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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1998
COMMISSION FILE NO: 0-17529
EUROPA CRUISES CORPORATION
(name of small business issuer in its charter)
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: 727/393-2885
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock,
par value $.001
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
--- ---
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. [X]
State issuer's revenues for its most recent fiscal year: $ 16,802,550.
The aggregate market value of the voting stock held by non-affiliates of the
Company is $8,433,231 based on the last reported sales price of $ .36 per share
on April 8, 1999, multiplied by 23,425,642 shares of Common Stock outstanding
and held by non-affiliates of the Company on April 8, 1999.
As of the close of business April 8, 1999, there were 28,845,702 shares of the
Registrant's Common Stock outstanding (which includes 5,000,000 shares in the
Europa Cruises Corporation Employee Stock Ownership Plan).
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TABLE OF CONTENTS
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS .................................................................................3
ITEM 2. PROPERTIES .............................................................................................15
ITEM 3. LEGAL PROCEEDINGS ......................................................................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS .......................................................................................25
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ....................................................................................26
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ....................................................................26
ITEM 7. FINANCIAL STATEMENTS ...................................................................................31
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ....................................................................31
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS. COMPLIANCE WITH SECTION
16 (a) OF THE EXCHANGE ACT .............................................................................32
ITEM 10. EXECUTIVE COMPENSATION .................................................................................37
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT .............................................................................................40
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .........................................................42
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K .......................................................................43
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PART I
ITEM 1. BUSINESS
Europa Cruises Corporation is a Delaware corporation which was founded in 1988.
The Company became a publicly held company in 1989. The Company is an Over the
Counter Bulletin Board stock trading under the symbol "KRUZ." The Company has
twelve subsidiaries and conducts its current business through six of them. These
are:
1. CASINO WORLD, INC.
2. MISSISSIPPI GAMING CORPORATION
3. EUROPA CRUISES OF FLORIDA 1, INC.
4. EUROPA CRUISES OF FLORIDA 2, INC.
5. EUROPASKY CORPORATION
6. EUROPA STARDANCER CORPORATION
STOCK LISTING
The Company's stock formerly traded on the NASDAQ Small Cap Market under the
symbol "KRUZ." On or about August 27, 1997, NASDAQ announced new listing
requirements for issuers trading on NASDAQ. The rules, which became effective on
February 23, 1998, required, among other things, that stocks listed on the Small
Cap Market trade at a minimum bid price of $1.00 per share. The Company
requested an exemption from this requirement. On November 5, 1998, NASDAQ
notified the Company that its request for inclusion on the NASDAQ Small Cap
Market pursuant to an exemption to the $1.00 minimum bid price requirement, had
been denied. Thus, effective with the close of business November 5, 1998, the
Company's stock no longer traded on the NASDAQ Small Cap Market. On November 6,
1998, the Company's securities began trading on the Over the Counter Bulletin
Board (OTCBB) under the symbol "KRUZ."
I. FLORIDA OPERATIONS
In 1998, Europa Cruises Corporation was one of the largest day cruise operators
in the United States. The Company owns four gaming vessels, the EuropaSun, the
EuropaStar, the EuropaSky, and the M/V Stardancer. The four ships were operated
in 1998 through four of the above-named subsidiaries. In 1998, the Company
operated three of the vessels out of ports located in Miami Beach, Ft. Myers and
Madeira Beach, Florida. The fourth vessel, the M/V Stardancer, was reserved for
charter to third parties and to replace operating vessels that went to drydock.
The EuropaSun and M/V Stardancer are currently being operated by third parties.
The EuropaSky and the Madeira Beach operation are currently under contract,
subject to certain material contingencies, to be sold to a third party for six
million dollars.
In 1998, the Company had approximately 822 gaming positions fleetwide, including
approximately 447 slot machines. All gambling on the Company's vessels was and
is conducted in international waters only. The Company operated 2,076 cruises in
1998 and carried 267,738 passengers in 1998. The Company earned total revenues
of $ 16,802,550 in 1998.
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The Company's vessels generally sail twice daily from each port. In addition to
blackjack, poker, slot machines, craps, and sports betting, the Company's
cruises offer dining, dancing and entertainment. In addition to its regular
cruises, the Company offers various "theme" cruises and special holiday cruises
for Easter, Mother's Day, the 4th of July, Halloween, Christmas and New Year's
Eve. The Company also offers specialty cruises for blackjack, slot and other
gaming tournaments.
EMPLOYEES
At year's end of 1998, the Company employed approximately 368 employees at its
three operating locations. The Company currently employs approximately 252
employees. The Company currently operates and manages two of its vessels, the
EuropaSky in Madeira Beach, Florida and the EuropaStar in Ft. Myers, Florida.
Of the Company's 252 employees, 6 are executive and management personnel and 3
are engaged primarily in administrative positions. The remaining employees are
ship officers, crew, casino, reservations, food service and other staff employed
by the Company who work on or about the Company's 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.
VESSELS
SUN/STAR
The EuropaSun and the EuropaStar were built in 1977, are registered in Panama
and were renovated in January 1987. Both vessels are approximately 100 gross
registered tons in size, 167 feet in length and 38 feet in width. Each vessel
has a capacity for approximately 400 passengers. The EuropaSun had approximately
213 gaming positions in 1998, including approximately 118 slot machines. The
EuropaSun is currently operated by a third party. The EuropaStar has 256 gaming
positions, including approximately 139 slot machines. Each vessel has a dining
area, entertainment stage, dance floor, main lounge, bars and a fully equipped
galley. 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 United States Coast Guard. Both
vessels currently hold valid control verifications from the United States Coast
Guard.
In February, 1999, the Company entered into a preliminary agreement, subject to
certain contingencies, with Stardancer Casino, Inc., a South Carolina Company.
Under the terms of the agreement, Stardancer Casino, Inc. would manage and/or
sublease the Company's Miami Beach, Florida operation. Under the terms of the
agreement, Europa would receive approximately $97,000 per month in addition to
expenses incident to the operation. The Company is in receipt of a nonrefundable
deposit in the amount of $300,000. The Company's landlord has objected to an
assignment of the Company's lease. Therefore, the Company intends to enter into
a management contract. Stardancer Casino, Inc. has been managing the port since
March 1, 1999. One or more of the principals of Stardancer Casino, Inc. are
affiliated with Seven Star Charters, Inc. which charters the Europa Stardancer.
SKY
The EuropaSky, was acquired in 1992, renovated by a U.S. shipyard and placed in
operation in November of 1993. The vessel is 498 tons, 160 feet in length and 36
feet in width. The vessel has
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a capacity for 440 passengers. The EuropaSky has approximately 254 gaming
positions, including approximately 130 slot machines. The EuropaSky has two
dining areas, including one for VIP's, an entertainment stage, dance floor,
several lounges, 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 United States Coast Guard Certificate of Inspection. The
EuropaSky's United States registry was 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.
