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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended December 31, 1995
COMMISSION FILE NO: 0-17529
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EUROPA CRUISES CORPORATION
(name of small business issuer in its charter)
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DELAWARE 59-2935476
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(State of Incorporation) (I.R.S. Employer
Identification Number)
150-153rd Avenue East, Suite 200, Madeira Beach, Florida 33708
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(Address of principal executive offices)
Registrant's telephone number, including area code 813/393-2885
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Securities registered pursuant to Section 12 (b) of the Act: None
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Securities registered pursuant to Section 12 (g) of the Act: Common Stock, par value $.001
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by references in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $ 19,243,830 .
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of March 29, 1996: $14,416,824 .
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 29, 1996: 19,222,432 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
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TABLE OF CONTENTS
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ITEM 1. BUSINESS...................................................................... 4
Introduction................................................................ 4
Florida Day Cruise Vessel Operations........................................ 4
Cruise Vessels.............................................................. 4
Cruise Operations........................................................... 5
Termination of Cruise Vessel Gaming Concession Agreement.................... 6
Seasonality................................................................. 6
Sales and Marketing......................................................... 7
Government Regulation - Day Cruise Gaming Vessels........................... 7
Government Regulation - Florida............................................. 7
Competition................................................................. 8
Employees................................................................... 8
Business Strategy - Day Cruise Operations................................... 8
Proposed Dockside Gaming Operations......................................... 9
Regulatory Approvals - Proposed Dockside Gaming Operations.................. 9
ITEM 2. PROPERTIES................................................................... 10
Offices/Operating Ports..................................................... 10
Proposed Dockside Gaming Site............................................... 11
ITEM 3. LEGAL PROCEEDINGS............................................................ 11
Florida Department of Revenue Tax Audit.................................... 11
Sea Lane Bahamas Limited v. Europa Cruises Corporation..................... 12
William Poulos, ET AL. v. Ambassador Cruise Lines, Inc., Et Al. ........... 12
Galveston Independent School District, ET AL. v. Europa Cruise Lines of
Texas, Inc., ET AL. ...................................................... 13
In Re Burton Securities, S.A., Debtor/Harrell Z. Browning, Liquidating
Trustee of Burton Securities, S.A. v. Europa Cruises Corporation........... 13
Turner v. Europa Cruises Corporation, ET AL................................ 14
Liberis v. Europa Cruises Corporation...................................... 14
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............................................................ 15
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), and
Austroinvest International Limited......................................... 15
Charles S. Liberis, as Trustee of the Charles S. Liberis, P.A., Profit Sharing
Plan v. Europa Cruises Corporation......................................... 16
Europa Cruises Corporation v. Liberis, ET Al............................... 16
Liberis v. Europa Cruises Corporation...................................... 16
Austroinvest International/Serco International/Ernst Walter................ 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDINGS......................... 17
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS.......................................................... 17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................... 17
Results of Operations...................................................... 17
Passenger Fares, Gaming and Beverage Income................................ 17
Gain on Sale of Land....................................................... 18
Vessel Operating Expenses.................................................. 18
Meal Costs................................................................. 19
Administrative and General Expenses........................................ 19
ESOP Adjustment............................................................ 19
Advertising and Promotion.................................................. 19
Depreciation............................................................... 19
Fourth-Quarter Results 1994................................................ 19
Liquidity and Capital Resources............................................ 20
ITEM 7. FINANCIAL STATEMENTS......................................................... 22
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................................... 22
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS. COMPLIANCE WITH SECTION 16 (a) OF THE
EXCHANGE ACT. ............................................................... 23
Directors and Executive Officers........................................... 23
Compliance with Section 16(a) of the Securities Exchange Act of 1934....... 24
ITEM 10. EXECUTIVE COMPENSATION....................................................... 25
Stock Options.............................................................. 25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................................... 28
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 30
ITEM 13. EXHIBITS AND REPORTS ON FORM 10-KSB......................................... 31
Exhibits.................................................................. 31
Reports on Form 8-K....................................................... 35
Subsidiaries of the Registrant............................................ 35
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PART I
ITEM 1. BUSINESS
Introduction
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Europa Cruises Corporation (the "Company"), a Delaware corporation,
promotes and operates cruise vessels that provide moderately-priced day and
evening cruises. The Company's business strategy is to emphasize the cruise
experience and casino gaming, rather than cruise destinations. The Company's
cruises include a variety of shipboard activities such as dining, casino
operations, sightseeing, live music and other entertainment. The Company
currently owns four vessels. Three of the Company's vessels, the EuropaStar, the
EuropaSun, and the EuropaSky sail from their respective ports in Ft. Myers
Beach, Miami Beach and Madeira Beach, Florida. The Company acquired a fourth
vessel in 1994, the Stardancer, that operates out of a port at Marco Island,
Florida. The Stardancer has been time-chartered to an unaffiliated third party
through June 30, 1996. A permanent port has not yet been secured for the
Stardancer. Until October 15, 1994, the Company's casinos were operated by
Casinos Austria Maritime Corporation pursuant to a concession agreement. The
Company now operates all of its casinos on board each of its vessels and leases
its gaming equipment from Casinos Austria Maritime Corporation.
The Company plans to spin-off to its shareholders, two wholly-owned
subsidiaries, Casino World, Inc. and Mississippi Gaming Corporation. Casino
World, Inc. plans to develop and operate a casino and hotel at Diamondhead,
Mississippi. Europa shareholders will receive a dividend in the form of Casino
World, Inc. Common Stock. Casino World will acquire from Europa all the issued
and outstanding shares of Mississippi Gaming Corporation which owns the proposed
Diamondhead, Mississippi gaming site. The proposed gaming operations in
Mississippi are subject to numerous risks and uncertainties including but not
limited to the availability of financing, licensing, and the receipt of permits
from the Mississippi Department of Marine Resources and the U.S. Army Corps of
Engineers (the "Corps"). Litigation brought by environmental groups opposed to
further development of gaming in Mississippi may delay regulatory approvals and
the issuance of permits necessary for the construction of a casino at the
Company's proposed Diamondhead site. In light of these uncertainties and other
risks affecting the Company's proposed gaming operations in Mississippi, there
are no assurances that the necessary regulatory approvals can be obtained or
that financing will be available. The Company does not have the financial
resources to develop its proposed Mississippi dockside gaming facility.
Accordingly, there are no assurances that the spinoff of Casino World Inc. or
Mississippi Gaming Corporation to Europa shareholders will be successfully
completed.
Florida Day Cruise Vessel Operations
Cruise Vessels
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The EuropaSun and the EuropaStar were built in 1977, are registered in
Panama and were renovated in January 1987. Neither vessel has any passenger
cabins. Both vessels are approximately 100 gross registered tons in size, 167
feet in length and 38 feet in width. Each vessel has a capacity of 350
passengers. The EuropaSun and EuropaStar each have a passenger entry deck, a
middle deck, and a top deck. The passenger entry deck contains the dining area,
gift shop, entertainment stage, dance floor, main deck, lounge and bar, and
galley. The middle deck contains the casino operations including slot machines
and gaming tables, and a television room. The top deck is used primarily for
live entertainment, sightseeing and sunbathing. Bars are located on all three
decks and dance floors are located on two decks.
On July 14, 1992, the Company acquired the EuropaSky, which was renovated
by a U.S. shipyard and placed in operation in November of 1993. The 498 ton
vessel is 160 feet in length and 36 feet in width, with a capacity of 440
passengers. The EuropaSky seats 150 passengers in its dining areas, has a casino
with a capacity of approximately 200 persons, a cabaret with seating for 65
persons, several
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lounges, a gift shop, passenger changing rooms, a children's play room, a small
conference and television room, and a sun deck with seating for up to 100
persons. The EuropaSky was built to U.S. safety standards in order to receive a
U.S. Coast Guard Certificate of Inspection. The EuropaSun and the EuropaStar,
which are currently registered in Panama, were previously registered in the
United States and at that time received Certificates of Inspection from the U.S.
Coast Guard. Both vessels currently hold valid control verifications from the
U.S.C.G. The EuropaSky's U.S. registry has been made possible by 1992
legislation that, for the first time, allowed U.S. registered vessels to carry
gambling equipment to and from U.S. ports for use in international waters.
On August 26, 1994, the Company purchased a fourth day cruise vessel, the
M/V Stardancer from Lagoon Cruise Line, Inc. ("Lagoon") for $3,500,000. The
Company paid $982,548 in cash, assumed a first Preferred Ship Mortgage in the
amount of $667,452, issued a second Preferred Ship Mortgage to Lagoon in the
amount of $350,000 and issued 1,200,000 shares of the Company's Common Stock to
Lagoon with an agreed upon value of $1.25 per share or $1,500,000. In connection
with the issuance of the shares to Lagoon, the Company has filed a Registration
Statement under the Securities Act of 1933 to enable Lagoon to sell the shares.
If the shares sold by Lagoon and the fair market value of the shares held by
Lagoon at the end of nine (9) months from the effective date of the Registration
Statement is less than $1.25 per share, the Company is obligated to pay Lagoon
the difference between the fair market value of the shares and $1.25 per share.
The Company will receive credit for the fair market value of any shares of
Casino World, Inc. distributed to Lagoon pursuant to any spinoff of Casino
World, Inc. shares to the Company's shareholders. As of March 29, 1996, the fair
market value of the 1,200,000 shares of Europa Common Stock held by Lagoon was
approximately $900,000. The Company may be required to pay a significant amount
of cash to Lagoon in satisfaction of the Guaranty. See ITEM 6 -"MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
ITEM 11. "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
The M/V Stardancer was built in 1984, is 150 feet in length, has a gross
registered tonnage of 97 tons and has a capacity of 499 passengers. From
November 2, 1994 to June 30, 1996, the Stardancer has been chartered to
unrelated third parties.
From December 1989 until November 25, 1993, the Company operated the
EuropaJet, which operated under a bareboat charterparty agreement with Sea Lane
Bahamas Ltd/Marne Delaware Inc. hereafter ("Sea Lane"). The bareboat
charterparty agreement did not expire until August 1997, and provided for
payment of $2,800 per day, plus $3 for each passenger in excess of 9,000 per
month carried on the vessel. The Company experienced substantial losses from the
operation of the EuropaJet and this vessel was taken out of service in the
second quarter of 1993 and operated only 1-1/2 months under a subcharter during
the third quarter of 1993. In November 1993 the Company returned the EuropaJet
to its owners rather than continue to operate the vessel at a loss. The Company
and Sea Lane have not yet resolved a dispute concerning the amount the Company
will be required to pay because of the alleged condition of the vessel upon
redelivery to Sea Lane. See "ITEM 3. LEGAL PROCEEDINGS."
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Cruise Operations
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The current prices for the Company's cruises range from $15.00 to $34.95
depending on the port, the day of the week, and the holiday seasons. Each
passenger is required to pay a $12.00 charge, which includes a federal departure
tax, service charges and state sales tax. Ticket prices cover all shipboard
activities except casino wagers and the purchases of beverages and gifts. The
Company offers discounted passenger rates to groups and for charters of an
entire vessel.
As an additional marketing effort, the Company has developed a variety of
special cruises and discount programs, including a Florida Resident and Senior
Citizen cruise fare, to attract an array of market segments and increase
passenger fares and on board revenues. The Company also provides "theme"
cruises, which feature different types of music such as jazz, country, 50's
oldies and concert, and special holiday cruises for Easter, Mother's Day, the
4th of July, Halloween, Christmas and New Year's. These cruises provide an
alternative to the Company's standard cruises and can be enjoyed by vacationers
as well as local residents.
The Company offers its vessels for charter cruises if such charters do not
interfere with the scheduled cruises offered to the general public. The
Company's vessels have been used for convention meetings, continuing education
programs, weddings and other group gatherings. The Company provides bus services
and special arrangements for groups of forty (40) persons or more. Charter
discounts require a minimum of 150 passengers.
Termination of Cruise Vessel Gaming Concession Agreement
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Through October 15, 1994, the casinos on the Company's vessels were
operated by Casinos Austria Maritime Corporation ("CAMC") as concessionaire
pursuant to a Gaming Concession Agreement. On September 16, 1994, the Company
terminated the Gaming Concession Agreement and entered into a Consulting
Agreement with CAMC. Under the Consulting Agreement, the Company manages and
operates all casinos on board the Company's vessels and CAMC's role is limited
to providing consulting services through December 31, 1997. Under the Consulting
Agreement, CAMC is required to assist the Company in establishing various
computerized and security management systems as well as accounting procedures
and appropriate control, supervision and surveillance techniques. CAMC is also
required to provide advice to the Company regarding accounting and bookkeeping
records maintained by the casinos. As a consultant to the Company, CAMC receives
$37,500 per month or 3.5% of gross Gaming Revenue, whichever is greater. CAMC
also receives $140 per cruise for the services of a Purser on board each vessel.
In return for the Consulting Agreement, CAMC waived a termination fee of
approximately $1,400,000 that the Company would have been required to pay for
early termination of the Gaming Concession Agreement.
On October 13, 1994, the Company and CAMC entered into an Equipment Lease
Agreement whereby the Company leased all gaming equipment on the Company's four
vessels for a period of forty months at $46,398 per month. At the end of the
lease term the Company has the option to purchase the equipment for one dollar.
Seasonality
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The business of the Company is subject to certain seasonal fluctuations.
Historically, the months of January and February were the lowest revenue-
producing months of the year for the Company. With changes in tourism activity
and relocation of the vessels, January and September have become the lowest. The
off-peak cruise months of May and June should also produce generally lower
revenues for the Company in its operating markets. Based on its recent
experience, management believes the months of February, March and April
currently generate the greatest amount of revenues for the Company.
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Sales and Marketing
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The Company focuses its sales and marketing efforts in markets concentrated
within a 100-mile radius of its locations. The Company's strategy is to market
the cruise experience as an additional attraction in established vacation
markets near its ports. The Company seeks to attract passengers from such
markets including passengers who have never been on a cruise before and those
who might not otherwise consider a cruise as a vacation alternative. The cruises
are marketed as a family recreation experience emphasizing a wide variety of
shipboard activities and entertainment for adults and children. The Company
markets its cruises through general advertising, direct mailings, travel agents
and the Company's own sales force.
The Company periodically revises its food menu and the entertainment
offered on its cruises and offers special theme cruises and other promotions co-
sponsored by local businesses to vary the cruise experience and attract repeat
customers. Gaming instruction for passengers is also offered.
Government Regulation - Day Cruise Gaming Vessels
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The EuropaSun and the EuropaStar are registered in Panama and the EuropaSky
and the Stardancer are registered in the United States. These ships are subject
to inspection by the United States Coast Guard for compliance with The Safety of
Life at Sea Convention that sets minimum safety standards for vessels engaging
in an international voyage from a United States port. The Company is also
subject to inspection by the United States Public Health Service for sanitary
standards on its vessels.
Federal legislation enacted in 1948, 18 U.S.C.(S) 1081, 1082 and 1085 (the
"Gambling Act"), prohibits any citizen, resident of the United States or any
other person within the jurisdiction of the United States from establishing,
operating or owning an interest in a gambling ship on the high seas or otherwise
within the jurisdiction of the United States. Section 1081 of the Gambling Act
defines a gambling ship as "a vessel used principally for the operation of one
or more gambling establishments." Any person who violates the Gambling Act is
subject to a fine of up to $10,000 or imprisonment of not more than two years,
and the vessels used in violation of the Gambling Act could be forfeited to the
United States Government. There are no formal or informal regulations or legal
or administrative opinions as to the application of the Gambling Act to business
operations such as those conducted by the Company. Federal Legislation enacted
in 1992 specifically authorized U.S. registered vessels to carry gambling
equipment to and from U.S. ports for use in international waters. The 1992
Federal Legislation would appear to conflict in certain respects with the
Gambling Act. However, there are no reported judicial decisions or
administrative opinions reconciling any potential conflicts between the Gambling
Act and the 1992 Federal Legislation.
Though no litigation is presently contemplated, if the Company's operations
were ever found by a court of law in a litigation commenced by a United States
Attorney's Office to violate the Gambling Act, the vessels owned and operated by
the Company could be forfeited to the United States Government without
compensation to owners or the Company or the Company could be required to change
its operations. A material change in the Company's operation, such as the
removal of casinos from the vessels, would have a material adverse impact on the
Company's financial condition.
The Company believes that it is in compliance with all material regulations
applicable to its ships and that it holds the necessary licenses to conduct it's
business.
Government Regulation - Florida
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On or about March 6, 1996, a bill was introduced into the Florida State
House of Representatives by Representative King from the Jacksonville, Florida
area to ban all cruises to nowhere originating from the State of Florida. This
bill, if passed by both the House of Representatives and the Senate and signed
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by the Governor, would in fact bar the Company from continuing its core business
of day and evening cruises to nowhere, in the State of Florida. The Company is
actively engaged in lobbying efforts through the Florida Day Cruise Association
to defeat this bill in committee. The Company feels that this bill will not
become a new law, however, there can be no assurances that this bill will be
defeated.
