a material adverse effect on the Company.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's major market risk exposure is to changing interest rates. The
Company's policy is to manage interest rate risk through the use of a
combination of fixed and floating rate instruments, with respect to both its
liquid assets and its debt instruments.
The Company maintains a portion of its cash and cash equivalents, including its
deposit to secure its FMC Certificate of Financial Responsibility, which equals
$4,629,000, in financial instruments with original maturities of three months or
less. These financial instruments are subject to interest rate declines. An
immediate decline of 10% in interest rates would reduce the Company's annual
interest income by $52,000.00.
The Key Loan is a variable rate loan; however, the Company has purchased
interest rate protection for such loan in the form of an interest rate swap. As
a result, although the Key Loan bears interest at the prime rate plus 80 basis
points, the interest rate swap provides that the rate shall effectively be fixed
at 9.14% over the term of the loan. The EffJohn Loan bears interest at LIBOR
plus 2%, and thus is affected by changes in interest rates. In the event that
interest rates increased by 10%, the Company's interest obligation would
increase $65,000, $39,000, $22,000 and $6,000, respectively, in each of its
fiscal years 1999, 2000, 2001, and 2002.
Page 9
<PAGE>
Part II: Other Information
Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
c) On October 1, 1998, the Company granted warrants to
purchase an aggregate of 50,000 shares of Common Stock to the officers
and partners of an investment banking firm in exchange for consulting
services with respect to the Company's Stockholder Rights Plan. The
warrants are exercisable at $5.45 per share, which exceeded the market
value of the Common Stock on the date of the grant, and expire on
September 30, 2003. The grant of warrants was exempt from registration
pursuant to Section 4(2) of the Act.
On December 4, 1998, the Company granted warrants to
purchase an aggregate of 81,633 shares of Common Stock to
an investment banking firm as partial payment of its fee
in connection with its placement of the Key Corp Leasing
loan. The warrants are exercisable at $6.13 per share,
which price represents the closing price of the Common
Stock on the date of the grant, and expire on December 3,
2003. The grant of warrants was exempt from registration
pursuant to Section 4(2) of the Act.
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
During the quarter ended December 31, 1998, the Company filed a Current
Report on Form 8-K dated September 29, 1998. In Item 5 of such report, the
Company reported its adoption of a stockholder rights plan pursuant to which the
Company declared a dividend of one right to each stockholder of record on
November 2, 1998.
Page 10
<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 15, 1999
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,531,000
<SECURITIES> 0
<RECEIVABLES> 313,000
<ALLOWANCES> 0
<INVENTORY> 1,167,000
<CURRENT-ASSETS> 10,725,000
<PP&E> 45,019,000
<DEPRECIATION> 6,632,000
<TOTAL-ASSETS> 58,231,000
<CURRENT-LIABILITIES> 17,793,000
<BONDS> 14,821,000
0
0
<COMMON> 74,000
<OTHER-SE> 25,515,000
<TOTAL-LIABILITY-AND-EQUITY> 58,231,000
<SALES> 0
<TOTAL-REVENUES> 12,288,000
<CGS> 0
<TOTAL-COSTS> 11,639,000
<OTHER-EXPENSES> 111,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 386,000
<INCOME-PRETAX> 263,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 263,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 263,000
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.03
</TABLE>