STARDANCER
The M/V Stardancer was purchased in August 1994 and is a U.S. registry vessel
built in 1984. The vessel has a gross registered tonnage of 97 tons, is 150 feet
in length, and 36 feet in width, and has a capacity for approximately 400
passengers. The Company attempts to time charter the vessel during periods when
it is not being used as a replacement vessel when one of the Company's other
operating vessels is in drydock. The M/V Stardancer had 99 gaming positions,
including approximately 70 slot machines. The Stardancer has a dining area,
several bars and a sun deck with seating for up to 100 persons.
On December 29, 1998, the Company entered into a Charter Agreement with Seven
Star Charters, Inc. to charter the Stardancer for a five year period beginning
January 1, 1999. The Agreement calls for an annual charter fee of $1,080,000 in
addition to certain insurance payments. The Agreement gives Seven Star Charters,
Inc. an option to purchase the Stardancer for $2,800,000, or less depending on
the time of purchase. The Company received an advance charter fee in the amount
of $275,000 and a Letter of Credit in the amount of $150,000. The Stardancer is
currently operated out of Myrtle Beach, South Carolina. One or more of the
principals of Seven Star Charters, Inc. are affiliated with Stardancer Casino,
Inc., which currently manages the Europa Sun in Miami Beach, Florida.
OPTION AGREEMENT
On December 30, 1998, the Company entered into an Option Agreement and Letter of
Understanding with International Hospitality, Inc., a publicly-traded Canadian
corporation. Under the terms of the agreement, International Hospitality, Inc.
agreed to pay Europa a $300,000 refundable option fee in return for the
exclusive right to negotiate with Europa for a thirty day period of time with
respect to operating and managing one or all of Europa's three operations in
Miami Beach, Madeira Beach, and/or Ft. Myers, Florida. The Option payment was
refundable in cash or stock, at the Company's election, in the event no
agreement was reached. No agreement was reached. On February 27, 1999, the
Company forwarded 750,000 shares of Common Stock to International Hospitality,
Inc. in repayment of the refundable option fee. The President of Europa holds
the proxy to vote the shares issued for a period of one year.
COMPETITION
When the Company began its Florida operations in 1988, there were approximately
four other vessels operating gambling day or evening cruises out of Florida.
Currently,there are approximately twenty-six vessels offering such cruises, many
of which compete directly with the Company's vessels.
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In the past several years, competition in the day cruise industry has been
fierce. Many of the competing firms offer free cruises or minimally priced
cruises. This has forced the Company to adjust its fares and to offer free
cruises to remain competitive. Indeed, in order to now compete in the industry,
the Company must allow many of its passengers to routinely sail for free. The
Company has also been forced to reduce its fares dramatically. When the Company
can command a fare, the fare is nowhere near what it was in recent prior years
or in the Company's earlier years. The fare must remain competitive or
passengers will simply sail on the competition. The fare charged in each port
also varies depending on the port, the market, the competition in that market,
the day of the week, the time of day, the time of year, and whether or not it is
a holiday season. The Company offers various discount passenger rates to groups
and charterers of an entire vessel and offers special fares and complimentary
fares for its rated casino patrons. The Company's vessels have been used for
convention meetings, continuing education programs, weddings and various other
group gatherings.
The influx of operators into Florida has also placed a premium on new port
locations which makes expansion in the industry more difficult. Further, the
competition can relocate to any area in which the Company's vessels are
currently located. Any additional increase in competition in any of the
Company's ports would have an adverse impact on operations and the Company's
financial position. In 1998, the advent of new competitors in all three of the
Company's ports was seriously adverse for the Company. There was an immediate
and dramatic decrease in total revenues.
In addition to competition in the cruise-to-nowhere industry, the Company
competes with a variety of other activities in those areas where it operates its
vessels. These include, but are not limited to, land-based Indian gaming
casinos, poker rooms, short-term cruises, resort attractions, various sports
activities and numerous other recreational activities.
MADEIRA BEACH, FLORIDA
On or about May 21, 1998, SunKruz, the largest operator in the cruise-to-nowhere
business in Florida, purchased the cruise-to-nowhere operation directly across
the water from the Company's location in John's Pass in Madeira Beach, Florida.
SunKruz expends significant amounts of money in advertising, marketing and
promotion and buses passengers to its port. The Company does not have sufficient
funds to do likewise. SunKruz operates a more modern casino vessel which is
equipped with numerous, more modern slot machines. While the Company has
invested in some new slot machines, for the most part, the slot machines on the
Company's vessel are old when compared to the slot machines on the competitor's
vessel. The Company's revenues decreased as a result of the introduction of
SunKruz in Madeira Beach.
MIAMI BEACH, FLORIDA
On or about October 20, 1998, the Casino Princessa commenced operations in Miami
Beach, Florida. The Princessa is a modern, elegant vessel with an interior that
resembles that of a land-based casino. It is fully equipped with the latest
gaming equipment and slot machines. It is located at Bayside, a popular shopping
mall with numerous restaurants which is heavily frequented by both locals and
tourists. It is within approximately five miles of the Company's port. The
Company lost a large percentage of its business to the Casino Princessa.
In addition, on or about December 26, 1998, another vessel, the Eldorado, opened
at the Dupont Plaza Hotel, within approximately five miles of the Company's port
in Miami Beach. The Eldorado
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is a small, but beautifully decorated and fully equipped vessel. This operation
has also taken a percentage of the Company's business.
FT. MYERS, FLORIDA
The Ft. Myers operation has been the mainstay of the Company. The Ft. Myers
operation generated the bulk of the revenue earned by the Company for many
years. The Ft. Myers operation enjoyed a virtual monopoly since it first opened.
However, in or about January 1998, two vessels, the "Big M" and the "Royal
Princess" commenced operations in Ft. Myers. The Royal Princess left in April of
1998. Thus, in the first quarter of 1998, the Company had competition from two
competitors in Ft. Myers. In the second quarter of 1998 and continuing to date,
the Company has been in direct competition with the Big M. The Big M is located
within a few hundred yards of the EuropaStar. The Big M expends significant
amounts of money in advertising, marketing and promotion and buses passengers to
its port. The Company does not have sufficient funds to do likewise. While the
Company has invested in some new slot machines, for the most part, the slot
machines on the Company's vessel are old when compared to the slot machines on
the competitor's vessel. The Company's revenues decreased dramatically as a
direct result of the introduction of the Big M in Ft. Myers.
The introduction of two competitors in Ft. Myers severely affected the Company's
passenger counts and revenues in 1998 and, accordingly, its income from
operations in 1998. The operation of the Big M in Ft. Myers continues to
significantly affect the Company's passenger counts and revenues.