The Governor of the State of Florida has proposed a bill that would provide
the State of Florida with a $5.00 per passenger tax on all cruises to nowhere
originating from the State of Florida. The Florida Day Cruise Association is
working closely with the Governor's budget office to develop a fair tax that
would not be burdensome to the passengers, or those companies engaged in the
cruise to nowhere business.
Competition
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The Company competes with a variety of other vacation activities in the
areas where it operates its vessels, including short-term cruises, resort
attractions, sporting and other recreation activities. The Company competes with
at least one other vessel in all of its ports.
The Company is aware of firms that operate day cruise vessels in various
locations throughout Florida, which could reposition these vessels to any area
in which the Company's vessels are positioned. All of the competing firms offer
day cruises, with published fares ranging from "Free" to $49.00. Although the
Company's standard prices for its cruise currently ranges from $15.00 to $34.95
per person, the Company may, in the future, be forced to adjust these rates due
to competitive pressures.
In November of 1994, Florida voters rejected an Amendment to the Florida
Constitution that would have authorized casinos throughout the State of Florida
at existing and operating parimutuel facilities, including race tracks and jai
alai frontons, and up to seven other casinos in the state (but not more than one
per county) as authorized by the Florida Legislature. It is likely that the
gaming industry will continue to pursue legalization of gaming in Florida. The
Company believes that the legalization of gaming in Florida would have a
material adverse impact on the Company's operations.
The Company's proposed dockside gaming operations will be subject to
significant competition in Mississippi from other gaming enterprises located in
Mississippi and Louisiana, many of which are significantly better capitalized
than the Company. By the end of calendar year 1995, approximately twenty-eight
(28) dockside casinos were in operation in the State of Mississippi alone. In
New Orleans, Louisiana, there are plans to open one of the world's largest
casinos. Furthermore, the legalization of gaming in the States of Florida,
Texas, Alabama, and other jurisdictions, and the rapid expansion of gaming on
Indian land throughout the United States could adversely affect the Company's
proposed dockside gaming operations in Mississippi. See "Proposed Dockside
Gaming Operations."
Employees
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The Company presently employs 388 persons, of whom six are executive and
management personnel, 34 are engaged primarily in marketing and sales activities
and 17 are engaged in administrative and clerical positions. The remaining 333
persons are officers, crew and staff employed by the Company to work on the four
vessels. None of the Company's employees is a party to a collective bargaining
agreement. The Company considers its employee relations to be generally
satisfactory.
Business Strategy - Day Cruise Operations
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The criteria used by the Company in selecting sites for expanding its day
cruise operations include accessibility of site, a suitable population base,
presence of an established vacation market, docking facilities and water depth,
availability of U.S. Customs clearance, ability to comply with state and local
laws, favorable year-round weather and sea conditions, close proximity to
international waters, and
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existence of competition. Due to the expenses associated with the repositioning
of a vessel from one port to another, the Company seeks to position its vessels
in markets that can support a vessel at a profitable level year round. If the
Company cannot find such markets, the Company will seek to position a vessel at
two or more different ports during peak seasons of the year and will incur
additional expenses in connection with the repositioning of a vessel. Such
expenses, including dock preparation and fuel, will vary depending upon, among
other things, the condition of docking facilities and the distance between port
locations.
Proposed Dockside Gaming Operations
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The Company plans to spinoff its wholly-owned subsidiaries, Casino World,
Inc. and Mississippi Gaming Corporation. Casino World, Inc. plans to develop and
operate a casino, hotel, and golf course at Diamondhead, Mississippi. Europa
shareholders will receive a dividend in the form of Casino World, Inc. Common
Stock. Casino World will acquire from Europa all the issued and outstanding
shares of Mississippi Gaming Corporation that owns the proposed Diamondhead,
Mississippi gaming site. The spinoff of Casino World, Inc. and Mississippi
Gaming Corporation is subject to numerous uncertainties including the lack of
available financing, obtaining the necessary regulatory approvals, the absence
of necessary licenses and permits from Federal and state regulatory authorities,
and the outcome of litigation instituted against parties other than the Company
by environmental groups opposed to the development of additional gaming
facilities on the Mississippi Gulf Coast.
On March 7, 1994, CWI entered into a Letter of Intent with Schneider
Securities, Inc., for an initial public offering of 2,500,000 shares of CWI 10%
Convertible Preferred Stock at an offering price of $6.00 per share. Schneider
Securities has informed the Company that it considers the Letter of Intent a
current valid commitment on the part of both Schneider Securities and the
Company. However, Schneider Securities has also informed the Company that they
will not proceed with the offering until the Company receives site approval from
the Mississippi Gaming Commission and until Schneider Securities is satisfied
that the necessary permits from the Army Corps of Engineers are likely to be
issued. In June 1995, site approval was completed. The success of CWI proposed
dockside casino operations is dependent upon its ability to successfully
complete this offering or obtain similar financing from other sources and its
ability to raise substantial additional financing.
Regulatory Approvals - Proposed Dockside Gaming Operations
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The ownership and operation of a gaming business in Mississippi is subject
to extensive laws and regulations, including the Mississippi Gaming Control Act
(the "Mississippi Act") and the regulations (the "Mississippi Regulations")
promulgated thereunder by the Mississippi Gaming Commission (the "Mississippi
Commission") which is empowered to oversee and enforce the Mississippi Act.
Gaming in Mississippi can be legally conducted only on vessels of a certain
minimum size in navigable waters of the Mississippi River or in waters of the
State of Mississippi (so called dockside gaming) which lie adjacent and to the
south (principally in the Gulf of Mexico) of the Counties of Hancock, Harrison
and Jackson, and only in counties in Mississippi in which the registered voters
have not voted to prohibit such activities.
The Mississippi Act requires that a person (including any corporation or
other entity) must be licensed to conduct gaming activities in Mississippi. A
license will be issued only for a specified location that has been approved as a
gaming site by the Mississippi Commission prior to issuing a license. The
Mississippi Act also requires that each officer or director of a gaming
licensee, or other person who exercises a material degree of control over the
licensee, must be found suitable by the Mississippi Commission. Any person who,
directly or indirectly, or in association with others, acquires beneficial
ownership of more than 5% of the common stock of any gaming enterprise must
notify the Mississippi Commission of this acquisition and must be found suitable
by the Mississippi Commission. The finding of suitability is comparable to
licensing and both require submission of detailed personal financial
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information followed by a thorough investigation. In addition, the Mississippi
Commission will not issue a license unless it is satisfied that the licensee is
adequately financed or has a reasonable plan to finance its proposed operations
from acceptable sources.
Mississippi Gaming Corporation ("MGC") must obtain permits for each
location it plans to operate as a gaming casino. MGC must obtain site approval
from the Mississippi Gaming Commission and MGC must also obtain permits from
such federal agencies as the U.S. Environmental Protection Agency, the Army
Corps of Engineers and the United States Coast Guard. In addition, MGC must
obtain permits from various agencies in the State of Mississippi including, but
not limited to, the Department of Environmental Quality, and the Department of
Marine Resources. MGC does not have a license to operate a casino in Mississippi
or in any other jurisdiction and in addition, does not have a permit under the
Rivers and Harbors Act from the Army Corps of Engineers. MGC obtained site plan
approval from the Mississippi Gaming Commission on June 16, 1995. MGC has not
obtained a permit under the Clean Water Act from the Army Corps of Engineers.
Mr. Reddien and Ms. Vitale, directors of Casino World, Inc. and Mississippi
Gaming Corporation were issued key person licenses by the Colorado Gaming
Commission during 1994. Neither Casino World, Inc. or Mississippi Gaming
Corporation presently intend to seek a gaming license in Colorado. The licensing
of Mr. Reddien and Ms. Vitale in Colorado is expected to facilitate licensing of
these individual directors by the Mississippi Gaming Commission. Mr. Bullock,
President of Europa Cruises Corporation was elected to the Board of Directors of
Casino World, Inc., and Mississippi Gaming Corporation in February 1996. Mr.
Bullock is not licensed in any state.
The political and regulatory environment in which the Company is and will
be operated with respect to gaming activities is dynamic and rapidly changing.
Existing operators often support legislation and litigation designed to make it
more difficult or impossible for competition to develop and operate gaming
facilities. This environment makes it impossible to predict the effects,
including costs, that the adoption of and changes in gaming laws, rules and
regulations and/or competition will have on proposed dockside gaming operations.
ITEM 2. PROPERTIES
Offices/Operating Ports
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The Company's headquarters are located in Madeira Beach, Florida. The
Company's headquarters had been leased from Serco International, Ltd., a major
stockholder of the Company. The lease provided for a monthly rental payment of
$1,195 and expired on December 31, 1994. On or about May 30, 1994, the Company
purchased the Madeira Beach office space from Serco for $105,000. The Company
also leases office space in Diamondhead Mississippi for coordination of
activities associated with the development of the Diamondhead Casino Resort.
The Company leases additional office space and dockage at Madeira Beach,
Ft. Myers Beach, and Miami Beach, Florida. The Company has two additional leases
in the Madeira Beach area. The Madeira Beach additional office space lease is
for thirteen months with an option to renew for one year; the Madeira Beach
dockage lease is for three years commencing October 1994 with options to renew
for two additional three-year periods. In December 1995 the Ft. Myers operations
moved to a new port location, Snug Harbor. Snug Harbor's proximity to the gulf
reduces travel time to and from international waters 15 minutes in each
direction, resulting in an additional 30 minutes of gaming time on the vessel.
The Snug Harbor lease in Ft. Myers is for five years commencing December 1, 1995
with the option to renew for three years. The lease for both office space and
dockage facilities in Miami is for a period of five years commencing March 1,
1995, with the option to renew for two years.
10
<PAGE>
Proposed Dockside Gaming Site
- -----------------------------
In addition to the above Offices/Operating Ports, the Company's
subsidiaries CWI and MGC have purchased the following dockside gaming site:
Diamondhead, Mississippi - On June 19, 1993, MGC exercised its option to
purchase 404.5 acres of property at Diamondhead, Mississippi for $4,000,000. To
complete the purchase of the Diamondhead property, MGC received a $2,000,000
loan from CAM that was collateralized by a first mortgage on the Diamondhead
property. The first mortgage loan was payable interest only at 8% per annum for
fifteen months and the full principal balance on the first mortgage loan was due
and payable on June 30, 1995. As of June 30, 1995, the first mortgage was paid
in full from proceeds of a bank loan. (See Liquidity and Capital Resources)
In order to insure that MGC has adequate access to the proposed gaming site
at Diamondhead, Mississippi, MGC acquired a 100-foot wide perpetual easement
from an adjoining property owner on December 22, 1994. The cost of the easement
was $60,000. MGC has the right to construct an asphalt roadway at its expense on
the easement property. If construction of the roadway does not commence within
seven years of the easement grant, the easement terminates and reverts to the
Grantors.
On February 1, 1996, MGC entered into a lease with the Hancock County Port
and Harbor Commission to lease 10.15 acres of tidelands (bottomlands) and .1
acre of uplands. The bottomlands lease covers the area where the casino barges
will be moored and the pier between the hotel and the casinos. The term of the
lease is for five (5) years beginning 30 days after construction on the project
commences. There are four five (5) year option renewal periods. The cost of the
lease is $2,250,000 for the first five years of which $25,000 was paid on
signing, and $95,000 is payable upon commencement of construction. Both payments
are to be applied toward the lease payments which are $10,000 per month during
construction and the remainder of the $2,250,000 will be amortized over the
remainder of the lease after operation of the casino commences. Renewal options
will be at a fair market value as defined under Mississippi Code Ann. Section
29-1-107(2)(b)(Supp. 1994) or as amended by subsequent legislation and adopted
and published rules of the Secretary of State for the administration, control
and leasing of public trust tidelands, as amended and revised. The lease is
contingent on the project receiving all necessary approvals for construction.
Application for environmental approvals for the construction of the project
have been submitted. CWI/MGC is working closely with local, state and federal
governmental agencies to acquire all necessary approvals. There can be no
assurance that any or all necessary approvals will be forthcoming. Litigation
brought by environmental groups opposed to further development of gaming in
Mississippi may delay regulatory approvals and the issuance of permits necessary
for the construction of a casino resort.
Biloxi, Mississippi - On May 27, 1994, the Company sold its Backbay Biloxi,
Mississippi gaming site to the owners of the Imperial Palace Hotel and Casino,
Las Vegas, Nevada for $6,150,000. The Company realized a pretax profit of
approximately $2,253,000 from this transaction.
ITEM 3. LEGAL PROCEEDINGS.
FLORIDA DEPARTMENT OF REVENUE TAX AUDIT
- ---------------------------------------
On November 28, 1994, the Florida Department of Revenue issued to the
Company, 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 proposed
audit Changes, including penalties and interest total $6,515,681. The Florida
Department of Revenue seeks to assess sales tax on gaming revenue, passenger
fares, the purchase, sale and lease of fixed assets, repairs, and other items.
11
<PAGE>
On June 28, 1989, the Department of Revenue issued Technical Assistance
Advisement (TAA 89 (A) - 034) to Europa Cruise Line, Ltd. (the entity that is
now known as Europa Cruises Corporation). This TAA appeared to resolve the
admissions tax issue and the tax on purchases issued in favor of Europa. The
Department revised this TAA in 1990, purporting to "clarify" that it had
actually intended to conclude that the admissions tax was applicable. The
revision did not revisit the tax on purchases. On April 21, 1995, the Assistant
General Counsel for the Florida Department of Revenue issued a recommendation to
the auditor responsible for the Europa sales tax assessments that the TAA issued
on June 28, 1989, should be honored. Therefore, the Assistant General Counsel
recommended that the assessment for Europa Cruise Line, Ltd., be eliminated for
the period from June 28, 1989 to May 2, 1990. For the Period following May 2,
1990, the Company relies on Florida statutes that provide that vessels are not
establishments subject to admission sales tax. The Assistant General Counsel
further recommends that the TAA be honored for all purchases made by Europa
Cruise Line, Ltd., if such purchases were for supplies appropriate to carry out
the purposes for which the Vessel was designed. The recommendation is limited to
assessments for Europa Cruise Line, Ltd. However, the Company intends to pursue
the argument that the successor entities are entitled to the benefits of the
TAA. The recommendation of General Counsel for the Department of Revenue
regarding the TAA will reduce the sales tax assessment by the Department of
Revenue. However, it is not possible for the Company to estimate the amount of
the reduction in the sales tax assessment at this time. The Company strongly
disagrees with the proposed Audit Changes and intends to vigorously contest the
factual, statutory, and regulatory issues that form the basis for the proposed
Audit Changes. The Company believes many of the proposed Audit Changes will be
resolved in the Company's favor. However, the outcome of this matter is
uncertain and if the Company is not successful in challenging the proposed Audit
Changes by the Florida Department of Revenue, the additional Sales and Use Tax
the Company will be required to pay would have a major substantial adverse
impact on the Company's financial condition.
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. 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 Company believes its liability for required repairs and
maintenance to the EuropaJet when the vessel was returned to Sea Lane is
approximately $150,000. The Settlement Agreement provides that if the Company
and Sea Lane are 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.
On or about September 26, 1994, Sea Lane filed a Petition to Compel
Arbitration in the United States District Court for the Southern District of
Florida seeking damages in excess of one million dollars. Sea Lane contends that
it acquired the EuropaJet from Europa for nonpayment of amounts due on a
charterhire agreement and that substantial expenses were incurred to make
repairs for which Europa is responsible. The Petition requested that the court
direct Europa to proceed to arbitration under the charterhire agreement. Europa
objected to the demand for arbitration and denied that it owed the amount
requested by Sea Lane. On or about April 10, 1995, the United States District
Court entered an Order granting Sea Lane's Petition to Compel Arbitration. The
parties have not selected arbitrators and no date for the arbitration has been
set. On or about August 2, 1995, the EuropaJet sank off the coast of Florida in
a hurricane. What, if any effect, this will have on the Petitioner's ability to
prove alleged damages is unknown. An arbitration date is expected to be set in
the near future.
WILLIAM POULOS, ET AL. V. AMBASSADOR CRUISE LINES, INC., ET AL.
- ---------------------------------------------------------------
12
<PAGE>
(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. Although this action is in the very
early stages of litigation, 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.
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.
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).
