Royal Olympic Cruises' (ROC) annual FY 2002 report reveals that the company is in default on most all of its loan agreements, both in terms of KFW and FORTIS have agreed to allow ROC to continue to operate un covenants and payments. Banks a moratorium agreement that holds ROC to a stnct repayment schedule for now.

In addition to smaller payments this summer and fall, ROC must pay KFW $4.8 million by Dec. 2, and Fortis $9.8 million by Dec. 16. As part of the deal, ROC secured financing for its FMC bonding for winter 2003/04; otherwise, it would not have been able to return to U.S. ports. (The filing of the annual report on June 17, several weeks past the SEC deadline, coincided with the date of the moratorium agreements with the banks.)

"We expect that additional waivers will be required, unless our debt is refinanced or sufficient new equity is injected so that we are in compliance with the existing loan covenants," said ROC.

The cruise line has also faced a cash crunch in recent months, in April requiring a $4 million infusion from Silk Navigation (owned by the Potamianos family) "to enable us to alleviate a liquidity problem," said the company, which added that "as a result of our highly leveraged capitalization, we may not be able to borrow additional funds from traditional lenders" and "our cash flow from operations may not be sufficient to enable us to meet all expenses and obligations when due."

ROC's indebtedness increased year over year from $219.4 million as of Nov. 20, 2001 to $363.0 million on Nov. 30, 2002.

"As of June 17, 2003, the Company was in default of principal payments amounting to approximately $18.8 million. The company has obtained a moratorium from (banks) KFW and Fortis that will postpone part of the repayment of the principal in arrears and certain future principal installments that will become due after Dec. 1, 2003."

To obtain the moratorium, ROC agreed to scrap several of its vessels and provide the proceeds to Fortis, and to guarantee all revenues from the charter or sale of the Seawing to Fortis.

"Fortis agreed to contribute up to $9 million to facilitate the FMC bond for the winter of 2003/2004 conditional upon a number of payments of interest and principal, a first mortgage on the Seawing (should ROC purchase the vessel, which is currently under a capital lease agreement) being provided to Fortis, the pledging of all net proceeds from the Seawing to Fortis (should ROC sell the ship to a third party), no other events of default occurring, and the scrapping of certain vessels expected to generate $6.5 million." In addition, Silk Navigation was required to make a further $2 million guarantee to Fortis.

According to ROC, the company is currently negotiating for the sale of the Seawing to a third party, which would "generate an additional $13 million for the Company during 2003" and has signed charter contracts for 2004, including those related to the Athens 2004 Olympics, totaling $32 million. (Charter income from the Olympics is already earmarked to go directly to K.FW.)

Among other loans in arrears: The company still owes $2.4 million on the Olympia. "As negotiations have not been fInalized (for new terms of repayment), the full outstanding amount is callable at the discretion of the bank," said ROC.

Another of the company's vessels, the World Renaissance, was the subject of an arrest attempt by creditor Dynasty Navigation Corp. last Nov. 28, but the court dismissed Dynasty's petition.

FY 2002 Results

ROC reported a net loss of $26.8 million, or $1.91 per share, on revenues of $127.7 million for the year ended Nov. 30, 2002, compared to a net loss of $25.5 million, or $1.82 per share, on revenues of $128.8 million, for the year ended Nov. 30, 2001.

According to ROC, "The after-effects of the Sept. 11 terrorist acts in the U.S., events leading to the Iraq war, and the SARS outbreak, all had a substantial impact on the company's results."

The one percent revenue decrease reflected lower ticket prices despite increased passenger totals, according to ROC, while at the same time, operating expenses increased 8.3 percent, primarily as a result of layup/drydock expenses, increased port charges, and increased insurance. In addition, ROC decreased the book value of the Olympia by $984,052.

ROC reported that passenger cruise days increased by three percent, from 933,694 in 2001 to 961,500 in 2002. Occupancy was 83.1 percent in 2002, when the company operated seven ships, versus 74.8 percent in 2001, when it operated eight ships.