WEATHER AND SEASONAL FLUCTUATIONS
The business of the Company suffers as a direct result of inclement weather.
Inclement weather has a direct effect on the number of cruises conducted and on
passenger counts. In addition, passenger counts are reduced immediately before
and immediately after inclement weather conditions. The business of the Company
is also subject to seasonal fluctuations. In 1998, weather conditions severely
affected the Company's operations and revenues.
In 1998, El Nino and two hurricanes, Hurricane Georges and Hurricane Mitch,
combined to severely impact the revenue and cash flow of the Company. El Nino
affected the Company's operations in the first quarter. The Company operated 504
cruises in the first quarter of 1998, as compared to 568 cruises in the first
quarter of 1997, a decrease of 64 cruises, or 11% . The Company carried only
69,804 passengers in the first quarter of 1998, as compared to 99,197 during the
same period in 1997, a decrease of 29,393 passengers, or 30%. Hurricane Georges
hit the Florida ports in the third quarter of 1998. In the last week of
September, Hurricane Georges forced the Company to close all three of its
operations. The Company was also forced to move all four of its vessels to safe
harbors to avoid the effects of Hurricane Georges. Thus, in addition to a loss
of revenues, the Company incurred the added expenses of securing its vessels.
The Company's vessels suffered no damage as a result of the hurricanes and no
injuries were reported in connection with the Company's operations. While the
decrease in the number of cruises and passengers in 1998 is, in management's
opinion, attributable to a combination of severe weather, drydock, and new
competition, the Company obviously lost a substantial number of passengers and
cruises as a result of severe weather conditions.
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MARKETING AND PROMOTION
The Company does not have sufficient funds with which to advertise, market and
promote its cruises. The Company focuses its marketing efforts on its repeat
customers, the local population and tourists. The Company tries to attract
passengers from the local population to survive the seasonal fluctuations that
are known to occur in the Florida tourist industry. The Company currently
markets its cruises primarily through direct mail. The Company's financial
ability to advertise is minimal compared to the heavy advertising, marketing and
promotion of the Company's competition.
GAMING EQUIPMENT
Most of the gaming equipment on board the vessels which the Company operates are
leased from Casinos Austria Leigenshalftwerwaltung-Und Leasing (CALL). On
October 13, 1994, the Company entered into an Equipment Lease Agreement with
CALL pursuant to which the Company leased all gaming equipment on the Company's
four vessels for a period of forty months at $46,398 per month. The Company has
an option to purchase the equipment for the sum of one dollar at the conclusion
of the lease. In February, 1997, the Equipment Lease was extended for an
additional five months and the lease payment was increased to $49,025.39 to
provide for previous lease payments not made. On April 1, 1998, the Equipment
Lease was amended so as to reduce the monthly payments of $49,025 to $25,000 per
month. The lease was then-scheduled to end in May, 1999. However, due to a
decrease in operating revenue, the Company was unable to continue to make its
lease payments and the lease is in default. As of April 9, 1999, the outstanding
balance on the lease was $291,986.87. The Company has notified Casinos Austria
that it intends to pay the balance due on the lease out of the proceeds of the
sale of the EuropaSky. The Company intends to exercise its option to purchase
the equipment for $1.00. The sale of the EuropaSky, assuming it closes, is
scheduled to close on or about May 10, 1999. In the event the sale does not
close, the Company will either have to enter into another agreement with Casinos
Austria or pay the full amount owed.
FEDERAL LEGISLATION
In addition to state-related legislation which could adversely affect the
cruise-to-nowhere business in Florida and elsewhere, on January 6, 1999,
Congressmen, Wolf, Gilchrest and Shays introduced a Bill, H.R. 316, (the
"Cruises-to-Nowhere Act of 1999"), to amend the Johnson Act to restore the
authority of State laws over gambling cruises-to-nowhere. This Bill, should it
become law, would give states the ability to apply their own laws to gambling
cruises-to-nowhere. The passage of this law would allow the state of Florida and
other states to ban cruises-to-nowhere. Such a ban would destroy the business of
the Company in Florida. The Bill has been referred to the House Committee on
Transportation and Infrastructure Subcommittee on Coast Guard and Maritime
Transportation.
STATE REGULATION - FLORIDA
In 1996, the Florida legislature enacted a law intended to promote economic
development for the Florida para-mutual industry by increasing full card
simulcasting and intertrack wagering and permitting low-stakes (the maximum
allowable pot is $10.00) card rooms at pari-mutual facilities. The pari-mutuals
must choose between operating card rooms or carrying simulcasts on the days they
operate. Card rooms operate in Miami and Tampa where the Company operates
vessels.
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On an almost annual basis, a representative(s) of the Florida legislature will
introduce a bill in the Florida State House of Representatives to ban all
cruises-to-nowhere originating from the State of Florida. These bills have died
in committee or been defeated in the past. However, there can be no assurance
that bills currently pending or introduced in the future to ban
cruises-to-nowhere will be similarly defeated.
In addition, bills have previously been introduced seeking to place a $1.00 per
passenger surcharge on cruises of less than 24 hours and a $5.00 per passenger
surcharge on cruises of 24 hours or longer. This surcharge was intended to fund
a Trust Fund to be used for statewide beach restoration and management. The
Bills were subsequently amended so that the cruise-to-nowhere industry would not
be taxed and as such became law. There can be no assurance that similar bills
designed to tax passengers on cruises-to-nowhere will not be introduced in the
future.
On or about March 23, 1998, an amendment to a prefiled Bill was introduced
which, in part, prohibited the advertisement of any form of gambling in any
newspaper, circular, poster, pamphlet, radio, telegraph, telephone or otherwise.
It is the Company's understanding that the Committee to which the amendment was
sent adjourned without taking action on the amendment. There can be no assurance
that the amendment will not be reintroduced at a later time.
There can be no assurance that legislation will not be introduced in Florida
which could adversely affect the business of the Company or the ability of the
Company to continue operating cruises-to-nowhere out of Florida ports.