On June 17, 1994, Harrell Z. Browning, Liquidating Trustee under the
Chapter 11 plan of Burton Securities, S.A., Debtor, entered into a binding
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. Moreover, the Bankruptcy Court
13
<PAGE>
entered an Order on July 15, 1994, approving the terms and condition of the
Memorandum of Agreement in all respects and specifically stating that "[i]f for
any reason the closing [had] not taken place on or before August 16, 1994,
Europa may, at its option, terminate the Europa Agreement and, in such event,
the Trustee shall refund the entire escrow deposit plus any accrued interest to
Europa and Europa shall have no obligation to the Trustee or the estate." The
Trustee was notified on August 15, 1994, that Europa had determined to exercise
its right to terminate the Agreement. Europa has attempted to obtain the return
of its deposit from the Trustee who has refused to return same. On the contrary,
on December 15, 1994, the Trustee filed an action against Europa for breach of
contract seeking damages in excess of $750,000. The Company believes the
agreement to purchase Le Mistral was properly terminated and that the Company is
entitled to a full refund of its $85,000 deposit. Trial in the matter is set for
May 2, 1996.
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)
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 maintains that Mr. Turner
unequivocally resigned on March 20, 1995 in the presence of four witnesses and
that his actions immediately following his resignation confirm same. The Board
of Directors maintains that Mr. Turner's attempt to unilaterally resurrect
himself as a Director of the Company after having resigned was of no force and
effect. Depositions were taken on or about September 26, 1995. Trial in the
matter was scheduled for October 3, 1995. However, the parties agreed to a
settlement under the terms of which Mr. Turner would receive $17,500. A written
settlement agreement has not been signed to date.
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.
1. LIBERIS V. EUROPA CRUISES CORPORATION (Court of Chancery of the State of
- -----------------------------------------
Delaware in and for New Castle County, C.A. 13103)
On July 30, 1993, Charles S. Liberis attempted to exercise 1,417,500 Europa
Common Stock options at $ .15625 per share. The Company refused Liberis' attempt
to exercise these alleged options. On August 30, 1993, Liberis filed a Complaint
for Specific Performance of Stock Options against the Company in the Court of
Chancery of the State of Delaware in and for New Castle County. On or about
October 7, 1993, the Company filed an Answer denying the substantive allegations
of the Complaint and asserting counterclaims against Liberis for breach of
fiduciary duties and mismanagement of corporate assets in connection with the
purchase and sale of Europa's interest in Sea Lane Bahamas/Marne Delaware. On or
about October 27, 1993, Liberis filed his reply to the counterclaims denying the
substantive allegations of the counterclaims. On or about May 2, 1995, Liberis
amended his Complaint seeking damages in the amount of $1,282,948.00 for
Europa's refusal to allow Liberis to exercise his stock options.
The case was tried from May 22, 1995 to May 25, 1995. On February 8, 1996,
the 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 requires Mr.
Liberis to return 250,000 shares of common stock to the Company. A final Order
is expected to be entered
14
<PAGE>
shortly. The decision in this case is expected to resolve certain issues raised
in other cases filed by Mr. Liberis.
2. 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)
On April 22, 1993, Charles S. Liberis filed an action in the Court of
Chancery of the State of Delaware in and for New Castle County against Europa
and its subsidiary, Casino World, Inc. (CWI) and the above-named entities and
directors of Europa. In the action, Liberis alleged a scheme on the part of CAMC
and Serco acting with Petty, Reddien and others to seize control of Europa by
changing the membership of the Board and transferring power to the directors
nominated by Serco, an alleged entrenchment by that Board by means of a proposed
issuance of Preferred Stock of Europa and an alleged scheme by that Board to
entrench itself in Casino World, Inc. by spinning off CWI to the stockholders of
Europa and selling 60% of CWI to outside investors and improper actions relating
to the retention of the services of CAMC. Count I of the Complaint sought the
removal of allegedly wrongfully elected directors and two officers and the
reinstatement of Liberis as CEO. Counts II and III sought relief against the
issuance of the Europa Preferred Stock. Count IV sought injunctive relief as to
the proposed spinoff of CWI. Count V sought relief against CAMC and Serco for
civil conspiracy. Liberis sought a preliminary injunction to enjoin three
directors elected at Europa's Board meeting on December 12, 1992 from acting on
behalf of Europa and CWI and to enjoin Reddien, the then Chief Executive Officer
of both Europa and CWI from taking any action on behalf of those entities. On
May 17, 1993, the Court denied Liberis' application for a preliminary injunction
finding that Liberis had failed to establish a likelihood of success on the
merits as well as irreparable harm that would result in the event an injunction
were not entered.
On March 25, 1996, an Order was entered dismissing this case as moot.
3. 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), and
- -----------------------------------------------------------------------
AUSTROINVEST INTERNATIONAL LIMITED (Circuit Court in and for Pinellas County,
- ----------------------------------
Florida)(Civil Action No. 93-001626-CI-008)
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 defendants filed a motion to stay the action on grounds that Liberis
had filed a substantially similar action in the Court of Chancery of the State
of Delaware in and for New Castle County, styled Liberis v. Reddien, et al.
--------------------------
(Civil Action No. 12955) and that any substantive issues decided in Delaware
would be binding as to this case. On December 13, 1993, the Court entered an
Order staying this action as to all parties until the cases of Liberis v.
----------
Reddien, et al (Civil Action No. 12955) and Liberis v. Europa Cruises
- -------------- -------------------------
Corporation (Civil Action No. 13103) pending in Delaware were dismissed or
- -----------
final judgment on the merits was entered with respect to all claims alleged in
Count I of Civil Action No. 12955 and as to all claims in Civil Action No.
13103. Count I of Delaware Civil Action No. 12955 was for "Removal of Wrongfully
Elected Directors and Officers and Reinstatement of Liberis" (against Europa and
Director
15
<PAGE>
Defendants). On March 25, 1996, the Court of Chancery of the State of Delaware
in and for New Castle County entered an Order of Dismissal dismissing Liberis v.
----------
Reddien, et al.(Civil Action No. 12955) as moot. On or about August 7, 1995,
- ---------------
the defendants agreed to lift the stay in the Pinellas County case for discovery
purposes and for the purpose of finalizing the pleadings. No trial date has
been set.
4. 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)
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 alleges that a principal balance of
approximately $141,000.00 is 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.
5. EUROPA CRUISES CORPORATION V. LIBERIS, et al. (In the United States District
- -------------------------------------------------
Court for the Northern District of Florida (Case No. 93-30158)
On or about May 11, 1993, the Company filed an action in the Untied 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 is
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
has 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.
6. 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)
On March 12, 1996, Charles S. Liberis filed 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 maintains
that Mr. Liberis is not entitled to the inspection sought inasmuch as he was not
a shareholder of record at the time the request to inspect was made.
AUSTROINVEST INTERNATIONAL/SERCO INTERNATIONAL/ERNST WALTER
- -----------------------------------------------------------
On or about June 26, 1995, Mr. Ernst G. Walter, a member of the Board of
Directors, was arrested by agents of the U.S. government pursuant to an
extradition warrant in connection with an on going criminal investigation
involving the trading by Austroinvest International, Serco International and
their affiliates in the securities of several companies including Europa Cruises
Corporation. The Board of Directors, under the circumstances, requested Mr.
Walter's resignation as a Director of the Company. Mr. Walter denied all
allegations of wrong doing and declined to resign. On or about August 4, 1995,
the U.S. District Court for the Middle District of Florida entered an order
extraditing Mr. Walter. Mr. Walter resigned from the Board on November 6, 1995.
Currently, Mr. Walter remains incarcerated in Austria.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDINGS
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The shares of the Company's Common Stock, $.001 par value (the "Common
Stock") are traded on the over-the-counter market under the NASDAQ symbol KRUZ.
The following table sets forth the high and low bid prices quotations of the
Common Stock in each full quarter during the periods set forth. The over-the-
counter quotations reflect inter-dealer prices without retail markup, markdown,
or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
1995 Quarters 1994 Quarters
------------- -------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter... 1-9/16 27/32 3-1/16 1-1/8
Second Quarter.. 1-3/4 5/8 2-13/16 1-3/4
Third Quarter... 1-9/16 27/32 2-15/32 1-5/16
Fourth Quarter.. 1-3/16 21/32 1-3/4 1-1/8
</TABLE>
On March 29, 1996, there were 762 registered holders of record of the
Common Stock. This number does not include an estimated 1,200 stockholders
holding Europa Common Stock in "street" name.
The Company has never paid a cash dividend on its Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Passenger Fares, Gaming, Beverage, Meal and Subcharter Revenues
- ---------------------------------------------------------------
The Company operated 2,267 cruises in 1995, as compared to 1,934 in 1994,
an increase of 17%. The Company carried 323,270 passengers in 1995 as compared
to 310,309 passengers in 1994, an increase of 4%. Per passenger revenue from
operations in 1995 was $59.53 compared to $56.83 in 1994, an increase of 5%.
In 1994, management concluded that the trend in the industry was to lower
and or eliminate passenger fares to increase on-board revenues. In comparing the
1994 to 1995 operating results of the cruise division (excluding the non-
operating gain on sale of land in 1994 of $2.2 million), the Company realized an
overall increase of $1,608,653 in total cruise division revenue, even though the
Company has decreases in fare revenues of approximately $1,842,000 which fare
reductions were necessary to remain competitive and maintain market share. In
1995, the Company concentrated on decreasing operating expenses throughout the
Company. Decreases came in Administrative and General, Advertising and Promotion
and Other Operating Expenses. When comparing the results of the Cruise Division,
revenues were up approximately 9% and the operating costs, excluding the cost of
capital and unrelated expenses,
17
<PAGE>
were up 10%. The major increase in vessel operating expenses was due to the
first full year of internalized casino operations. The cost cutting measures,
seen in Administration and General, and Advertising and Promotion that were
instituted during the last half of 1995 are projected to continue throughout
1996. A significant cost cutting measure was the Company internalizing its food
operations in September 1995. Although there can be no assurances, management
believes that these cost cutting measures will improve 1996 operating results.
However, unforeseen factors, such as unanticipated labor costs increases or
unanticipated litigation could cause actual results to differ from those
projected.
In March, 1995, the Company commenced operations from a new port in Miami
Beach. To date operating results in Miami Beach have been disappointing.
Historically, a new port takes between 18 months and two years to fully develop
to its potential. The extremely poor results from the Miami Beach port are being
carefully analyzed to determine the best course of action for the Company to
take in 1996.
Revenue from gaming operations increased by approximately $2.7 million or
31% in 1995 over 1994 due to the 4% increase in passengers carried and the 26%
increase in per passenger casino revenues because of the Company's
internalization of its casino operations.
Revenue from passenger fares, meals and beverage sales decreased by $2.3
million or 28% in 1995 compared to 1994. The decrease is attributable to
increased competition and the trend toward "no fares" amongst competitors.
On August 26, 1994, the Company purchased a fourth day cruise vessel, the
M/V Stardancer (See Item 1. Business). On November 2, 1994, the Company
chartered the Stardancer through April 30, 1995. During 1994, the Company
received $236,000 in charter fees and approximately $100,000 in management fees.
From May to December 1995, the M/V Stardancer was chartered under bareboat
charter agreements to unrelated third parties and is currently under charter
through June 1996. During 1995, the Company received $1,015,174 in charter fees
and $111,684 in net management fees.
Prior to October 15, 1994, the casinos on board all of the Company's day
cruises vessels were operated by Casinos Austria Maritime Corporation (CAMC),
pursuant to a Gaming Concession Agreement. The Company terminated the Gaming
Concession Agreement and entered into a Consulting Agreement with CAMC. Under
the Consulting Agreement, the Company manages and operates all casinos on board
the Company's vessels and CAMC's role is limited to providing consulting
services through December 31, 1997. The Company pays Casinos Austria the greater
of $37,500 per month or 3.5% of gross gaming revenues plus $140 per cruise for a
purser. In 1994, the per passenger gross casino revenue was $43.83 compared to
$38.77 in 1995 a 12% decrease.
Gain on Sale of Land
- --------------------
On May 27, 1994, the Company sold its Backbay Biloxi, Mississippi gaming
site to the owners of the Imperial Palace Hotel & Casino, Las Vegas, Nevada. The
Company realized a net profit of $2,253,124 from this transaction.
Vessel Operating Expenses
- -------------------------
Prior to 1995, drydocking costs were expensed evenly over the period to the
next scheduled drydocking. Due to uncertainty in estimating the amount of future
drydock costs, the Company believes that the deferral method is preferable and
changed its method of accounting for drydocking costs during the fourth quarter
of 1995. When incurred, drydock costs are deferred and amortized over the two to
three year period to the next drydock. This change had the effect of reducing
the 1995 net loss approximately $175,000 and of reducing the 1995 loss before
cumulative effect of the change in
18
<PAGE>
accounting principle by approximately $40,000. The next scheduled drydock is set
for August 1996. See note 1 to the financial statements.
Vessel operating expenses increased by $2.4 million from a $3.0 million
increase in casino expenses as a result of the internalization of casino
operations and a decrease of $584,000 in operating costs for all other
departments. The Company had vessel operating expenses, per cruise, of $6,111 in
1995 as compared to $5,909 in 1994, an increase of 3%.
Meal Costs
- ----------
Beginning in September 1995, the Company internalized the meal service on
all vessels. Meal costs were internalized because the Company believes it can
provide meals on the vessel at a lower unit cost and allows the Company the
flexibility to consider alternative meal prices in its marketing efforts to find
the best complement of passenger fares to casino revenues.
The 1995 meal costs per passenger were $8.45 compared to $9.31 for 1994, a
decrease of 9%. The meal costs per passenger for the fourth quarter of 1995 was
$6.93, as compared to $8.90, in 1994, a 22% decrease. This decrease is directly
attributable to the Company internalizing the food service in September 1995.
Although there can be no assurance, the Company anticipates continued reductions
in the future. However, unforeseen factors, such as unanticipated labor costs,
could cause actual results to differ from those projected.
Administrative and General Expenses
- -----------------------------------
Administrative and general expenses decreased by approximately $373,000
primarily due to a decrease at the corporate level related to reductions in
personnel and other operating costs.
ESOP Adjustment
- ---------------
The 1995 loss includes a nonrecurring ESOP adjustment which decreased the
net loss by $279,000. See notes 1 and 7 to the financial statements.
Advertising and Promotion
- -------------------------
Advertising and promotion decreased by $183,000 reflecting decreased
marketing costs principally in Miami to reduce Miami's overall operating costs
as compared to the 1994 operating costs in Key West.
Depreciation
- ------------
Depreciation and amortization increased approximately $472,000 in 1995 when
compared to 1994. This increase results substantially from the Company operating
four vessels for a full year in 1995 as compared to three vessels in 1994.
Fourth Quarter Results - 1994
- -----------------------------
The Company reported a 1994 fourth quarter loss of approximately
$1,622,000. Included in this fourth quarter loss was the effect of year end
adjustments that reduced net income by approximately $1,600,000. These
adjustments related principally to the carrying amount of certain assets,
expense accruals and common stock transactions associated with prior quarters of
1994. Fourth quarter results excluding the $1,600,000 adjustments would have
been a loss of $22,000.
19
<PAGE>
The fourth quarter adjustments were primarily related to normal and
recurring adjustments that were omitted in the prior quarter as a result of a
change in financial personnel. The Company has taken steps to prevent the
omission of these types of adjusting items in future quarterly results.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital deficiency is $1.6 million compared to a
deficiency of $2.5 million on December 31, 1994.
From August to October 1996, the Company will be required to drydock
certain of its vessels. The minimum cost of drydock is estimated to be between
$100,000 and $300,000. These capital costs are not expected to be funded from
operations and the Company is currently seeking financing to cover this cost.
During 1995, the Company's operating activities used cash of approximately
$625,000, compared to $778,000 for 1994. The $153,000 decrease was principally
attributable to the increased operating loss of approximately $613,000
(exclusive of the 1994 gain on sale of land of approximately $2.3 million and
the cumulative effect of the 1995 change in drydock accounting), cash used by
increases in accounts receivable, decreases in accounts payable and accrued
expenses, and a decrease in unearned cruise revenues, partially offset by
decreases in prepaids and other and by increased depreciation and amortization.
Investing activities (principally vessel and lease hold improvements and
dockside gaming developments costs) required cash of $1.1 million in 1995.
On May 23, 1995, the Company received a 11.35 % term loan of $6,446,332
from First Union National Bank of Florida. Proceeds from the loan were used to
pay off substantially all of the Company's debt except the capital equipment
lease with Casinos Austria. The term loan agreement requires monthly payments of
approximately $102,000, including interest, through 2003. The loan is
collateralized by vessel mortgages and security interest in accounts receivable,
inventories, equipment and intangibles. The Company entered into an interest
rate swap agreement with First Union to cap the rate on this loan at 11.35%.
In August 1995, Service America, Inc., the Company's then food vendor
demanded payment of all payables then due in the approximate amount of $1.2
million and seized three of the Company's vessels to secure payment of same. On
August 21, 1995, the Company borrowed $1.2 million from First Union National
Bank of Florida and used the proceeds to pay the outstanding payable. The $1.2
million initially matured September 1, 1996 and has been extended to January 31,
1997.
As of December 31, 1995, the Company was not in compliance with its
tangible net worth and cash flow covenants as required under the loan with First
Union National Bank of Florida. First Union waived the Company's default through
December 31, 1996 by deferring compliance with the cash flow covenant
requirement and reducing the tangible net worth requirement.
Management's plan for improved 1996 results include cost reductions, debt
repayments and or restructuring and close scrutiny of monthly operating results
to ensure that performance criteria are met.
Cost Reductions
- ---------------
Professional service costs, primarily legal fees, were approximately $1
million. The majority of the litigation that caused these costs have been
resolved. Management believes that the resolution of certain litigation coupled
with the Chairman of the Boards containment of attorneys' time due to her review
and supervision of their work, is expected to result in significantly reduced
professional fees in 1996. Annual savings are estimated to be approximately
$600,000.
Operating results in Miami Beach are negative. Miami Beach lost $198,000 in
the first two months of 1996. The Company recently deployed marketing and sales
representatives from its other ports to Miami Beach for the express purpose of
quickly increasing, to the extent possible, passenger loads in Miami Beach. The
Company believes that this effort was successful and will repeat the approach
again in Miami Beach in the near future.
Debt Repayment and Restructuring
- --------------------------------
Significant efforts are being made to fund the $1.2 million due First Union
on January 31, 1997:
An unrelated third-party has issued to the Company a non-binding letter of
intent to purchase the vessel, the Europa Sun for $3 million subject to
successful completion of a marine survey. The survey is complete and the parties
are in final negotiation of terms. To the extent final terms cannot be
successfully negotiated, the Company has been contacted by another potential
unrelated third-party purchaser for the vessel.
In November 1995 a third party defaulted under a letter of intent to
purchase the Europa Sun forfeiting a $25,000 non-refundable deposit to the
Company.
The Company is in contact with several investment banking firms interested
in pursuing financing for the Diamondhead casino resort and in funding
short-term cash needs for the Company up to $2 million. Terms are currently
being discussed - however no due diligence has been made. Therefore, there can
be no assurance these funds will be made available.
Management believes that close scrutiny of operating costs coupled with
outside funding and asset sales will provide the cash flow necessary to meet its
cash flow needs and comply with the First Union loan covenants in 1996.
In March 1996, the Company subscribed for $500,000 net of offering costs,
in a Regulation S offering.
On August 26, 1994, the Company purchased a fourth cruise vessel for a
$3,500,000 purchase price consisting of $982,548 in cash, mortgages payable of
$1,017,452 and 1,200,000 shares of common stock valued at $1,500,000. The
1,200,000 shares are to be sold pursuant to a Registration Statement
20
<PAGE>
initially filed on January 31, 1995 with the U.S. Securities and Exchange
Commission on Form S-2. As of the date of this Report the S-2 Registration
Statement is not effective. The value attributed to such shares by the Company
and Lagoon Cruise Line, Inc. ("Lagoon") at the time the vessel Stardancer was
purchased was $1.25 per share. Europa has guaranteed to Lagoon that the gross
selling price received by Lagoon in the aggregate for all sales of Stock (as
"Stock" is defined below) during a period of nine (9) months from the effective
date of the registration statement (the "Selling Period"), plus the value of the
Stock not sold by Lagoon upon expiration of the Selling Period, ("Remaining
Stock") shall not be less than One Million Five Hundred Thousand Dollars
($1,500,000). For this purpose, the term "Stock" includes the 1,200,000 Shares
of Common Stock in Europa offered by Lagoon and all shares of Common Stock of
Casino World, Inc. when and if distributed to shareholders of Europa. At the
end of the Selling Period, the Remaining Stock shall be valued at an amount
equal to the average price as reported in the Wall Street Journal at which such
-------------------
shares were traded on the NASDAQ Market System or as reported by any other stock
quotation system for the immediately preceding five business days. If the value
of said Remaining Stock plus the gross selling price for all Stock sold by
Lagoon during the Selling Period is less than $1,500,000, then, within thirty
(30) days after the expiration of the Selling Period, Europa is obligated to pay
to Lagoon, the difference, if any, between $1,500,000 and the combined amount of
the gross selling price of Stock sold plus the value of the Remaining Stock. If
the value of said Remaining Stock plus the gross selling price for all Stock
sold by Lagoon during the Selling Period is equal to or greater than $1,500,000,
no further amounts are due from Europa to Lagoon under the Guaranty. As of
December 31, 1995, the fair market value of the 1,200,000 shares of Europa
Common Stock held by Lagoon was approximately $825,000. As of March 29, 1996,
the fair market value of the 1,200,000 shares of Europa Common Stock held by
Lagoon was approximately $900,000. The Company may be required to pay a
significant amount of cash to Lagoon in satisfaction of the Guaranty.
On November 28, 1994, the Florida Department of Revenue (DOR) issued to the
Company a Notice of Intent to make Sales and Use Tax Audit Changes for the
period February 1, 1989 through June 30, 1994. The proposed audit changes,
including penalties and interest total approximately $6.6 million. The DOR seeks
to assess sales tax on gaming revenue, passenger fares, the purchase and sale of
leased fixed assets, repairs and other items. The Company strongly disagrees
with the proposed audit changes and intends to vigorously contest the factual,
statutory, and regulatory issues that form the basis for the proposed audit
changes. However, if the Company is not successful in challenging the proposed
audit changes, the additional tax, the Company would be required to pay, would
have a major substantial adverse impact on the Company's financial condition.
Future Accounting Changes
- -------------------------
The Company is required to adopt the provisions of FASB No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
in 1996. Management does not expect that the adoption of FASB No. 121 will have
a material effect on the carrying value of the Company's long lived assets.
The Company does not presently intend to adopt in 1996 the fair value based
method as encouraged by FASB No. 123 "Accounting for Stock-Based Compensation".
Accordingly, there will be no effect to the financial statements.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements and notes thereto are included herein
beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
21
<PAGE>
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS. COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.
Directors and Executive Officers
- --------------------------------
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE YEAR FIRST DIRECTOR
---- --- -------------------
<S> <C> <C>
Lester E. Bullock 41 1995
Deborah A. Vitale 45 1992
Piers Hedley 39 1995
Charles H. Reddien 51 1992
Ernst G. Walter 48 1992
Chuck Kleim 60
Debra Gladstone 41
</TABLE>
Lester E. Bullock has served as President of the Company since July 18, 1994,
and served as a director of the Company since March 1995. From January 1994 to
June 1994, Mr. Bullock was Vice President of Operations at the Company. From
January 1, 1992 through December 31, 1993, Mr. Bullock was General Manager of
the Company and was responsible for all port operations. In 1991, Mr. Bullock
was Casino Pit Manager in Ft. Myers, Florida for Casinos Austria Maritime
Corporation. From 1989 to 1990, Mr. Bullock was General Manager of the Sonesta
Beach Resort and Crystal Casino in Oranjestead, Aruba. From 1984 through 1989,
Mr. Bullock held various managerial and administrative positions at the
Tropicana Resort and Casino in Las Vegas, Nevada and the Dunes Hotel Casino and
Country Club in Las Vegas, Nevada. Mr. Bullock received a B.S. in Business,
from Arizona State University in 1974.
Debra A. Vitale is Chairman of the Board of Directors and Secretary of the
Company. Ms. Vitale is an attorney currently engaged in the private practice of
law in Washington, D.C., Maryland and Virginia. Ms. Vitale was a partner in the
firm of Miller & Vitale, P.C. from November 1990 to September 1992. From 1986 to
1990, Ms. Vitale was of Counsel to the firm of Jacobi & Miller in Alexandria,
Virginia. Ms. Vitale has, in the past, served as a staff attorney at the Federal
Communications Commission and has served as Listing Official for the
Environmental Protection Agency.
Piers Hedley has served as a Director of the Company since November 1995. Mr.
Hedley is an Executive Managing Director of the investment banking firm of
Peerless Associates Limited in Europe.
22
<PAGE>
From 1991 to 1994, Mr. Hedley served as the Managing Director of the U.K.
investment banking firm, Multinational Capitol Services Limited.
Charles H. Reddien, has served as President and Chairman of the Board of Casino
World, Inc. and Mississippi Gaming Corporations since March 7, 1993. Mr.
Reddien served as President and Chief Executive Officer and Chairman of the
Board of Directors of Europa Cruises Corporation from December 14, 1992 until
July 18, 1994. Mr. Reddien served as the managing Partner, President and a
Director of Somerset Group Ltd., a private investment banking company, from
November 1988 until December 1992. Mr. Reddien worked as a consultant to
worldwide casino operator, Casinos Austria International. Mr. Reddien served as
Vice President, Secretary and Director of Casinos America Corporation, a
subsidiary of Casinos Austria Holding Company, from inception until October
1992. Mr. Reddien is an attorney licensed to practice law in California and
Colorado. Mr. Reddien holds a key-gaming license in Colorado. Mr. Reddien
resigned from the Board of Europa Cruises Corporation in July 1994.
Ernst G. Walter - Dr. Walter was a Director of the Company from 1992 to
November 6, 1995. From August 1993 through January 1994, Dr. Walter served as
Chief Financial Officer of the Company. Dr. Walter has been President and
Director of Serco since 1990 and Director of Serco Finanzbeteiligung und
Beratungs Gesellschaft M.B.H., Vienna and Klagenfurt, Austria since 1975, where
was engaged in providing financing and investment advice.
On or about June 26, 1995, Mr. Ernst G. Walter was arrested by agents of the
U.S. government pursuant to an extradition request filed by the Austrian
government. The Austrian government requested extradition in connection with an
ongoing criminal investigation involving the trading by Austoinvest
International, Serco International and their affiliates in the securities of
several companies including Europa Cruises Corporation. The Board of Directors,
under the circumstances, requested Mr. Walter's resignation as a Director of the
Company. Mr. Walter denied all allegations of wrong doing and declined to
resign. On or about August 4, 1995, the U.S. District Court for the Middle
District of Florida entered an order extraditing Mr. Walter. Mr. Walter
resigned from the Board on November 6, 1995.
Debra L. Gladstone, CPA, joined the Company in September 1995 as Chief Financial
Officer. From July 1993 to September 1995 Ms. Gladstone was a Senior
Manager/Partner in the international accounting firm of, BDO Seidman, LLP. From
April 1992 to July 1993, Ms. Gladstone worked as a staff accountant in the
Division of Corporation Finance at the Securities and Exchange Commission
Headquarters in Washington, D.C.. Prior to April 1992, Ms. Gladstone was a
Senior Manager in a publicly held conglomerate, the Henley Group, Inc. and
started her accounting career in 1982 with the public accounting firm of, Arthur
Andersen & Company.
Charles M. Kleim, Mr. Kleim was Chief Financial Officer of the Company from
October 1994 to September 1995. From September 1991 through October 1994, Mr.
Kleim was Controller of Life Sciences, Inc., a publicly-held manufacturer of
biochemical products and enzymes. From December 1989 through September 1991, Mr.
Kleim was self-employed as a certified public accountant in Hobart, Indiana.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- --------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file reports
of ownership on Form 3 and changes in ownership on Form 4 or 5 with the
Securities and Exchange Commission (the SEC) and the National Association of
Securities Dealers. Such officers, directors and ten percent (10%) shareholders
are also required by SEC rules to furnish the Company with copies of all Section
16(a) forms that they file.
Based solely on its review of copies of such reports received or written
representations from certain reporting persons, the Company believes that,
during the year ended December 31, 1995, all Section 16(a) filing requirements
applicable to its officers, directors and ten percent (10%) shareholders were
complied with except for the late filing in 1995 by Mr. Hedley and Ms. Gladstone
of their Form 3, Initial Statement of Beneficial Ownership of Securities.
ITEM 10. EXECUTIVE COMPENSATION
23
<PAGE>
Through December 31, 1995, Mr. Bullock received approximately $100,000 in
salary, and $29,500 in bonuses.
Through December 31, 1995, Mr. Reddien received approximately $125,000 in
salary from Europa and Casino World, Inc., a wholly-owned subsidiary of Europa.
During 1994 directors did not receive compensation for serving on Europa's
Board of Directors. Commencing January 1, 1995, non-employee directors of Europa
Cruises Corporation will be paid $1,500 per month for serving as a director of
the Company.
The following table provides information concerning the compensation of the
named executive officers of the Company and its wholly-owned subsidiaries.
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
NAME AND ----------------- NUMBER OF
PRINCIPAL FISCAL OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS GRANTED COMPENSATION
------------------ ------ ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Lester E. Bullock(1) 1995 $100,000 $29,500 None None
President and Director 1994 85,352 16,500 100,000 $2,100 (3)
1993 45,000 9,798 None None
1992 11,685 None 50,000 None
Charles H. Reddien(1) 1995 125,000 None None None
President, CEO, and 1994 125,000 None 100,000 $ 216 (2)
Chairman 1993 125,000 None None $ 216 (2)
1992 7,211 None None None
</TABLE>
- ----------------------------
(1) On July 18, 1994, Mr. Bullock became President of the Company and Mr.
Reddien resigned as President and Chief Executive Officer of the Company.
Mr. Reddien remained President of Casino World, Inc. and Mississippi Gaming
Corporation, wholly-owned subsidiaries of the Company.
(2) Includes insurance premiums paid by the Company on a policy in excess of
$50,000.
(3) Automobile allowance
Stock Options
- -------------
The Company's 1988 Stock Option Plan (the "Plan") was adopted by the Board
of Directors and approved by the stockholders of the Company on December 19,
1988. The purpose of the Plan is to assist the Company and its subsidiaries to
retain the services of and to motivate selected key management employees by
providing the opportunity for such personnel to acquire a proprietary interest
in the Company and thus share in its growth and success. A total of 1,000,000
shares of Common Stock are reserved for issuance under the Plan. The Plan
provides for the granting of non-qualified stock options and "incentive stock
options" within the meaning of Section 422A of the Internal Revenue Code of 1986
to any employee, officer or director of the Company and its subsidiaries (any
company in which the Company owns, directly or indirectly, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock). A committee of two (2) members of the Company's Board of Directors (the
"Committee") administers the Plan. The Committee designates optionees, the
exercise price of options, which may not be less than 100% of the market value
of the shares on the date of grants, the date of grant and the period of the
option, which may not be longer than ten (10) years from the date of grant.
24
<PAGE>
Because federal, state or local law may require the withholding of taxes
applicable to gains resulting from the exercise of non-qualified stock options
granted under the plan, the Plan provides that an optionee may, in lieu of
tendering cash payment to satisfy any such liability, satisfy all or a portion
of any such liability by delivering to the Company, or by requesting the Company
to withhold in connection with the option exercise, shares of Common Stock. Such
shares will be valued at fair market value at the date the withholding tax
obligation arises and will reduce such obligation by an equivalent amount.
Officers of the Company may not exercise any non-qualified stock option earlier
than six months following the date of its grant. Options under the Plan are non-
transferable other than by will or the laws of the descent and distribution.
The right of an optionee or optionee's successor in interest to exercise an
option granted under the Plan following the termination of employment of, or the
death of, an optionee is dependent upon the circumstances relating to the
optionee's termination of employment. Upon the termination of employment of an
optionee who is disabled (as defined in the Plan), such optionee may exercise
any option Which was exercisable on the date of the termination, within the
earlier of three (3) years from termination or the original expiration date of
the option. In the event of an optionee's death during the course of employment
or within three years following the date of termination of employment (by an
optionee that was not disabled), any option that was exercisable on the date of
death may be exercised until the earlier of one year following the date of
death, or the original expiration date of the option. If an optionee's
employment is terminated for cause, any option previously granted shall
terminate and may not be exercised following the date of such termination of
employment. Upon the termination of employment of an optionee for reasons other
than retirement, disability, death or cause, the optionee may exercise any
option that was exercisable on the date of termination of employment within
three months following termination of employment or such additional period as
the Board may determine but in no event later than the original expiration date
of the option.
During 1995, no options of Europa Cruises Corporation Common Stock par
value $.001 were granted to the Officers or Board of Directors of the Company.
As of March 29, 1996, a total of 1,180,000 options were outstanding.