STATE OF FLORIDA LITIGATION RELATING TO THE FLORIDA DAY CRUISE INDUSTRY
On July 2, 1997, Robert A. Butterworth, the Attorney General for the State of
Florida, and Neil Perry, Sheriff of St. Johns County, Florida ("Plaintiffs")
filed a Complaint for Injunctive Relief Against the Illegal Possession of Slot
Machines and the Continuance of a Public Nuisance against Chances Casino
Cruises, Inc. and Mark Morrow, ("Defendants") operators of the Royal Princess,
in the Circuit Court of the Seventh Judicial Circuit In and For St. Johns
County, Florida (Case No. CIV-97-1088). The Plaintiffs sought a temporary and
permanent injunction restraining the Defendants from continuing to possess slot
machines in the State of Florida. On July 2, 1997, the Plaintiffs filed a Motion
for a Temporary Injunction. The Court heard argument on the Motion for a
Temporary Injunction on July 18, 1997. The Florida Day Cruise Association of
Florida, Inc., of which Europa Cruises Corporation is a member, filed a Motion
to Appear as Amicus Curiae and a Memorandum in Opposition to the Motion for
Temporary Injunction. On July 22, 1997, the Court denied the Plaintiffs' Motion
for Temporary Injunction, without prejudice to a final adjudication on the
merits. The Court also granted the Defendants' Motion to stay enforcement by
Plaintiffs and subordinate agencies through criminal process of the "slot
machine" issue raised. On November 26, 1997, as a result of the cessation of the
business which was the subject of this suit, the Court entered an Order for
Dismissal Without Prejudice granting the Defendants' Motion to Dismiss for
Mootness and dismissed all counterclaims without prejudice to Plaintiffs.
There can be no assurance that further litigation will not be instituted in the
State of Florida or elsewhere which could adversely affect the business of the
Company or the ability of the Company to continue operating cruises-to-nowhere
out of Florida ports.
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In addition, in 1998, the Attorney General for the State of Florida had several
vessels of several companies or the equipment thereon seized for various alleged
civil and criminal violations of law. There can be no assurance that the
Attorney General will not seize additional vessels in the future for alleged
civil and criminal violations of law.
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 at 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 the legalization of land-based
gaming in Florida. The Company believes that the legalization of land-based or
dockside gaming in Florida would have a material adverse impact on the Company's
operations.
FUTURE PORTS
The Company has no present intent to open any additional ports in Florida or to
expand it's day cruise operations in Florida. The Company has no present intent
to open any additional ports outside of Florida or to expand it's day cruise
operations outside of Florida.
II. MISSISSIPPI
Europa Cruises Corporation owns, through Mississippi Gaming Corporation,
(hereafter "MGC") (or has options to purchase for ten dollars), a total of
404.5 acres of unimproved land in Diamondhead, on the Bay St. Louis, in Hancock
County, Mississippi. The Company intends to construct a destination casino
resort and hotel at the 404 acre site. The site, which is located immediately
off Interstate 10, is adjacent to a site on which Circus Circus Enterprises,
Inc., also intends to develop a destination casino resort and hotel. The
Company's destination resort is expected to include a luxury hotel and spa, a
sports and entertainment center, approximately 120,000 square feet of casino
space, a state-of-the-art recreational vehicle park, a business conference
center and an executive golf course. The site was appraised as of March 26,
1996, at $8,000,000 by J. Daniel Schroeder Appraisal Company. The appraisal was
predicated on the site being zoned as a legally permissible water-based casino
site. Europa Cruises Corporation is also the sole shareholder of Casino World,
Inc. (hereafter "CWI"). The Company maintains an office in Mississippi for
Casino World, Inc. and has one employee in Mississippi, but has no current
operations in Mississippi.
On January 31, 1997, the Company entered into an agreement with Hilton Gaming
Corporation (hereafter "Hilton"), the world's largest gaming company, which gave
Hilton the exclusive right to negotiate a joint venture agreement with Europa
for a 180 day period of time with respect to the development of Europa's
Diamondhead, Mississippi property. In exchange for the exclusive right to
negotiate, Hilton paid Europa a nonrefundable fee of $400,000. The exclusive
option period expired on or about July 31, 1997 and Hilton has taken no further
action.
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INVESTMENT BANKER/ADVISOR
On April 2, 1998, the Company signed an Agreement with McDonald & Company
Securities, Inc. ("McDonald"), retaining McDonald as the Company's exclusive
investment banker and advisor. McDonald was retained to spearhead Europa's
efforts to engage a joint venture partner and/or to obtain the necessary
financing required to develop a casino resort on the Company's 404 acre tract
located in Diamondhead, Mississippi. Under the Agreement signed with McDonald,
which was for a term of six months, the Company was required to pay no up-front
fees or monthly fees or expenses. The Agreement was contingency-fee based and
all fees were contingent on the consummation of a Transaction. The agreement
expired and was not renewed by the Company.
MISSISSIPPI PERMITS/APPROVALS
(See also Item 3. Legal Proceedings.)
A. MISSISSIPPI GAMING COMMISSION
On June 15, 1995, the Mississippi Gaming Commission granted site approval for
the Diamondhead casino resort plan. (See Mississippi-Related Litigation.)
B. MISSISSIPPI COMMISSION ON MARINE RESOURCES
On July 16, 1996, the Mississippi Commission on Marine Resources granted
approval to Casino World, Inc. and the Hancock County Port and Harbor Commission
for a change in the Coastal use Plan and an associated Permit to develop the
Mississippi Gaming Commission approved site plan. On September 18, 1996, several
associations opposed to the change and the Permit filed an appeal to the
Chancery Court of Hancock County, Mississippi. On October 16, 1996, Casino
World, Inc. and the Hancock County Port and Harbor Commission filed a Joint
Motion to Dismiss for Untimely Appeal in which they alleged that the appellants
had failed to file their Notice of Appeal and Complaint within the proper time
period. The Joint Motion to Dismiss was granted on December 31, 1996. On January
15, 1997, the dismissed parties appealed the decision of the Chancery Court to
the Supreme Court of Mississippi. On July 23, 1998, the Supreme Court of
Mississippi reversed the lower court's decision and remanded the case to the
lower court for a hearing on the merits. On or about August 6, 1998, Casino
World, Inc. filed a Motion for Rehearing which was denied on October 15, 1998.
The case has been remanded back to the lower court for a hearing on the merits.
(See Mississippi-Related Litigation.)
C. MISSISSIPPI DEPARTMENT/COMMISSION ON ENVIRONMENTAL QUALITY
On January 22, 1997, the Mississippi Department of Environmental Quality issued
a Construction Storm Water General (National Pollution Discharge Elimination
System (NPDES)) Permit to Casino World. Inc. On January 9, 1997, the Mississippi
Commission on Environmental Quality ("MCEQ") approved the issuance of the Water
Quality Certification granted by the Mississippi Department of Environmental
Quality, Office of Pollution Control, to Casino World, Inc. and Hancock County
Port and Harbor Commission. Certain associations opposed to the granting of this
Certification requested an evidentiary hearing which was held in April, 1997. On
June 26, 1997, the MCEQ issued an Order affirming the Water Quality
Certification issued to Casino World, Inc. on January 9, 1997, as modified and
clarified on May 22, 1997. The same associations appealed the decision to the
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Chancery Court of Hancock County, Mississippi. On February 27, 1998, the
Chancery Court filed a Memorandum Opinion and Order denying the appeal and
entering judgment in favor of the Appellees, including Casino World, Inc. No
appeal from the decision of the lower court was filed and the time period for
appealing has expired. (See Mississippi-Related Litigation.)