On April 28, 1989, immediately prior to the Company's filing a registration
statement with the Securities and Exchange Commission in connection with its
original public offering, the underwriter required Mr. Liberis, the then
President and Chief Executive Officer of the Company and Mr. Krick, the then
Vice President of the Company, to cancel, for no consideration, 1,575,000 shares
of Common Stock of the Company owned by them. Mr. Liberis and Mr. Krick were
issued such shares for an aggregate of $1,575 or $.001 per share, in connection
with the organization of the Company in 1988. In addition, the underwriter
required Mr. Liberis to place 1,125,000 shares in escrow which were to be
released to Mr. Liberis if the Company earned $1,000,000 before taxes and
extraordinary items in 1989 (such amount was not earned and the shares were
returned to the Company). On August 29, 1989, Mr. Liberis reached an agreement
with the Board of Directors and the underwriter for the issuance of non-
qualified options to purchase up to 1,417,500 shares of the Company's Common
Stock at $1.40625 per share, the market price of the Common Stock on the date of
grant. The options vested based on tenure and performance with options on
360,000 shares vesting upon two (2) years of service with the Company, and
options on 180,000 and 877,500 shares vesting upon the Company realizing
$1,200,000 and $1,500,000 respectively, of income before income taxes and
extraordinary items over any four (4) consecutive calendar quarters during the
option period which expires on August 29, 1999. Of such options, 540,000 had
vested as of December 31, 1991. No additional options vested during 1992. On
December 28, 1990, Mr. Liberis contends that the Board of Directors cancelled
the above mentioned options together with all other outstanding options and
issued replacement options at the then closing bid price of $.15625. The term
and conditions of the replacement option remained the same as the original
issuances. The December 28, 1990 Board Meeting at which the repricing of these
options allegedly took place was
25
<PAGE>
the subject of litigation between Mr. Liberis and the Company. See LIBERIS V.
EUROPA CRUISES CORPORATION (Court of Chancery of the State of Delaware in and
for New Castle County, C.A. 13103) at ITEM 3. LEGAL PROCEEDINGS.
The case was tried from May 22, 1995 to May 25, 1995. On February 8, 1996,
the Court entered a Memorandum Opinion in which it ruled, in pertinent part,
that Liberis, who had filed suit to enforce and 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 requires Mr.
Liberis to return 250,000 shares of common stock to the Company. A final Order
is expected to be entered shortly. The decision in this case is expected to
resolve certain issues raised in other cases filed by Mr. Liberis. See "ITEM 3.
LEGAL PROCEEDINGS."
On March 30, 1990, the Company issued to Mr. Liberis and Harlan Allen, Jr.,
a former officer and director, options to acquire 250,000 shares each of Common
Stock at $1.50 per share each in connection with their purchase from the Company
of its twenty percent (20%) interest in Sea Lane and Marne. Mr. Liberis and Mr.
Allen contend these options were cancelled effective December 31, 1990, in
connection with the recision of the sale of the interest in Sea Lane and Marne
and options of the like amount at $.16 per share were granted to replace those
granted on December 30, 1990. These options were exercised by Mr. Liberis and
Mr. Allen during the year ended December 31, 1992. The repricing of these
options and the recision of the sale to Liberis and Allen of the Company's
interest in Marne were the subjects of litigation between Mr. Liberis, and the
Company. The dispute between the Company and Allen has been settled. See "ITEM
3. LEGAL PROCEEDINGS."
In connection with a settlement agreement between Mr. Liberis, the previous
President and Chief Executive Officer of the Company and Serco, a major
shareholder dated December 2, 1992, the exercise price of the remaining options
held by Mr. Liberis was repriced at $1.50 per share. In addition, Mr. Liberis
was granted an option to purchase 200,000 shares at a price of $5.00 per share.
As of March 31, 1995, 1,617,500 of such options had not been exercised. An
attempt by Mr. Liberis to exercise 1,417,500 options at $.15625 per share was
refused by the Company. See "ITEM 3. LEGAL PROCEEDINGS."
Aggregate Fiscal Year-End Option Value Table. The following table sets forth
certain information concerning unexercised stock options held by the Named
Executive Officers as of the end of 1995.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT 1995 FISCAL YEAR- OPTIONS AT 1995
END FISCAL YEAR END
EXERCISABLE (E) EXERCISABLE (E)
NAME UNEXERCISABLE (U) UNEXERCISABLE (U)
- ------------------- ---------------------- -----------------
<S> <C> <C>
Lester E. Bullock 130,000 (E) $ 0 (E)
20,000 (U) $ 0 (U)
Deborah A. Vitale 200,000 (E) $ 0 (E)
Ernst G. Walter 200,000 (E) $ 0 (E)
Charles Reddien 100,000 (E) $ 0 (E)
Sharon Petty 60,000 (E) $ 0 (E)
Stephen Turner 200,000 (E) $ 0 (E)
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The only persons who owned of record or were known by the Company to own
beneficially on March 15, 1996, more than five percent (5%) of the outstanding
shares of Common Stock of the
26
<PAGE>
Company, each officer and director and the ownership by all directors and
officers as a group were as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME & ADDRESS OWNED PERCENT (1)
- --------------------------- ----------------- ------------
<S> <C> <C>
Serco International Limited 3,291,334 (2) 12.76%
P.O. Box - CB 12765
Nassau, Bahamas
Austroinvest International 3,291,334 (2) 12.76%
P.O. Box - CB 12765
Nassau, Bahamas
Gaming Invest Corporation 3,291,334 (2) 12.76%
P.O. Box - CB 12765
Nassau, Bahamas
Europa Cruises Corporation 4,750,000 (3) 18.4%
Employee Stock Ownership
Plan-Trust Agreement
150 153rd Avenue East,
Madeira Beach, FL 33708
Lagoon Cruise Line Inc. 1,200,000 (4) 4.65%
2200 Nelson Street
Panama City, FL 32402
Lester E. Bullock 130,000 (5) *
150 - 153rd Ave.
Madeira Beach, FL 33708
Deborah A. Vitale, Esq. 203,500 (5) *
1013 Princess Street
Alexandria, VA 22314
Charles H. Reddien 100,000 (5) *
150 - 153rd Ave.
Madeira Beach, FL 33708
Sharon E. Petty 60,000 (5) *
Vicksburg, MS
Ernst G. Walter 3,291,334 (2) 12.76%
150 153rd Ave E,
Madeira Beach, FL 33708
All directors and officers as
a group (3 persons) 5,183,500 20.0%
</TABLE>
* Less than one percent (1%)
- ---------------------------------------
(1) Common Stock and Preferred Stock amounts have been combined for the purpose
of calculating percentages.
27
<PAGE>
(2) Includes 926,000 shares of Series S Preferred Stock, 900,000 shares of
Series S-NR Preferred Stock, 1,265,334 shares of Common Stock and 200,000
shares of Common Stock underlying options Dr. Walter has the current right
to acquire pursuant to exercise of stock options.
(3) The initial trustees of the Europa Cruises Corporation Employee Stock
Ownership Plan, Trust Agreement ("ESOP") were Deborah A. Vitale, Esq., a
director of the Company, Stephen M. Turner, a former director of the
Company and Victor B. Gersh, Esq., (deceased) Counsel to the Company, On
or about March 31, 1995, Lester E. Bullock, President and director of the
Company was selected by the Board of Directors as a Trustee replacing
Stephen M. Turner. The ESOP was established on August 18, 1994. The
participants in the ESOP are entitled to direct the Trustees as to the
manner in which the stock of the Company allocated to their accounts in
ESOP is to be voted. Un-allocated shares are voted by the Trustees. There
are no restrictions or agreements among the Trustees with respect to the
voting of ESOP shares. As of March 15, 1996, 250,000 shares of Common
Stock have been allocated to participants in the ESOP.
(4) Represents 1,200,000 shares of Common Stock beneficially owned by Lagoon
Cruise Line, Inc. ("Lagoon") issued by the Company in connection with the
purchase of the vessel Stardancer.
(5) Includes shares underlying options for Common Stock exercised or
exercisable within the next sixty days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1994, the Company leased office space
from Serco America, an affiliate of Serco International, Ltd., a major
shareholder of the Company. Such rent aggregated $5,900 in 1994, for
approximately 2,500 square feet of space. On or about May 30, 1994, the Company
purchased 1,500 square feet of office space from Serco America for $105,000.
The Board of Directors of Casino World, Inc. has granted options to
purchase common shares of CWI to the following current and former officers and
directors of CWI, exercisable at $1.00 per share with an expiration date of
March 1997:
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS
---------- -----------------
<S> <C>
Charles H. Reddien 150,000
Sharon E. Petty 100,000
Peter Booth 75,000
Darryl LaPointe 75,000
Charles S. Liberis 150,000
William A. Herold 75,000
Stephen M. Turner 75,000
Deborah A. Vitale 75,000
</TABLE>
On August 18, 1994, the Company established the Europa Cruises Corporation
Employee Stock Ownership Plan (the ESOP). This ESOP, which is intended to be a
qualified retirement plan under the provisions of Section 401(a) of the Internal
Revenue Code and an employee stock ownership plan within the meaning of Section
4975(e)(7) of the Internal Revenue Code, was established primarily to invest in
stock of the Company. All employees as of December 31, 1994 and subsequent new
employees having completed 1000 hours of service during the calendar year of
1995 are eligible to participate in the ESOP. The Company also established a
trust called the Europa Cruises Corporation Employee Stock Ownership Plan, Trust
Agreement to serve as the funding vehicle for the ESOP. The Trustees of this
trust were
28
<PAGE>
initially Deborah A. Vitale, Esq., Stephen M. Turner and Victor B. Gersh, Esq.
On or about March 31, 1995 the Board of Directors of the Company designated
Lester E. Bullock as Trustee in place of Stephen M. Turner. Victor B. Gersh was
automatically removed as a Trustee in 1995 as a result of his passing away in
June 1995. As of March 31, 1996, 250,000 shares of Common Stock have been
allocated to participants in the ESOP. Un-allocated shares are voted by the
Trustees. There is no agreement among the Trustees or restrictions on the
Trustees with respect to voting un-allocated shares. See ITEM 11 -"SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
On August 21, 1994, the Company loaned $4,275,000 to the ESOP in exchange
for a ten-year promissory note bearing interest at eight percent per annum. On
August 24, 1994, the ESOP purchased 2,880,000 shares of the Company's Common
Stock with the proceeds of the loan. On August 25, 1994 the Company loaned an
additional $3,180,000 to the ESOP in exchange for a ten year promissory note
bearing interest at eight percent per annum. On August 26, 1994, the ESOP
purchased an additional 2,120,000 shares of the Company's Common Stock with the
proceeds of the loan. The shares of common stock are pledged to the Company as
security for the loans. The promissory notes will be repaid with the proceeds of
annual contributions made by the Company to the ESOP. In April of 1995, the
Company agreed to extend the maturity of the loans to twenty years.
ITEM 13. EXHIBITS AND REPORTS ON FORM 10-KSB
Exhibits
- --------
(a) 3(a)(i) Certificate of Incorporation of the Company.
(ii) Amendment to Certificate of Incorporation of the Company.
(a) 3(b) By-laws of the Company.
(g) 4.1 Subscription and Investment Agreement between Europa Cruises
Corporation and Lagoon Cruise Line, Inc. dated August 26,
1994.
(g) 4.2 Warrant Agreement between Europa Cruises and FLC Holding Corp
dated July 8, 1992.
(g) 4.2.1 Consent and Amendment of Credit Agreement Note and Warrant by
and among FLC Holding Corp. ("FLC"), EuropaSky Corporation
("EuropaSky"), Europa Cruises Corporation and Casino World,
Inc. ("Casino"), dated May 27, 1993 without Exhibits.
(g) 4.3 Warrant Agreement between Europa Cruises Corporation and The
Stuart-James Company Incorporated dated June 29, 1989.
(g) 4.3.1 Warrant Certificates and Assignments for 125,520 shares and
17,000 shares registered in the name of Marc N. Geman dated
June 22, 1994.
(g) 4.3.2 Motion to Approve Settlement Agreement Among Trustee, Marc N.
Geman and Chatfield Dean & Co., Inc. dated October 8, 1993
with Settlement Agreement dated October 6, 1993 attached.
(g) 4.3.4 Order Approving Settlement Agreement Among Trustee, Marc N.
Geman and Chatfield Dean & Co., Inc.
29
<PAGE>
(g) 4.3.5 Agreement between Marc N. Geman and Europa Cruises Corporation
dated June 15, 1993.
(g) 4.4 Convertible Promissory Note between Europa Cruises
Corporation and Serco International Ltd. dated November 11,
1993: Transfer by Serco International Ltd. to Gaming
Invest Corp. and election to convert Promissory Note by
Gaming-Invest Corp.
(g) 10.1 Consulting Agreement between Europa Cruises Corporation and
Casinos Austria Maritime Corporation dated September 16,
1994.
(g) 10.1.1 Equipment Lease between Europa Cruises Corporation and Casinos
Austria Maritime Corporation dated October 13, 1994.
(g) 10.1.2 Promissory Note payable to Casinos Austria Maritime
Corporation dated December 30, 1994, and Second Naval
Mortgage on the M/V Stardancer.
(g) 10.1.3 Subordination Agreement between Lagoon Cruise Line, Inc.,
Europa Stardancer Incorporation and Casinos Austria
Maritime Corporation.
(a) 10(d) The Company's 1988 Stock Option Plan.
(b) 10(e) Standard Bareboat Charter Agreement, dated August, 1989,
between Sea Lanes Bahamas Limited and Europa Cruise Lines,
Ltd.
(c) 10(f) Service Agreement, dated April 12, 1991, between Service
America Corporation and Europa Cruise Lines.
(c) 10(g) Lease Agreement, dated June 30, 1991, between Palm Grove
Marina, Inc., and Europa Cruises of Florida 1, Inc.
(c) 10(h) Memorandum of Agreement for lease, dated March 29, 1992,
between Durwood Dunn and Mississippi Gaming Corporation.
(c) 10(i) Lease Agreement, dated January 29, 1992, between Claiborne
County, Mississippi Port Commission and Mississippi Gaming
Corporation.
(c) 10(j) Contract of Sale, dated February 21, 1992, between Ferry
Binghamton, Inc., and Mississippi Gaming Corporation.
(b) 10(k) Lease Agreement, dated November 30, 1990, between Europa
Cruises of Florida 2, Inc., and Hubbard Enterprises, Inc.
(b) 10(l) Reciprocal Relationship Agreement, dated December 28, 1990,
amongst Europa Cruises of Florida 1, Inc., Europa Cruises of
Florida 2, Inc., the Company and Cordis, A.G.
(b) 10(m) Promissory Note, dated December 31, 1990, and Addendum
thereto, dated May 2, 1991, from the Company to Charles S.
Liberis, P.A., Profit Sharing Plan.
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(b) 10(n) Promissory Note, dated December 31, 1990, and Addenda
thereto, dated April 18 and May 2, 1991, from the
Company to Harlan G. Allen, Jr.
(b) 10(o) Stock Option and Agreement, dated December 31, 1990, between
the Company and Charles S. Liberis, P.A., Profit Sharing
Plan.
(b) 10(p) Stock Option and Agreement, dated December 31, 1990, between
the Company and Harlan G. Allen, Jr.
(b) 10(q) Promissory Note, dated January 25,1992, from Europa Cruises of
Florida 1, Inc., and Europa Cruises of Florida 2, Inc., to
Cordis, A.G.
(b) 10(r) Release, dated January 25, 1991, by Europa Cruise Lines, Ltd.
in favor of the St. Paul Fire & Marine Insurance Co. Lloyds
and certain London companies, through Bain Clarkson, Ltd.
(b) 10(s) Promissory Note, dated February 15, 1991, from Europa Cruises
of Florida 1, Inc., to Midlantic.
(b) 10(t) Assumption Modification and Security Agreement, dated February
15, 1992, amongst Europa Cruises of Florida 2, Inc., the
Company and Midlantic.
(b) 10(u) Mortgage Modification Agreement, dated February 15, 1992,
between Europa Cruises of Florida 2, Inc., and Midlantic.
(b) 10(v) Guarantee Agreement, dated February 15, 1991, between Europa
Cruises of Florida 2, Inc., and Midlantic, Re: Europa Cruises
of Florida 2, Inc.
(b) 10(w) Coordination Agreement, dated February 20, 1991, between
Midlantic and Cordis, A.G.
(b) 10(aa) Assignment of Note Receivable, Account Receivable and Common
Stock from Harlan G. Allen, Jr. to the Company.
(b) 10(bb) Stock Purchase Agreement, dated March 31, 1991, between the
Company and Freeport Cruise Line, Ltd.
(b) 10(cc) Pledge Agreement and Addendum thereto, dated April 18, 1991,
between the Company and Harlan G. Allen, Jr.
(b) 10(dd) Franchise and Development Agreements between LoneStar
Hospitality Corporation and Miami Subs U.S.A., Inc., dated
July 1, 1992.
(d) 10(ee) Vessel Purchase Agreement dated July 8, 1992 between the
Company and FLC, Re: Purchase of the EuropaSky.
(d) 10(ff) Contract of Sale dated July 21, 1992, between the Company and
Ferry Binghamton, Inc. Re: the Purchase of Miss New York.
(d) 10(gg) Agreement to Lease and Option to Purchase dated July 7, 1992,
between the Company and A&M Developers, Inc. Re: Bossier City
</TABLE>
31
<PAGE>
site.
(d) 10(hh) Vessel Completion Contract by and between Eastern Shipyards,
Inc., and FLC Holding Corporation Re: EuropaSky.
(e) 10(ii) Stock Purchase Agreement dated December 21, 1992 between
Europa Cruises Corporation and Jeffrey L. Beck, Trustee.
(e) 10(jj) Copy of the Complaint filed by Charles S. Liberis vs. the
Company and others.
(f) 10(kk) Settlement agreement between the February 4, 1994. Company and
Sea Lane Bahamas, Ltd. dated
(f) 10(ll) Gaming Concession Agreement between the Company and Casinos
Austria Maritime Corporation dated February 18, 1993.
(f) 10(mm) Management Agreement between the Company and Casinos Austria
Maritime Corporation dated June 19, 1993.
(f) 10(nn) Diamondhead, Mississippi Loan Agreement, Continuing Guaranty,
Promissory Note, and Extension of Promissory Note between the
Company and Casinos Austria Maritime Corporation mortgage to
September 17, 1994.
(f) 10(oo) Convertible Promissory Note dated November 11, 1993 issued by
the Company to Serco International Ltd.
(f) 10(pp) Lease Agreement between the Company and Serco International
Ltd dated November 15, 1993.
(f) 10(qq) Casino World, Inc. 1993 Stock Option Plan dated March 25,
1993.
(f) 10(rr) Form of Stock Option Agreement dated as of August 31, 1994
issued to Deborah A. Vitale, Stephen M. Turner, Ernst G.
Walter and Lester E. Bullock.
(f) 10(ss) Easement dated December 22, 1994 granted to Mississippi Gaming
Corporation adjacent to proposed Diamondhead gaming site.
(f) 10(tt) Miami Beach Marina Lease dated February 10, 1995 as amended
between Europa Cruises of Florida, 2 and Tallahassee Building
Corp.
10(uu) Settlement Agreement dated May 9, 1994 between Europa Cruises
Corporation and Harlan G. Allen, Jr.
10(vv) First Union National Bank Credit and Security Agreement and
Promissory Note dated May 23, 1995 between Europa Cruises
Corporation, Europa Cruises of Florida 1, Inc., Europa Cruises
of Florida 2, Inc., EuropaSky Corporation and Europa
Stardancer Corporation.
10(ww) First Union National Bank Credit and Security Agreement and
Promissory Note dated August 25, 1995 between Europa Cruises
Corporation, Europa Cruises of Florida 1, Inc., Europa Cruises
of Florida 2, Inc., EuropaSky Corporation and Europa
Stardancer Corporation.
32
<PAGE>
10(xx) Snug Harbor Group, Inc. Lease dated September 20, 1996 between
Snug Harbor Group, Inc. and Europa Cruises of Florida 1, Inc.
10(yy) Tidelands Lease and Land Lease dated February 1, 1996, between
Hancock County Port and Harbor Commission and Mississippi
Gaming Corporation.
18 Letter from BDO Seidman, LLP regarding 1995 change in
accounting principle.
(a) Previously filed as an exhibit to the Company's Registration Statement
No. 33-26256-A and incorporated by reference.
(b) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1990 and incorporated by
reference.
(c) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1991 and incorporated by
reference.
(d) Previously filed as an exhibit to the Company's Form S-2 Registration
Statement dated August 26, 1992 and incorporated by reference.
(e) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1992 and incorporated by
reference.
(f) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the years ended December 31, 1993 and 1994 and incorporated
by reference.
(g) Previously filed as an exhibit to the Company's S-2 Registration
Statement (No. 33-89014) filed January 31, 1995 and incorporated by
reference.
Reports on Form 8-K
- -------------------
There were no reports on Form 8-K filed during the last quarter of the period
covered by this report.
Subsidiaries of the Registrant
- ------------------------------
Europa Cruise Line, Ltd. (Delaware)
Europa Cruises of Florida 1, Inc. (Delaware)
Europa Cruises of Florida 2, Inc. (Delaware)
EuropaJet Corporation (Delaware)
Europa Cruise Lines, Ltd. (Cayman Island)
Mississippi Gaming Corporation (Delaware)
EuropaSky Corporation (Delaware)
American Gaming Corporation (Delaware)
Casino World, Inc. (Delaware)
Europa Stardancer Corporation (Delaware)
Europa Casino Management Corporation (Delaware)
Europa Leasing Corporation (Delaware)
33
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EUROPA CRUISES CORPORATION
/s/ Lester E. Bullock
DATE: April 15, 1996 _____________________________________
By: Lester E. Bullock, President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature and Title Date
- ------------------- ----
/s/ Lester E. Bullock April 15, 1996
- -------------------------------------------
Lester E. Bullock
President and Director
/s/ Deborah A. Vitale April 15, 1996
- -------------------------------------------
Deborah A. Vitale
Corporate Secretary and Director
/s/ Piers Hedley April 15, 1996
- ---------------------------------------------
Piers Hedley
Director
/s/ Debra Gladstone April 15, 1996
- -------------------------------------------
Debra Gladstone
Chief Financial Officer
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Contents
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page
----
Report of Independent Certified
Public Accountants ......................................... F-2
Consolidated Balance Sheet as of
December 31, 1995 ....................................F-3 to F-4
Consolidated Statements of Operations
for the Years Ended
December 31, 1995 and 1994 ...........................F-5 to F-6
Consolidated Statements of Stockholders' Equity
for the Years Ended
December 31, 1995 and 1994 ................................. F-7
Consolidated Statements of Cash Flows
for the Years Ended
December 31, 1995 and 1994 ...........................F-8 to F-9
Notes to Consolidated Financial
Statements .........................................F-10 to F-32
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
of Europa Cruises Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Europa Cruises
Corporation and Subsidiaries as of December 31, 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Europa Cruises
Corporation and Subsidiaries at December 31, 1995, and the results of their
operations and their cash flows for each of the two years in the period then
ended in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1995 the
Company changed its method of accounting for drydock costs.
Miami, Florida BDO Seidman, LLP
March 22, 1996, except for note 5(b)
which is as of April 12, 1996
F-2
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Assets
Current
Cash and cash equivalents $ 552,061
Accounts receivable 310,767
Prepaid insurance and other 1,208,496
- --------------------------------------------------------------------------------
Total current assets 2,071,324
Vessels, equipment and fixtures, less accumulated
depreciation (Note 2) 13,845,567
Investment in and advances to unconsolidated affiliate
(Note 3) 271,022
Land under development for dockside gaming
(Note 4) 4,542,678
Dockside gaming development costs (Note 4) 188,278
Deferred drydock costs (Note 1) 177,712
Other assets 242,274
- --------------------------------------------------------------------------------
$ 21,338,855
- --------------------------------------------------------------------------------
</TABLE>
F-3
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 1,784,173
Current maturities of long-term debt (Note 5) 1,819,035
Unearned cruise revenues 72,039
- --------------------------------------------------------------------------------
Total current liabilities 3,675,247
Long-term debt, less current maturities (Note 5) 7,807,633
Other liabilities 150,000
- --------------------------------------------------------------------------------
Total liabilities 11,632,880
- --------------------------------------------------------------------------------
Commitments, contingencies and subsequent events (Notes 3, 9 and 12)
- --------------------------------------------------------------------------------
Stockholders' equity (Notes 6 and 7):
Preferred stock, $.01 par value; shares authorized
5,000,000; outstanding 2,959,800 ($4,266,680 aggregate
liquidation preference) 29,598
Common stock, $.001 par value - shares authorized
50,000,000; issued 24,133,607; outstanding 18,033,307 24,133
Common stock subscribed 200,000
Additional paid-in capital 23,685,534
Unearned ESOP shares (7,082,188)
Deficit (6,960,946)
Treasury stock, at cost, 1,250,000 shares (190,156)
- --------------------------------------------------------------------------------
Total stockholders' equity 9,705,975
- --------------------------------------------------------------------------------
$ 21,338,855
- --------------------------------------------------------------------------------
</TABLE> See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Gaming revenue (Note 9(b)) $11,577,974 $8,839,194
Passenger fares 4,635,650 6,478,055
Food and beverage 1,352,986 1,806,588
Subcharter fees 1,015,174 235,990
Other 662,046 275,350
Gain on sale of land (Note 4) -- 2,253,124
- --------------------------------------------------------------------------------
19,243,830 19,888,301
- --------------------------------------------------------------------------------
Costs and Expenses
Vessel operating 13,852,562 11,428,953
Administrative and general 2,632,150 3,004,900
Advertising and promotion 1,859,306 2,042,215
Depreciation and amortization (Note 2) 1,345,437 873,393
Interest, net (Note 5) 851,383 724,240
Other operating (Note 11) 490,192 735,160
- --------------------------------------------------------------------------------
21,031,030 18,808,861
- --------------------------------------------------------------------------------
(Loss) income before cumulative effect of change
in accounting for drydock costs (1,787,200) 1,079,440
- --------------------------------------------------------------------------------
Cumulative effect of change in accounting for
drydock costs (Note 1) 215,096 --
- -------------------------------------------------------------------------------
Net (Loss) Income (1,572,104) 1,079,440
Preferred Stock Dividends (283,124) (198,972)
- --------------------------------------------------------------------------------
Net (Loss) Income Applicable To Common Stock $(1,855,228) $880,468
- --------------------------------------------------------------------------------
</TABLE> See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Statements of Operations
(Continued)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Amounts
Net (loss) income applicable to common stock before
cumulative effect of change in accounting for drydock
costs $ (.12) $ .05
Cumulative effect of change in accounting for
drydock costs .01 --
- ------------------------------------------------------------------------------------------------
Net (loss) income per common and common
equivalent share - primary and fully-diluted $ (.11) $ .05
- ------------------------------------------------------------------------------------------------
Pro Forma Amounts
(Assuming the new method of accounting for drydock costs was applied retroactively.)
Net (loss) income applicable to common stock $ (2,070,324) $ 654,468
Net (loss) income per common share $ (.12) $ .04
- ------------------------------------------------------------------------------------------------
Weighted average number of common and common
equivalent shares outstanding - primary
and fully diluted 17,571,692 16,076,858
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Notes 6 and 7)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Unearned Common Stock Treasury
Stock Stock Capital ESOP Shares Subscribed (Deficit) Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 18,260 $ 14,485 $ 8,867,671 $ -- $ -- $ (5,986,186) $ (148,750) $ 2,765,480
Issuance of units 13,900 695 3,384,702 -- -- -- -- 3,399,297
Issuances of common stock -- 8,323 11,132,365 (7,455,000) -- -- -- 3,685,688
Acquisition of treasury stock -- -- -- -- -- -- (41,406) (41,406)
ESOP compensation -- -- -- 279,452 -- -- -- 279,452
Preferred stock dividends -- 14 138,986 -- -- (198,972) -- (59,972)
Net income for the year -- -- -- -- 1,079,440 -- 1,079,440
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 32,160 23,517 23,523,724 (7,175,548) -- (5,105,718) (190,156) 11,107,979
Issuances of common stock -- 55 48,345 -- -- -- -- 48,400
ESOP compensation -- -- (110,937) 93,360 -- -- -- (17,577)
Preferred stock dividends -- 305 222,096 -- -- (283,124) -- (60,723)
Common Stock Subscription -- -- -- -- 500,000 -- -- 500,000
Stock subscription receivable -- -- -- -- (300,000) -- -- (300,000)
Conversion of preferred to common (2,562) 256 2,306 -- -- -- -- --
Net loss for the year -- -- -- -- -- (1,572,104) -- (1,572,104)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ 29,598 $ 24,133 $ 23,685,534 $ (7,082,188) $ 200,000 $ (6,960,946) $ (190,156) $ 9,705,975
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(Note 10)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net (loss) income $ (1,572,104) $ 1,079,440
- --------------------------------------------------------------------------------
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Depreciation and amortization 1,345,437 873,393
ESOP (benefit) provision (17,577) 279,452
Bad debt expense -- 115,395
Gain on sale of dockside gaming property -- (2,253,124)
Expenses paid in shares of common stock -- 158,904
Cumulative effect of change in accounting principle (215,096) --
(Increase) decrease in:
Accounts receivable (227,046) 452,075
Prepaids and other 553,897 (194,956)
Vessel lease deposit -- 252,000
(Decrease) increase in:
Accounts payable, accrued expenses and other
liabilities (372,421) (1,650,923)
Unearned cruise revenues (120,582) 110,824
- --------------------------------------------------------------------------------
Total adjustments 946,612 (1,856,960)
- --------------------------------------------------------------------------------
Cash (used in) operating activities (625,492) (777,520)
- --------------------------------------------------------------------------------
Investing Activities:
Purchases of property and equipment, net (980,619) (1,550,403)
Development costs for dockside gaming (127,101) (26,068)
Deposit on sale of gaming equipment -- (300,000)
Proceeds from sale of gaming equipment -- 1,100,326
Proceeds from sale of dockside gaming property -- 2,487,781
- --------------------------------------------------------------------------------
Cash (used in) provided by investing activities (1,107,720) 1,711,636
- --------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(Note 10)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Financing Activities:
Proceeds from:
Stock subscription payments $ 200,000 $ --
Issuance of common stock -- 1,711,389
Long-term debt 8,285,896 771,624
Issuance of units -- 3,399,297
Repayment of:
Long-term debt (9,261,694) (3,822,169)
Preferred stock dividends (60,723) (59,972)
Purchase of treasury stock -- (41,406)
- --------------------------------------------------------------------------------
Cash (used in) provided by financing activities (836,521) 1,958,763
- --------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (2,569,733) 2,892,879
Cash and cash equivalents, beginning of year 3,121,794 228,915
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 552,061 $ 3,121,794
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1.Summary of Organization and Business
Significant -------------------------
Accounting
Policies Europa Cruises Corporation and Subsidiaries (the Company)
principally owns, operates and promotes four cruise
vessels offering day and evening cruises. The Company's
cruises include a variety of shipboard activities such as
dining, casino operations, sightseeing, live music and
other entertainment.
Estimates
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
It is at least reasonably possible that the Company's
estimate of the ultimate outcome of contingencies could
change in the near term.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts
of Europa Cruises Corporation and all of its subsidiaries.
All material intercompany balances and transactions have
been eliminated.
Cash Equivalents
----------------
The Company considers all liquid debt instruments with
original maturities of three months or less to be cash
equivalents. Cash equivalents include investments in money
market accounts and overnight repurchase agreements.
F-10
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Vessels, Equipment and Fixtures
-------------------------------
Vessels are depreciated over 20 years using the straight-
line method. Vessel improvements, furniture, fixtures and
equipment are recorded at cost and are depreciated over
their estimated useful lives (which range from two to
twenty years) using the straight-line method.
Expenditures for repairs and maintenance are expensed as
incurred. Renovations and improvements which extend
estimated useful lives are capitalized and depreciated
over the period of their estimated useful life.
Casino Revenue and Promotional Allowances
-----------------------------------------
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 $1,063,340 in 1995 and $967,562 in 1994.
Passenger Fare Revenue and Unearned Cruise Revenues
---------------------------------------------------
Unearned cruise revenues, which represent customer
cruise deposits, are included in the balance sheet
when received and are recognized as passenger fare
revenue upon completion of the voyage.
Land Held for Development
-------------------------
Land held for development of a dockside casino is
carried at lower of cost or market, which at December
31, 1995 was at cost. Costs directly related to site
development such as licensing and permits, engineering
and other costs are capitalized to the land.
Dockside Gaming Development Costs
---------------------------------
Preopening expenses, which consist principally of
payroll and marketing costs are expensed as incurred.
Expenditures which result in acquisition of assets
which benefit future periods are deferred and amortized
over the period of expected future benefit.
F-11
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Employee Stock Ownership Plan
-----------------------------
In August 1994, the Company established a leveraged
Employee Stock Ownership Plan (ESOP). Compensation
expense is measured at the fair market value of shares
committed-to-be-released. Shares are committed-to-be-
released ratably over the period of employees service.
Dividends, if any; (1) on un-allocated shares used to pay
debt service are reported as a reduction of the
indebtedness to the Company; (2) on un-allocated shares
paid to participants are reported as compensation cost
and; (3) on allocated shares are charged to retained
earnings. The Company has not paid any dividends.
Taxes on Income
---------------
The Company accounts for income taxes pursuant to the
provisions of FASB No. 109, "Accounting for Income
Taxes," which requires, among other things, a liability
approach to calculating deferred income taxes. The asset
and liability approach requires the recognition of
deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and
liabilities.
Net (Loss) Income Per Share
---------------------------
Net (loss) income per share is based on net (loss) income
after preferred stock dividend requirements and the
weighted average number of common shares outstanding
during each year after giving effect to stock options and
warrants considered to be dilutive (none in 1995) 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 twenty percent of the outstanding shares of the
Company's common stock with any remaining proceeds
utilized to repay indebtedness.
Common shares outstanding includes issued shares less
shares held in treasury and un-allocated and uncommitted
shares held by the ESOP trust. Fully diluted net (loss)
income per common and common
F-12
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
equivalent share is not materially different from primary
net (loss) income per share.