D. U.S. ARMY CORPS OF ENGINEERS
On March 26, 1998, the U.S. Army Corps of Engineers issued a Permit to the
Hancock County Port and Harbor Commission, which was then immediately
transferred to Casino World, Inc. and Mississippi Gaming Corporation, to, among
other things, construct a casino mooring facility in the Bay of St. Louis, at
the Company's Diamondhead, Mississippi site. The time limit for completing the
work authorized under the Permit is March 26, 2001. Unless there are
circumstances requiring either a prompt completion of the authorized activity or
a reevaluation of the public interest decision, the Corps, as stated in the
Permit, will normally give favorable consideration to a request for an extension
of this time limit. (See Mississippi-Related Litigation.)
E. TIDELANDS LEASE
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 and the
pier between the hotel and the casinos will be moored. The term of the lease was
for five (5) years beginning 30 days after construction on the project
commenced. There were four five (5) year option renewal periods. The cost of the
lease was $2,250,000 for the first five years of which $25,000 was paid on
signing, and of which $95,000 was payable upon commencement of construction.
Both payments were to be applied toward the lease payments which were $10,000
per month during construction. The remainder of the $2,250,000 was to be
amortized over the remainder of the lease after operation of the casino
commenced. Renewal options were to be at 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 was contingent on the project receiving all necessary approvals for
construction and compliance with the Memorandum of Understanding which
transferred management and control of the subject tidelands from the Mississippi
Secretary of State to the Hancock County Port and Harbor Commission. The
Memorandum required the Hancock County Port and Harbor Commission to enter into
a tenant lease for the tidelands within one year of signing of the transfer,
November 19, 1995, and commencement of casino operations within three years of
signing of the transfer.
On March 24, 1998, MGC entered into a supplemental Agreement with the Hancock
County Port and Harbor Commission, which required the Company, inter alia, to
indemnify and hold the Hancock County Port and Harbor Commission harmless from
certain damages, claims and suits; to refrain from violating environmental laws;
to provide certain liability insurance; and to name the Hancock County Port and
Harbor Commission as a co-insured under certain circumstances.
Casino operations did not commence within three years of signing of the transfer
and the Tidelands Lease has expired.
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The Mississippi Secretary of State has indicated that he will not renew a lease
with the Hancock County Port and Harbor Commission. Therefore, Casino World,
Inc. will be required to apply directly to the Secretary of State for a new
Tidelands Lease. There can be no assurance the Mississippi Secretary of State
will grant a Tidelands Lease.
F. HANCOCK COUNTY BOARD OF SUPERVISORS
On January 16, 1997, the Hancock County Board of Supervisors adopted a
county-wide zoning plan. The Company's 404-acre site was zoned as a Special Use
District Waterfront Gaming District. The zoning designation comports with the
Diamondhead Casino Resort site plan approved by the Mississippi Gaming
Commission, the Mississippi Commission on Marine Resources, the Hancock County
Planning Commission and the Hancock County Board of Supervisors.
On November 18, 1998, Casino World, Inc. forwarded a request to the Hancock
County Planning Commission for an extension or renewal, to the extent, if any,
one might have been deemed necessary, of that Special Use District-Waterfront
District designation given to the property to be developed by Casino World, Inc.
on the Bay of St. Louis in Hancock County. On November 19,1998, the Hancock
County Planning Commission passed a resolution extending the Waterfront Special
Use District designation for a period of one year from January 6, 1999 to
January 6, 2000. The resolution was submitted to the Hancock County Board of
Supervisors for ratification and approval. On November 30, 1998, the Hancock
County Board of Supervisors voted to approve the resolution.
Any modification of the approved site plan may require resubmission to and
reapproval by the Mississippi Gaming Commission, the Mississippi Department of
Marine Resources, the Mississippi Department of Environmental Quality and/or the
U.S. Army Corps of Engineers. Therefore, the conditions of these permits are
material and must be factored into any negotiation with any potential joint
venture partner. The foregoing permits and approvals remain subject to the
outcome of certain litigation and the actions of environmental groups and
various federal, state and local governments and agencies, including the
foregoing. (See Mississippi-Related Litigation.)
MISSISSIPPI LICENSES
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 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.
Neither the Company nor any of its subsidiaries has a license to operate a
casino in Mississippi or in any other jurisdiction. The Mississippi Act requires
that a person (including any corporation or other entity) must be licensed by
Mississippi 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,
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must be found suitable by the Mississippi Gaming 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 Gaming Commission of this acquisition and must be found
suitable by the Mississippi Gaming Commission. The finding of suitability is
comparable to licensing and both require submission of detailed personal
financial information followed by a thorough investigation. In addition, the
Mississippi Gaming 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.
Ms. Vitale, President and Chairman of the Board of Europa Cruises Corporation
and President and a Director of Casino World, Inc. and Mississippi Gaming
Corporation, was issued a key person license by the Colorado Gaming Commission
during 1994. Neither Casino World, Inc. or Mississippi Gaming Corporation
presently intend to seek a gaming license in Colorado and a Colorado license is
ineffective in Mississippi. During 1996, Ms. Vitale's key person license in
Colorado expired and was not renewed.
On June 19, 1994, Casino World, Inc. and Mississippi Gaming Corporation (MGC)
entered into a Management Agreement with Casinos Austria Maritime Corporation
(CAMC). Subject to certain conditions, under the Management Agreement, CAMC will
operate, on an exclusive basis, all of the proposed dockside gaming casinos in
the State of Mississippi. If the Company enters into a joint venture arrangement
pursuant to which the joint venture partner acquires a controlling interest, the
agreement with CAMC will terminate. 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).
The political and regulatory environment in which the Company is and will be
operated with respect to gaming activities, is uncertain, dynamic and subject to
rapid change. Existing operators often support legislation and litigation
designed to make it more difficult or impossible for competition to develop and
operate gaming facilities. Anti-gaming activists have introduced measures
designed to make gambling illegal in Mississippi. 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 gaming operations.
Except for historical information contained herein, the matters discussed in
this Item 1, in particular, statements that use the words "believes," "expects,"
"intends," or "anticipates," are intended to identify forward looking statements
that are subject to risks and uncertainties including, but not limited to,
inclement weather, mechanical failures, increased competition, financing,
governmental action, environmental opposition, legal actions, and other
unforeseen factors. The development of the Diamondhead, Mississippi project, in
particular, is subject to additional risks and uncertainties, including, but not
limited to, risks relating to permitting, financing, the activities of
environmental groups, the outcome of litigation and the actions of federal,
state, or local governments or agencies.