Drydock Costs
-------------
Prior to 1995, the Company used the accrual method to
account for major repairs and maintenance in drydock,
accruing these costs over the two to three year period to
the next drydock. Due to the uncertainty in estimating
future drydock costs, the Company changed its method of
accounting to the deferral method, which the Company
believes is preferable under the circumstances, whereby
major repairs and maintenance are capitalized as incurred
and amortized over the period to the next drydock. This
change in accounting principle had the effect of
decreasing the 1995 loss before cumulative effect of
change in accounting principle by $40,000 or $.00 per
share.
The pro forma amounts shown on the consolidated statement
of operations have been adjusted for the effect of
retroactive capitalization of the drydock costs incurred
in the previous (1992) drydock of the Company's vessels,
depreciation thereof, and elimination of the 1994 drydock
accrual.
Reclassification
----------------
Certain 1994 amounts have been reclassified to conform
to the classifications for 1995.
Future Accounting Changes
-------------------------
The Company is required to adopt the provisions of FASB
No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" in
1996. Management does not expect that the adoption of
FASB No. 121 will have a material effect on the carrying
value of the Company's long lived assets.
The Company does not presently intend to adopt in 1996
the fair value based method as encouraged by FASB No. 123
"Accounting for Stock-Based Compensation". Accordingly,
there will be no effect to the financial statements.
F-13
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2. Vessels, Vessels, equipment and fixtures consist
Equipment of the following: 1995
and Fixtures ---------------------------------------------------------
<S> <C>
Vessels $ 13,136,901
Vessel improvements 1,351,709
Gaming equipment under capital lease 1,649,900
Office and vessel equipment 873,089
Furniture, fixtures and other 511,468
Leasehold improvements 554,063
---------------------------------------------------------
18,077,130
Less accumulated depreciation and
amortization 4,231,563
---------------------------------------------------------
$ 13,845,567
=========================================================
</TABLE>
In connection with the 1994 purchase of a vessel, the
Company issued 1,200,000 shares of common stock to the
seller as a portion of the purchase price. The shares
were valued at $1.25 per share ($1,500,000) which
approximated fair market value. The Company has filed a
Registration Statement for the shares. If the fair market
value of the shares at the end of nine months from the
effective date of the Registration Statement is less than
$1.25 per share, the Company is obligated to pay the
difference between the fair market value of the shares
and $1.25 per share. The Company will receive credit for
the fair market value of any shares of Casino World, Inc.
distributed to the seller pursuant to the planned spin-
off of Casino World, Inc. shares to the Company's
shareholders. The fair market value of the Europa shares
at December 31, 1995 approximated $825,000.
3. Investment In On December 31, 1990, the Company rescinded a
And transaction in which it had previously sold its
Advances To twenty percent ownership interest in Marne
Unconsolidat- (Delaware), Inc. (Marne) by reacquiring its
ed Affiliate investment and a $340,000 note receivable in
exchange for $541,620 of promissory notes payable
to a principal stockholder and a former officer.
The Company has not received delivery of title in
its name reflecting its equity interest in Marne,
has ceased payments on the notes payable and is
seeking to have
F-14
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the transaction rescinded. It is the Company's position
that title cannot be properly transferred since Marne (an
S-Corporation) is not permitted to have C-Corporation
shareholders. In connection with the 1994 settlement of a
lawsuit against a former officer of the Company, the
Company transferred its ownership interest in ten percent
of Marne to the former officer and recorded an expense of
$115,395. The Company has discontinued recording its
equity share of earnings in Marne due to the title
uncertainties noted above and believes its investment in
and advances to Marne at December 31, 1995 of $271,022
will be recovered through offsets against $140,948 of
notes payable to principal stockholders and cash payments
from Marne and such stockholders for the remainder. In
February 1996, a Delaware Court issued a memorandum
opinion on a related matter which is expected to result
in the resolution of the above assets and liabilities
with no material adverse effect to the Company. (Note 12)
4. Land Under The Company through its two wholly-owned subsidiaries,
Development Casino World, Inc. (CWI) and Mississippi Gaming
for Dockside Corporation (MGC) plans to develop and operate a casino
Gaming and and hotel at Diamondhead, Mississippi. The proposed
Dockside gaming operations in Mississippi are subject to numerous
Gaming risks and uncertainties including but not limited to the
Development availability of financing, licensing, and the receipt of
Costs environmental permits from the Mississippi Department of
Marine Resources and the U.S. Army Corps of Engineers.
Litigation brought by environmental groups opposed to
further development of gaming in Mississippi may delay
regulatory approvals and the issuance of permits
necessary for the construction of a casino at the
Company's proposed gaming operations in Mississippi. In
June 1995, the Company was granted site approval by the
Mississippi Gaming Commission. This site approval is land
specific, and therefore, the cost associated with
obtaining this site approval has been capitalized to the
land cost. On February 1, 1996 MGC entered into a lease
agreement with the Hancock County Port and Harbor
Commission to lease the tidelands under which the casino
barges will be moored and the area under the pier from
the hotel to the casinos. The lease term is five years
commencing 30 days after construction of the project
begins. There are four five (5) year renewal option
periods. The cost of the lease is $2,250,000 for the
first five years of which $25,000 was paid on signing,
and $95,000 is payable upon commencement of construction.
Both payments are to be applied toward the lease payments
which are $10,000 per month during construction and
F-15
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the remainder of the $2,250,000 will be paid over the
remainder of the lease after operation of the casino
commences. There are no assurances that the necessary
regulatory approvals can be obtained or that financing
will be available. The Company does not have the
financial resources to develop its proposed Mississippi
dockside gaming facility. Accordingly, there are no
assurances that the development will be successfully
completed.
In view of the foregoing, the Company is proceeding
forward at the same time minimizing its efforts until
such time as these uncertainties are mitigated. The
Company capitalized an aggregate $156,090 of interest on
the land in 1992 and 1993, at which time the land was
undergoing activities necessary to develop the gaming
site. The Company discontinued capitalizing interest on
the land effective for 1994.
During the year ended December 31, 1994, the Company
exercised its option to acquire a parcel of land
intended for dockside gaming and simultaneously sold the
property to an unrelated third party at a gain of
$2,253,124. Upon closing of the transaction, the
purchaser paid the $6,150,000 sales price in cash and
the Company has no further involvement with the
property.
<TABLE>
<CAPTION>
Dockside gaming development costs
consist of the following: 1995
---------------------------------------------------------
<S> <C>
Licenses $ 77,000
Other development costs 111,278
---------------------------------------------------------
$ 188,278
=========================================================
</TABLE>
The political and regulatory environment in which the
Company is and will be operated with respect to gaming
activities is dynamic and rapidly changing. Existing
operators often support legislation and litigation
designed to make it more difficult or impossible for
competition to develop and operate gaming facilities.
This environment makes it impossible to predict the
effects, including costs, that the adoption of and
changes in gaming laws, rules and regulations and/or
competition will have on proposed dockside gaming
operations.
F-16
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5.Long-term Long-term debt consists of:
Debt 1995
---------------------------------------------------------
<S> <C>
Bank term loan, principal and interest
payable $102,000 monthly through May 2003,
floating rate of interest at Libor plus 325
basis points (9% at December 31, 1995)
capped at 11.35% with an interest rate
swap agreement, collateralized by accounts
receivable, inventory, intangible assets
and substantially all vessels, equipment
and fixtures.(a) $ 6,161,642
Capital lease obligation on gaming
equipment, payable $46,398 monthly to
February 1998, including interest at
nine percent 1,092,310
Bank term loan payable $25,000 monthly at
interest rate of 11% to September 1996,
collateralized by property with a net book
value of approximately $4,500,000.(b) 1,187,000
9% note payable, principal and interest
payable $4,827 monthly through November 2000,
collateralized by 400,000 shares of Europa
common stock. 294,827
Notes payable to former officer/director,
principal and interest at 10% payable monthly,
collateralized by stock and note receivable of
unconsolidated affiliate, with a book value of
$271,022. 140,948
6.99% insurance financing arrangement,
payable $75,601 per month 682,360
Other 67,581
========================================================
Total 9,626,668
Less current maturities (1,819,035)
---------------------------------------------------------
$ 7,807,633
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-17
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) As of December 31, 1995, the Company was not in
compliance with its tangible net worth and cash flow
covenants required under the terms of its bank loan
agreement. The bank has waived the Company's default to
December 31, 1996 by deferring compliance with the cash
flow covenant requirement and reducing the tangible
networth requirement.
(b) The Bank term loan of $1,187,000 was scheduled to
mature on September 1, 1996. On April 12, 1996, the Bank
extended the maturity to January 31, 1997, with monthly
principal payments of $13,000, plus interest, during the
extension period. Accordingly, the portion due in 1997 is
classified as a long-term liability in the accompanying
consolidated balance sheet.
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996 $ 1,819,035
1997 2,276,437
1998 829,448
1999 820,652
2000 911,839
Thereafter 2,969,257
---------------------------------------------------------
$ 9,626,668
=========================================================
</TABLE>
<TABLE>
<CAPTION>
Interest expense consists of:
1995 1994
---------------------------------------------------------
<S> <C> <C>
Interest cost incurred $952,046 $809,644
Less:
Interest income (100,663) (85,404)
---------------------------------------------------------
Interest expense (net) $851,383 $724,240
=========================================================
</TABLE>
6. Stockholders' In June 1989, the Company issued, in connection with
Equity the initial public offering, and the underwriter
purchased, for $100, five-year warrants to purchase
400,000 shares of common stock at a price of $1.20 per
share. During the year ended December 31, 1994, the
Company redeemed the then outstanding 142,250 warrants
in exchange for 57,008 unregistered shares of common
stock. In connection with the redemption, the Company
recorded an expense of $40,704 representing the
estimated fair market value of the shares issued.
On December 19, 1988, the Company adopted a stock
option plan (the "Plan") for its officers and management
personnel under which options could be granted to
purchase up to 1,000,000 shares of the Company's common
stock. Accordingly, the Company reserved for issuance
F-18
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,000,000 shares under the Plan. The option price may
not be less than 100% of the market value of the
shares on the date of the grant and expire within ten
years from the date of grant; 1,430,000 options have
been granted since the adoption of the Plan,
105,556 have been exercised, and 440,000 have lapsed.
In connection with a 1992 settlement agreement between
the Company's former Chairman of the Board and a major
stockholder, the exercise price of the remaining options
that had been issued to the Company's former Chairman
were repriced during 1992 to $1.50 per share (fair market
value). As of December 31, 1995, 1,417,500 of such
options had not been exercised and are expected to be
rescinded by a pending court order (Note 12).
In December 1993, the Company granted immediately
exercisable options to acquire an aggregate 600,000
shares of common stock to members of the Company's Board
of Directors, and an attorney. The options expire in
December 1998 and are exercisable at an exercise price of
$1.0625 (fair market value at date of grant) per share.
No options have been exercised.
In August 1994, the Company granted immediately
exercisable options to acquire an aggregate 400,000
shares of common stock to members of the Company's Board
of Directors, and the President. The options expire in
August 1999 and are exercisable at an exercise price of
$1.50 (fair market value at date of grant) per share. No
options have been exercised.
Outstanding stock options are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ ----------------------
Numbers Of Price Per Number Of Price Per
Shares Share Shares Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, January 1 2,726,250 $.16 - 4.00 2,326,250 $.16 - 4.00
Options issued 400,000 1.50
Options exercised - - - -
Options cancelled 1,546,250 .16 - 4.00
- --------------------------------------------------------------------------------
Outstanding, December 31 1,180,000 $1.06-2.25 2,726,250 $.16 - 4.00
================================================================================
</TABLE>
F-19
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
On June 14, 1993 the Company issued to AustroInvest
International Inc. 926,000 shares of $.01 par value
Series S Voting, Non-Convertible, Redeemable Preferred
Stock in exchange for proceeds of $1,000,080. Cumulative
three percent per annum dividends are payable quarterly.
These shares may be redeemed at the option of the Company
at $1.08 per share plus $1.08 cents per share for each
quarter that such shares are outstanding and have a $1.08
per share preference in involuntary liquidation.
On September 13, 1993, the Company issued to Serco
International Limited (SERCO) (a wholly-owned subsidiary
of AustroInvest International Inc. and a stockholder of
the Company) 900,000 shares of its $.01 par value Series
S-NR Voting, Non-Convertible, Non-Redeemable, Preferred
Stock, in exchange for proceeds of $999,000. Non-
cumulative three percent per annum dividends are payable
quarterly. Upon involuntary liquidation of the Company,
the liquidation preference of each share is $1.11.
In January 1994, the Company issued, in a Regulation S
offering 1,100,000 shares of its $0.01 par value common
stock at $1 per share to various foreign investors in
exchange for net proceeds of approximately $990,000.
Other subsequent private placements of 365,000 shares of
the Company's common stock at $1 per share generated net
proceeds to the company of approximately $328,500 in
1994.
In March 1994, the Company offered, pursuant to
Regulation S, one million units at $5.50 per unit, each
unit consisting of one share of the Company's $.001 par
value common stock and two shares of the Company's Series
S-PIK Junior, cumulative, convertible, non-redeemable,
non-voting $.01 par value preferred stock. Each share of
Series S-PIK preferred stock is convertible into one
share of the Company's voting common stock, at any time
after February 15, 1995. During 1995, 256,200 shares of
these shares were converted to 256,200 common shares. The
Series S-PIK preferred stock ranks junior to the Series S
and Series S-NR preferred shares as to the distribution
of assets upon liquidation, dissolution or winding up of
the Company. Upon liquidation of the Company, the S-PIK
preferred stock will have a liquidation preference of
$2.00 per share. A cumulative quarterly dividend of $0.04
per share is payable on the Series S-PIK preferred stock.
At the option of the Company, for a period of three
years, dividends may be paid by issuing shares of the
Company's common
F-20
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
stock. In connection with this offering, the Company sold
695 units aggregating 695,000 shares of common stock and
1,390,000 shares of preferred stock and collected
approximately $3,399,297, net of costs of approximately
$423,203. During 1995, the Company elected to pay all the
dividends in common stock, of which 305,093 shares valued
at $222,401 were issued in 1995 including accrued
dividends from 1994.
In June 1994, 300,000 shares of the Company's common
stock were offered pursuant to a Regulation S offering at
a price of $1.50 net of commissions. All of these shares
were sold and the Company collected $450,000.
In connection with the Regulation S offerings during
1994, the Company agreed to grant an underwriter warrants
to purchase 145,000 shares of the Company's common stock
at $1.50 per share, expiring February 28, 1997 and
warrants to purchase 208,500 shares of the Company's
common stock at $1.933 per share, expiring June 30, 1997.
No warrants have been exercised.
During 1994, the Company issued 100,000 shares of common
stock to an attorney in consideration for services
rendered and recorded an expense of $90,000.
In October 1995, the Company received a stock
subscription for $500,000 in connection with a Regulation
S offering. At December 31, 1995, $200,000 had been
received. No shares have been issued at December 31,
1995.
7. Employee On August 18, 1994, the Company established the Europa
Stock Cruises Corporation Employee Stock Ownership Plan (ESOP).
Ownership The ESOP, which is intended to be a qualified retirement
Plan plan under provisions of Section 401(a) of the Internal
Revenue Code and an employee stock ownership plan
pursuant to Section 4975(3)(7) of the Internal Revenue
Code, was established primarily to invest in stock of the
Company. All employees as of December 31, 1994 and
subsequent new employees having completed one year of
service are eligible to participate in the ESOP. The
Company also established a trust called Europa Cruises
Corporation Employee Stock Ownership Plan Trust Agreement
to serve as the funding vehicle for the ESOP. On August
21, 1994, the Company loaned $4,275,000 to the ESOP in
exchange for a ten-year promissory note bearing interest
at eight percent per annum. On August 24, 1994, the
F-21
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESOP purchased 2,880,000 shares of the Company's common
stock with the proceeds of the loan. On August 25, 1994,
the Company loaned an additional $3,180,000 to the ESOP
in exchange for a ten year promissory note bearing
interest at eight percent per annum. On August 26, 1994,
the ESOP purchased an additional 2,120,000 shares of the
Company's common stock with the proceeds of the loan. The
shares of common stock are pledged to the Company as
security for the loans. The promissory notes are payable
from the proceeds of annual contributions made by the
Company to the ESOP. In 1995 the Company extended the
maturity of the loans to twenty years.
Shares are allocated to the participants' accounts in
relation to repayments of the loans from the Company.
Cash dividends paid by the Company, are used to repay the
loans from the Company or allocated to the participants'
accounts at the discretion of the plan administrator and
stock dividends are allocated to the participants'
accounts. No dividends have been paid by the Company.
The Company recorded an expense of $279,452 in 1994 for
ESOP benefits. In 1995, as permitted by the Plan, the
Company decided to permanently forgo allocation of shares
to participants for services rendered during 1994.