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ITEM 2. PROPERTIES
OFFICES/OPERATING PORTS
The Company owns an office condominium which it uses at 150-153rd Ave., Suite
202, in Madeira Beach, Florida. The condominium is adjacent to office space
leased by the Company. The Company paid approximately $104,000 for the
condominium.
The Company leased office space at the following locations during the year ended
1998.
<TABLE>
<CAPTION>
FLORIDA:
- --------
LOCATION LEASE TERMS
- -------- -----------
<S> <C>
150-153rd Ave., Suite 200, Twelve months with an option to renew for two
Madeira Beach, Florida 33708 additional one year periods.
150-153rd Ave., Suite 204 Twelve months with automatic renewal for
Madeira Beach, Florida 33708 additional two years.
150-153rd Ave., Suite 205 Twelve month, renewable on a 5 year basis.
Madeira Beach, Florida 33708 (This lease was terminated.)
645 San Carlos Blvd. Five years commencing March 1, 1995
Ft. Myers Beach, Florida 33931 with option to renew for three years.
1280 5th Street Five years commencing March 1, 1995 with
Miami Beach, Florida 33139 option to renew for two years. The Company
exercised its option to renew in January, 1997.
DOCK SPACE
The Company leases dock space at the following locations:
LOCATION LEASE TERMS
150-129th Ave. Three years commencing October, 1996
Madeira Beach, Florida 33708 with option to renew for two additional
three year periods.
545 San Carlos Boulevard Five years commencing December 1, 1995
Ft. Myers Beach, Florida 33931 with option to renew for three years.
1280 5th Street Five years commencing March 1, 1995 with
Miami Beach, Florida 33139 option to renew for two years. The
Company exercised its option to renew in
January, 1997.
</TABLE>
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<TABLE>
<S> <C>
MISSISSIPPI:
5403 Indian Hill Blvd. Three years commencing June 1, 1995
Diamondhead, MS 39525
</TABLE>
DIAMONDHEAD, MISSISSIPPI PROPERTY
On June 19, 1993, the Company, through Mississippi Gaming Corporation ("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 obtained a $2,000,000 loan from Casinos Austria Maritime
Corporation ("CAMC") that was secured by a first mortgage on the Diamondhead,
Mississippi property. The first mortgage loan was payable interest only at 8%
per annum for fifteen months. The full principal balance on the first mortgage
loan was due and payable on June 30, 1995. Prior to its due date, the first
mortgage was paid in full from proceeds of a loan obtained by the Company in May
1995 from First Union National Bank of Florida.
On June 19, 1993, MGC entered into an option agreement to purchase approximately
100 acres included within, but separated, from the total 404 acres of property
which is the site. This option expires in June 2003.
In order to ensure 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 in seven
years of the easement grant, the easement terminates and reverts to the
Grantors.
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ITEM 3. LEGAL PROCEEDINGS.
TAX-RELATED LITIGATION
FLORIDA DEPARTMENT OF REVENUE TAX AUDIT
SETTLED
On November 28, 1994, the Florida Department of Revenue issued a Notice of
Intent to make Sales and Use Tax Audit Changes to the Company for the period
February 1, 1989 through June 30, 1994. The total proposed assessment, including
estimated penalties and interest, through June 15, 1997, totalled approximately
$7.4 million. In June, 1997, the Company settled this liability by entering into
Closing Agreements with the Florida Department of Revenue. The settlement, which
includes all audits for the covered period, is approximately $1.9 million. The
settlement includes a payment schedule of approximately $21,000 per month for
seven years (payment reduced to $10,475.89 in March 1998). The settlement
provides for no interest for the first 3 years and interest accruing at a rate
of 6% per year for the last 4 years.
GALVESTON INDEPENDENT SCHOOL DISTRICT, ET AL. V. EUROPA CRUISE LINES OF TEXAS,
INC. ET AL. (In the District Court of Galveston County, Texas) (Case No.
95TX0051)
On or about January 31, 1995, the Galveston Independent School District filed a
Petition in the District Court of Galveston County, Texas for ad valorem taxes
allegedly due for the year 1990 in the principal amount of $211,470.00 and for
interest and penalties in the amount of $177,634.80. The Company maintains that
it is not liable for this alleged tax. The Company believes the tax is a
tangible property tax which cannot be levied on a foreign flag vessel.
GAMING-RELATED LITIGATION
WILLIAM POULOS, ET AL. V. AMBASSADOR CRUISE LINES, INC., ET AL. (United States
District Court, District of Nevada) (Case No. CV-S-95-936-LDG (RLH))
On or about November 29, 1994, William Poulos filed a class action lawsuit on
behalf of himself and all others similarly situated against approximately
thirty-three defendants, including Europa Cruises of Florida 1, Inc. and Europa
Cruises of Florida 2, Inc. in the United States District Court, Middle District
of Florida, Orlando Division (Case No. 94-1259-CIV-ORL-22). Europa Cruises of
Florida 1, Inc. and Europa Cruises of Florida 2, Inc. were served with the
Complaint on or about March 15, 1995. The suit was filed against the owners,
operators and distributors of cruise ship casinos which utilized casino video
poker machines and electronic slot machines. The Plaintiff alleges violation of
the Federal Civil RICO statute, common law fraud and deceit, unjust enrichment
and negligent misrepresentation. The plaintiff had filed a similar action
against most major, land-based casino operators in the United States. The
earlier action, which did not name the Company or any of its subsidiaries as
defendants, was transferred from the U.S. District Court in Orlando, Florida to
the U.S. District Court in Las Vegas, Nevada. The plaintiff contends in both
actions that the defendant owners and operators of casinos, including cruise
ship casinos, along with the distributors and manufacturers of video poker
machines and electronic slot machines have engaged in a course of fraudulent and
misleading conduct intended to induce people to play their machines based on a
false understanding that the machines operate in a truly random fashion. The
plaintiff alleges that these machines actually follow fixed, preordained
sequences that are not random, but rather are both
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predictable and subject to manipulation by defendants and others. The plaintiff
seeks damages in excess of $1 billion dollars against all defendants. Management
believes there is no support for plaintiff's factual claims and the Company
intends to vigorously defend this lawsuit.
On September 13, 1995, the United States District Court for the Middle District
of Florida, Orlando Division, transferred the case pending in that Court against
Europa Cruises of Florida 1, Inc. and Europa Cruises of Florida 2, Inc. and
other defendants to the United States District Court for the District of Nevada,
Southern Division. Accordingly, the case against Europa and the other defendants
in the cruise ship industry will be litigated and perhaps tried together with
those cases now pending against the land-based casino operators and the
manufacturers, assemblers and distributors of gaming equipment previously sued
in federal court in Nevada. Management believes the Nevada forum provides a more
favorable forum in which to litigate the issues raised in the Complaint. The
Company is sharing the cost of litigation in this matter with other defendants.