Accordingly, the Company reduced its $261,875 ESOP
compensation expense for 1995 by the amount of forgone
benefits ($279,452), resulting in a net $17,577 benefit
in the accompanying consolidated statement of operations
for 1995.
As of December 31, 1995, 250,000 shares have been legally
released and will be allocated to participants' accounts.
At December 31, 1995, 4,750,000 shares with a fair market
value of $3,705,000 are unearned.
8.Income At December 31, 1995, the Company had net operating loss
Taxes carry-forwards for income taxes of approximately $10.5
million which expire through 2010. Changes in
ownership of greater than fifty percent which occurred as
a result of the Company's issuances of common and
preferred stock may result in a substantial annual
limitation of approximately $1,500,000 being imposed upon
the future utilization approximately $7.9 million of the
net operating losses for tax purposes.
The 1994 provision for income taxes of approximately
$406,000 has been offset by utilization of
approximately $1,080,000 of book net operating loss
carryforwards.
F-22
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deferred income taxes are comprised of
the following at December 31, 1995:
1995
---------------------------------------------------------
<S> <C>
Depreciation $ 1,498,000
Income from unconsolidated affiliate 72,000
---------------------------------------------------------
Gross deferred tax liability 1,570,000
---------------------------------------------------------
Loss Carry forwards (3,950,000)
Other (10,000)
---------------------------------------------------------
Gross deferred tax asset (3,960,000)
Deferred tax asset valuation allowance 2,390,000
---------------------------------------------------------
Net deferred tax asset $ --
=========================================================
</TABLE>
Realization of any portion of the Company's deferred tax
asset at December 31, 1995 is not considered to be more
likely than not and accordingly a $2,390,000 valuation
allowance has been provided.
9. Commitments (a) Leases
And ------
Contingencies The Company leases certain port facilities, sales and
office space and office equipment under lease agreements
which expire through 2001. The leases generally contain
renewal options and require that the Company pay for
utilities, insurance, property taxes, rental expense and
maintenance. The Company currently leases office space
and dockage in Florida at Madeira Beach, Ft. Myers, Miami
Beach and in Diamondhead, Mississippi. Rental expense,
which is primarily based on a per passenger basis,
aggregated approximately $724,000 and $583,000 in 1995
and 1994, respectively.
F-23
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Minimum rental obligations under all noncancelable
operating leases with terms of one year or more as of
December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996 $ 618,000
1997 618,000
1998 536,000
1999 536,000
2000 536,000
Thereafter 210,000
----------
$3,054,000
==========
</TABLE>
Through December 31, 1993, the Company leased a vessel
(the EuropaJet) under a bareboat charterparty agreement
with Sea Lane Bahamas (Marne), an entity in which the
Company previously owned a twenty percent interest. As a
result of continued unprofitable operations of the
EuropaJet during the first quarter of 1993, the Company
negotiated a lease settlement with Marne, whereby, the
lease was terminated as of December 31, 1993 in exchange
for payment of outstanding lease charges of $888,000,
paid as of December 31, 1995.
The Company's liability, for alleged damages arising out
of the condition of the EuropaJet upon its redelivery is
in dispute. The lessor claims the liability for damages
to the EuropaJet under the charterparty agreement is in
excess of $1 million. The Company and the lessor were
unable to settle this dispute with respect to the
condition of the EuropaJet when it was redelivered, and
the amount of the Company's remaining obligation will be
determined in arbitration. During 1995, the EuropaJet
sank off the coast of Florida in a hurricane. What, if
any, effect this will have on the lessors' claim is
unknown. The Company has accrued approximately $150,000
in anticipated settlement. Based upon the report of an
independent surveyor, the Company believes that its
ultimate liability, with respect to this matter will be
immaterial to its consolidated financial condition.
(b) Gaming Concession Agreements
----------------------------
On September 16, 1994, the Company terminated a Gaming
Concession Agreement and entered into a consulting
agreement with CAMC. Under the consulting agreement,
Europa manages and operates all casinos
F-24
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
on board its vessels and CAMC provides consulting
services through December 31, 1997. As a consultant to
the Company, CAMC receives $37,500 per month or 3.5% of
gross gaming revenue, whichever is greater, CAMC also
receives $140 per cruise for the services of a Purser on
board each vessel. Prior to termination of the agreement,
CAMC managed and operated the Casinos in exchange for
thirty-five percent of gross gaming revenue. CAMC waived
a termination fee of approximately $1,400,000 which the
Company would have been required to pay for early
termination.
On June 19, 1994, CWI and a Company's wholly-owned
subsidiary, Mississippi Gaming Corporation (MGC) entered
into a Management Agreement with CAMC. Under the
Management Agreement, CAMC will operate on an exclusive
basis all of the proposed dockside gaming casinos in the
State of Mississippi. The Management Agreement is for a
term of five (5) years and provides for the payment of an
operational term management fee of 1.2% of all gross
gaming revenues between zero and one hundred million
dollars ($100,000,000); plus 0.75% of gross gaming
revenue between $100,000,000 and $140,000,000; plus 0.5%
of gross gaming revenue above $140,000,000; plus two
percent of the net gaming revenue between zero and
twenty-five million dollars ($25,000,000); plus three
percent of the net gaming revenue above twenty-five
million dollars ($25,000,000).
(c) Litigation
--- ----------
On May 5, 1993, Charles S. Liberis, Founder of the
Company and former Chairperson of the Board of Directors,
filed a civil action in Florida seeking unspecified
damages against Europa, Charles H. Reddien, Sharon E.
Petty, Ernst G. Walter, Deborah A. Vitale, Stephen M.
Turner, William A. Herold, Victor B. Gersh, CAMC, Serco,
AustroInvest International Ltd., and others challenging
the settlement agreements between Mr. Liberis and Serco
entered into on December 12, and 14, 1992. No trial date
has been set.
F-25
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The litigation brought by Mr. Liberis may have an adverse
impact on the Company's ability to secure financing for
its planned Mississippi expansion and on the licensing by
the Mississippi Gaming Commission. The ultimate outcome
of these matters cannot presently be determined.
Accordingly, the financial statements do not include any
adjustments that might result from this uncertainty.
(d) Sales and Use Taxes
--- -------------------
On November 28, 1994, the Florida Department of Revenue
issued to the Company, a Notice of Intent to make Sales
and Use Tax Audit Changes for the period February 1, 1989
through June 30, 1994. The proposed audit Changes,
including penalties and interest total $6,515,681. The
Florida Department of Revenue seeks to assess sales tax
on gaming revenue, passenger fares, the purchase, sale
and lease of fixed assets, repairs, and other items.
On June 28, 1989, the Department of Revenue issued
Technical Assistance Advisement (TAA 89 (A) - 034) to
Europa Cruise Line, Ltd. (the entity which is now known
as Europa Cruises Corporation). This TAA appeared to
resolve the admissions tax issue and the tax on purchases
issued in favor of Europa. The Department revised this
TAA in 1990, purporting to "clarify" that it had actually
intended to conclude that the admissions tax was
applicable. The revision did not revisit the tax on
purchases. On April 21, 1995, the Assistant General
Counsel for the Florida Department of Revenue issued a
recommendation to the auditor responsible for the Europa
sales tax assessments that the TAA issued on June 28,
1989, should be honored. Therefore, the Assistant General
Counsel recommended that the assessment for Europa Cruise
Line, Ltd., be eliminated for the period from June 28,
1989 to May 2, 1990. For the period following May 2,
1990, the Company relies on Florida statutes that provide
that vessels are not establishments subject to admission
sales tax. The Assistant General Counsel further
recommends that the TAA be honored for all purchases made
by Europa Cruise Line, Ltd., if such purchases were for
supplies appropriate to carry out the purposes for which
the Vessel was designed. The recommendation is limited to
assessments for Europa Cruise Line, Ltd. However, the
Company intends to pursue the argument that the successor
entities are entitled to the benefits of the TAA. The
recommendation of General
F-26
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Counsel for the Department of Revenue regarding the TAA
will reduce the sales tax assessment by the Department of
Revenue. However, it is not possible for the Company to
estimate the amount of the reduction in the sales tax
assessment at this time. The Company strongly disagrees
with the proposed Audit Changes and intends to vigorously
contest the factual, statutory, and regulatory issues
which form the basis for the proposed Audit Changes. The
Company believes many of the proposed Audit Changes will
be resolved in the Company's favor. However, the outcome
of this matter is uncertain and if the Company is not
successful in challenging the proposed Audit Changes by
the Florida Department of Revenue, the additional Sales
and Use Tax the Company will be required to pay would
have a major substantial adverse impact on the Company's
financial condition.
(e) Government Regulation - Day Cruise Gaming Vessels
-----------------------------------------------------
Federal legislation enacted in 1948, (the "Gambling
Act"), prohibits any person within the jurisdiction of
the United States from establishing, operating or owning
an interest in a gambling ship on the high seas or
otherwise within the jurisdiction of the United States.
There are no formal or informal regulations or legal or
administrative opinions as to the application of the
Gambling Act to business operations such as those
conducted by the Company. Federal Legislation enacted in
1992 specifically authorized U.S. registered vessels to
carry gambling equipment to and from U.S. ports for use
in international waters. The 1992 Federal Legislation
would appear to conflict in certain respects with the
Gambling Act. However, there are no reported judicial
decisions or administrative opinions reconciling any
potential conflicts between the Gambling Act and the 1992
Federal Legislation.
Though no litigation is presently contemplated, if the
Company's operations were ever found by a court of law in
a litigation commenced by a United States Attorney's
Office to violate the Gambling Act, the vessels owned and
operated by the Company could be forfeited to the United
States Government without compensation to owners or the
Company or the Company could be required to change its
operations. A material change in the Company's operation,
such as the removal of
F-27
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
casinos from the vessels, would have a material adverse
impact on the Company's financial condition.
(f) Casino Industry Litigation
--- --------------------------
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.
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
F-28
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. Although
this action is in the very early stages of litigation,
management believes there is no support for plaintiff's
factual claims and the Company intends to vigorously
defend this lawsuit.
(g) Proposed Florida Law to Ban Business
--- ------------------------------------
On or about March 6, 1996, a bill was introduced into the
Florida State House of Representatives by Representative
King from the Jacksonville, Florida area to ban all
cruises to nowhere originating from the State of Florida.
This bill, if passed by both the House of Representatives
and the Senate and signed by the Governor, would in fact
bar the Company from continuing its core business of day
and evening cruises to nowhere, in the State of Florida.
The Company is actively engaged in lobbying efforts
through the Florida Day Cruise Association to defeat this
bill in committee. The Company feels that this bill will
not become a new law, however, there can be no assurances
that this bill will be defeated.
The Governor of the State of Florida has proposed a bill
that would provide the State of Florida with a $5.00 per
passenger tax on all cruises to nowhere originating from
the State of Florida. The Florida Day Cruise Association
is working closely with the Governor's budget office to
develop a fair tax that would not be burdensome to the
passengers, or those companies engaged in the cruise to
nowhere business.
F-29
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
10. Non-Cash Non-cash transactions are as follows:
Transactions 1995 1994
---------------------------------------------------------------------------
<S> <C> <C>
Gaming equipment financed by seller $ - $ 1,600,000
Vessel financed by seller - 1,017,452
Common stock issued to seller in
connection with vessel purchase - 1,500,000
Expenditures paid in shares of
common stock 48,400 158,904
Contribution of note payable to
additional paid-in capital - 115,395
Unearned ESOP shares - 7,455,000
Exercise of option to purchase land - 3,000,000
Conversion of promissory note into
200,000 shares of Company's common
stock 200,000
Financed insurance premiums 682,360 594,048
Preferred stock dividends 222,401 27,800
<CAPTION>
11. Other Other operating costs consist of the following:
Operating 1995 1994
Costs --------------------------------------------------------------------------
<S> <C> <C>
ESOP (benefit) provision $ (17,577) $ 279,000
Shareholder litigation 393,366 161,000
Write off Mexico
development costs 24,288
Other 90,115 295,160
--------------------------------------------------------------------------
$ 490,192 $ 735,160
==========================================================================
</TABLE>
F-30
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12. Subsequent Liberis Litigation - Delaware
Events -----------------------------
In a memorandum opinion issued February 8, 1996 by
the Court of Chancery of the State of Delaware in
and for New Castle County, the Court ruled that
Liberis who had filed suit against the Company to
enforce a stock option agreement to purchase
1,417,500 shares of stock "has no right to enforce
the alleged stock option agreement." Under the
decision, Liberis is also required to return
250,000 shares of common stock to the Company to
rescind a transaction in December 1990 in which
Liberis attempted to convey back to the Company
certain assets Liberis had previously acquired
from the Company. (See Note 3, Investment In and
Advances to Unconsolidated Affiliate)
A final order is expected to be entered soon. Mr.
Liberis has the right to appeal the decision.
In March 1996, the Company subscribed approximately
1,089,000 shares of common stock in a Regulation S
offering which will net proceeds of $500,000, after
offering costs.
13. Fourth Year end adjustments made in the fourth quarter of
Quarter 1994 had the effect of decreasing net income for
Adjustments the quarter by approximately $1,600,000. The
(Unaudited) adjustments related principally to the carrying
amount of certain assets, expense accruals and
common stock transactions associated with prior
quarters of 1994.
14. Fair Value The Financial Accounting Standards Board ("FASB")
of Financial has issued Statement of Financial Accounting
Instruments Standards ("SFAS") No. 107 which requires the
estimated fair value amounts to be determined by
the Company's management using available market
information and other valuation methods. However,
considerable judgement is required to interpret
market data in developing the estimates of fair
value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts
the Company could realize in a current market
exchange. The use of different market assumptions
and/or estimation methods may have a material
effect on the estimated fair value amounts.
Furthermore, the Company does not intend to dispose
of a significant portion of its financial
instruments and, thus, any aggregate unrealized
gains or losses should not be interpreted as a
forecast of future earnings and cash flows.
F-31
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SFAS No. 107 excludes certain financial instruments from
its disclosure requirements, such as leases. In addition,
disclosure of fair value estimates are not required for
non financial assets and liabilities, such as fixed
assets, intangibles and anticipated future business. As a
result, the following fair values are not comprehensive
and therefore do not reflect the underlying value of the
Company.
The following methods and assumptions were used in
estimating fair value disclosures for financial
instruments:
Cash and cash equivalents - the carrying amounts reported
-------------------------
in the consolidated balance sheet approximate those
assets' fair value.
Accounts receivable - the carrying amounts reported in
-------------------
the consolidated balance sheet approximate those assets'
fair value.
Investment in and advances to unconsolidated affiliate -
--------------------------------------------------------
the carrying amounts reported in the consolidated balance
sheet approximates those assets' fair value.
Long-term debt - the carrying amount approximates fair
--------------
value.
The approximate carrying amounts and estimated fair
values of the Company's financial instruments at December
31, 1995 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
---------------------------------------------------------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 552,061 $ 552,061
Accounts receivable 310,767 310,767
Investment in and advances to
unconsolidated affiliate 271,022 271,022
Financial Liabilities:
Long-term debt $9,626,668 $9,626,668
=========================================================
</TABLE>
F-32
<PAGE>
EXHIBIT 18
March 22, 1996
Mr. Lester Bullock, President
Europa Cruises Corporation
150 - 153rd Avenue East
Suite 200
Madeira Beach, FL 33708
Dear Mr. Bullock
As stated in Note 1 to the consolidated financial statements of Europa
Cruises Corporation for the year ended December 31, 1995, the Company changed
its method of accounting for drydock costs from the accrual method to the
deferral method and states that the newly adopted accounting principle is
preferable in the circumstances because of the uncertainty in estimating future
drydock costs. In connection with our audit of the above mentioned financial
statements, we have evaluated the circumstances and the business judgement and
planning which formulated your basis to make the change in accounting principle.
It should be understood that criteria have not been established by the
Financial Accounting Standards Board for selecting from among the alternative
accounting principles that exist in this area. Further, the American Institute
of Certified Public Accountants has not established the standards by which an
auditor can evaluate the preferability of one accounting principle among a
series of alternative. However, for purposed of the Company's compliance with
the requirements of the Securities and Exchange Commission, we are furnishing
this letter.
Based on our audit, we concur in management's judgement that the newly
adopted accounting principle described in Note 1 is preferable in the
circumstances. In formulating this position, we are relying on management's
business planning and judgement, which we do not find to be unreasonable.
Very truly yours,
/s/ BDO Seidman, LLP
BDO Seidman, LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 552,061
<SECURITIES> 0
<RECEIVABLES> 310,767
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,208,496
<PP&E> 13,845,567
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,338,855
<CURRENT-LIABILITIES> 3,675,247
<BONDS> 0
0
29,598
<COMMON> 24,133
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,338,855
<SALES> 0
<TOTAL-REVENUES> 19,243,830
<CGS> 0
<TOTAL-COSTS> 21,031,030
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 851,383
<INCOME-PRETAX> (2,070,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 215,096
<NET-INCOME> (1,855,228)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