On November 3, 1997, the Court heard various motions in the case, including a
Motion to Dismiss filed by the cruise ship defendants. The motion was denied. On
March 18, 1998, the Plaintiffs filed a Motion for Class Certification. The
motion is pending.
ROBERT M. BAER, ET AL V. AMBASSADOR CRUISE LINES, INC. ET AL. (In the Circuit
Court of the Seventeenth Judicial Circuit In and For Broward County, Florida)
(Case No. 96-6177 (21))
CASE DISMISSED WITHOUT PREJUDICE
On May 7, 1995, Robert M. Baer, on Behalf of Himself and All Others Similarly
Situated, filed a class action lawsuit against approximately thirty-eight
defendants, including Europa Cruises of Florida I and Europa Cruises of Florida
II in the Circuit Court of the Seventeenth Judicial Circuit In and For Broward
County, Florida. (Case No. 96-6177 (21) Europa Cruises of Florida 1, Inc. and
Europa Cruises of Florida 2, Inc. were served with the Complaint on or about
July 11, 1996. The suit was filed against the manufacturers, distributors and
promoters of video poker and electronic slot machines and the owners, operators
and promoters of cruise ship casinos which utilized casino video poker machines
and electronic slot machines. The plaintiff alleged fraud in connection with the
labeling, design, promotion and operation of casino video poker machines and
electronic slot machines, violation of the Florida Racketeer Influenced and
Corrupt Organizations Act ("RICO"), common law fraud and deceit, unjust
enrichment, and negligent misrepresentation. The plaintiff contended that the
defendant owners, operators and promoters of cruise ship casinos, along with the
manufacturers, distributors, and promoters of video poker machines and
electronic slot machines, have engaged in a course of fraudulent and misleading
conduct intended to induce people to play their machines based on a false
understanding that the machines operate in a random fashion and are
unpredictable. The plaintiff alleged that these machines actually follow fixed,
preordained sequences that are not random, but rather are both predictable and
subject to manipulation by defendants and others. The plaintiff sought damages
in excess of one billion dollars, including treble their general and special
compensatory damages, punitive damages, consequential and incidental damages,
interest, costs, attorneys' fees and a preliminary and permanent injunction
requiring defendants to accurately and properly describe their video poker
machines and electronic slot machines. The Company shared the cost of this
litigation with certain other defendants who retained the same law firm to
represent them.
On March 6, 1998, the Plaintiffs filed a Notice of Voluntary Dismissal Without
Prejudice.
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OTHER LITIGATION
SEA LANE BAHAMAS LIMITED V. EUROPA CRUISES CORPORATION (United States District
Court for the Southern District of Florida)(Case No. 94-10004)
CASE PENDING
In February, 1994, following attachment of one of the Company's vessels by Sea
Lane Bahamas Limited, the Company entered into a partial settlement agreement
with Sea Lane with respect to the Company's obligations under a Bareboat Charter
Agreement. With respect to unpaid charterhire, the Company paid the sum of
$250,000 to Sea Lane plus an additional $386,000 in monthly payments of $30,000
per month plus interest at the rate of six percent (6%) per annum fully paid as
of December 31, 1995. However, the Company's liability, if any, for damages
arising out of the condition of the EuropaJet upon its redelivery to Sea Lane
remains in dispute. The Settlement Agreement provided that if the Company and
Sea Lane were unable to settle this dispute with respect to the condition of the
EuropaJet when it was redelivered to Sea Lane, the amount of the Company's
remaining obligation to Sea Lane would be determined in binding arbitration. Sea
Lane contends that substantial expenses, in excess of one million dollars, were
incurred to make repairs for which Europa is responsible. On or about April 10,
1995, the United States District Court entered an Order granting Sea Lane's
Petition to Compel Arbitration. Arbitrators were selected and discovery was
taken.
Europa took the position in arbitration that the Plaintiff had failed to name
the real party in interest as Plaintiff and that it was too late to do so. On or
about March 18, 1998, the Plaintiff filed a Motion to Re-Open the case for the
purpose of considering Plaintiff's proposed Motion for Leave to Amend the
Complaint to Join Marne (Delaware), Inc. as a Party Plaintiff and for Relation
Back of [the] Amendment. The Plaintiff was attempting to add Marne (Delaware),
Inc. as a Plaintiff in the case. On or about April 16, 1998, Europa filed an
Opposition to the motion. On June 1, 1998, the District Court entered an Order
Denying Sea Lane's Motion to Re-Open and Amend. On or about June 11, 1998, Sea
Lane filed a Motion for Reconsideration. Europa filed a Memorandum in Opposition
to Sea Lane's Motion for Reconsideration. On June 22, 1998, the District Court
entered an Order Denying [Sea Lane's] Motion for Reconsideration. On or about
July 6, 1998, Sea Lane filed a Notice of Appeal to the United States Court of
Appeals for the Eleventh Circuit. Briefs have been filed. Oral argument is set
for June 22, 1999.
Europa believes that if Sea Lane is unsuccessful on appeal, this case will be
concluded inasmuch as Sea Lane's failure to have filed suit in the name of Marne
(Delaware) Inc. may have been fatal to their claim. Europa believes that if Sea
Lane is successful on appeal, this matter will be returned to arbitration for
further proceedings. In an apparent effort to attempt to avoid a successful
outcome for Europa on appeal in the above-captioned matter, on November 3,
1998, Sea Lane Bahamas Limited and Marne (Delaware) Inc. filed a similar,
companion case against Europa Cruises Corporation and Europa Cruise Line, Ltd.
in the Circuit Court of the Eleventh Judicial Circuit In and For Miami-Dade
County, Florida (Case No. 98-25127CA02) alleging breach of charter, breach of
settlement agreement, and fraud in the inducement and seeking compensatory and
punitive damages. In response, Europa filed a Motion to Stay, Dismiss, and
Strike.
The Company has recorded an estimated liability for losses in the above matter
in the amount of $400,000.
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ASSOCIATION FOR DISABLED AMERICANS, INC. DANIEL RUIZ AND JORGE LUIS RODRIGUEZ V.
EUROPA CRUISES OF FLORIDA 2, INC. AND EUROPA CRUISES CORPORATION (United States
District Court for the Southern District of Florida, Miami Division, Civil
Action No. 98-1836)
On July 31, 1998, the Association for Disabled Americans, Inc., Daniel Ruiz and
Jorge Luis Rodriguez filed suit against Europa Cruises of Florida 2, Inc. and
Europa Cruises Corporation ("Europa") for injunctive relief pursuant to the
Americans With Disabilities Act. The Plaintiffs claim, in part, that Europa has
discriminated against them by denying them access to and full and equal
enjoyment of services, facilities, accommodations, the subject vessel and
premises and that the Company has failed to remove architectural barriers and
erect certain architecturally required improvements. The Plaintiffs have
requested that the Court issue a permanent injunction enjoining Europa from
continuing its alleged discriminatory practices, ordering Europa to alter the
subject vessel and premises, close the subject vessel and premises until the
alleged required modifications are completed and to award Plaintiffs attorneys'
fees, costs and expenses incurred. The Company intends to vigorously defend this
action.
MISSISSIPPI-RELATED LITIGATION
BAY ST. LOUIS COMMUNITY ASSOCIATION, PRESERVE DIAMONDHEAD QUALITY, INC., GULF
ISLANDS CONSERVANCY, INC. AND CONCERNED CITIZENS TO PROTECT THE ISLES AND POINT,
INC. V. THE COMMISSION ON MARINE RESOURCES, HANCOCK COUNTY PORT AND HARBOR
COMMISSION AND CASINO WORLD, INC.(CHANCERY COURT OF HANCOCK COUNTY,
MISSISSIPPI)(CASE NO. 960707)
CASE PENDING
On September 18, 1996, Bay St. Louis Community Association, Preserve Diamondhead
Quality, Inc., Gulf Islands Conservancy, Inc. and Concerned Citizens to Protect
the Isles and Point, Inc. filed a Notice of Appeal and Complaint against the
Commission on Marine Resources, Hancock County Port and Harbor Commission and
Casino World, Inc., in the Chancery Court of Hancock County, Mississippi (Case
No. 960707), appealing the administrative decision of the Commission on Marine
Resources in granting Permit No. DMR-M 9612281-W and COE No. MS96-01566-U. On
October 17, 1996, the Mississippi Commission on Marine Resources filed a
Response to Notice of Appeal and Answer in which it maintained, in pertinent
part, that it had complied with all procedural requirements relevant to grants
of permits and use adjustments at issue, that its decision to grant the permit
and use adjustment was grounded upon legally sufficient evidentiary grounds and
that there was no proper ground at law warranting reversal of its decision. On
October 16, 1996, Casino World, Inc. and the Hancock County Port and Harbor
Commission filed a Joint Motion to Dismiss for Untimely Appeal in which they
alleged that the appellants had failed to file their Notice of Appeal and
Complaint within the proper time period. The Joint Motion to Dismiss was granted
on December 31, 1996.
On January 15, 1997, the Bay St. Louis Community Association, Preserve
Diamondhead Quality, Inc., Gulf Islands Conservancy, Inc. and Concerned Citizens
to Protect the Isles and Point, Inc. filed a Notice of Appeal appealing the
decision of the Chancery Court to the Supreme Court of Mississippi. On July 23,
1998, the Supreme Court of Mississippi reversed the lower court's decision and
remanded the case to the lower court for a hearing on the merits. On or about
August 6, 1998, Casino World, Inc. filed a Motion for Rehearing which was denied
on October 15, 1998. The case was remanded to the lower court for a hearing on
the merits.
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BAY ST. LOUIS COMMUNITY ASSOCIATION, INC., PROTECT DIAMONDHEAD QUALITY, INC.,
CONCERNED CITIZENS TO PROTECT THE POINT AND ISLES, INC. AND GULF ISLANDS
CONSERVANCY, INC. V. THE COMMISSION ON ENVIRONMENTAL QUALITY, HANCOCK COUNTY
PORT AND HARBOR AUTHORITY, AND CASINO WORLD, INC. (CHANCERY COURT OF HANCOCK
COUNTY, MISSISSIPPI)(CASE NO. 97-0386)
CASE DECIDED
On June 6, 1997, Bay St. Louis Community Association, Inc., Protect Diamondhead
Quality, Inc., Concerned Citizens to Protect the Point and Isles and Gulf
Islands Conservancy, Inc. filed a Notice of Appeal against the Commission on
Environmental Quality, Hancock County Port and Harbor Authority, and Casino
World, Inc., in the Chancery Court of Hancock County, Mississippi (Case No.
97-0386) appealing that Order of the Mississippi Commission on Environmental
Quality dated June 26, 1997, affirming the water quality certification issued to
Casino World, Inc. on January 9, 1997, as modified and clarified on May 22,
1997. On July 11, 1997, Appellants filed an Amended Notice of Appeal. On or
about August 19, 1997, the Administrative Record in the case was filed with the
Court. All briefs were filed in the case on or before October 31, 1997. On
February 27, 1998, the Chancery Court filed a Memorandum Opinion and Order
denying the appeal and entering judgment in favor of the Appellees, including
Casino World, Inc. No appeal from the decision of the lower court was filed. The
time period for appealing expired.
CASINO WORLD, INC. AND MISSISSIPPI GAMING CORPORATION V. GULF ISLANDS
CONSERVANCY, INC.; CONCERNED CITIZENS TO PROTECT THE ISLES AND POINT, INC.;
PRESERVE DIAMONDHEAD'S QUALITY, INC.; BAY ST. LOUIS COMMUNITY ASSOCIATION; AND
THE SIERRA CLUB, INCORPORATED AND UNITED STATES ARMY CORPS OF ENGINEERS AND
UNITED STATES OF AMERICA (In the United States District Court of the Southern
District of Mississippi) (Biloxi Division (Case No. 1:98CV147BrR)).
On March 26, 1998, Casino World, Inc. and Mississippi Gaming Corporation filed
suit against the above-named parties, inter alia, to declare a Permit issued by
the U.S. Army Corps of Engineers to the Hancock County Port and Harbor
Commission on March 26, 1998, which was transferred to Casino World, Inc. and
Mississippi Gaming Corporation, to be valid under Section 10 of the Rivers and
Harbors Act and to enjoin the defendants from delaying, interfering or
infringing on protected rights the Plaintiffs have under the Permit. On or about
April 16, 1998, the Defendants (with the exception of the United States Army
Corps of Engineers and United States of America) filed a Motion to Dismiss the
Complaint on grounds, inter alia, that the Court lacks subject matter
jurisdiction and that the Complaint fails to state a claim upon which relief may
be granted. On May 21, 1998, Casino World, Inc. filed a Memorandum Brief in
Opposition to the Motion to Dismiss. Three judges have recused themselves from
hearing the case. The Court heard oral argument on the Motion to Dismiss and the
parties are awaiting the Court's decision.
FRIENDS OF THE EARTH, INC. AND GULF ISLANDS CONSERVANCY, INC. V. UNITED STATES
ARMY CORPS OF ENGINEERS (In the United States District Court for the District of
Columbia)(Case No. 1:98CV00801)
On March 27, 1998, Friends of the Earth, Inc. and Gulf Islands Conservancy, Inc.
filed a Complaint for Declaratory and Injunctive Relief against the United
States Army Corps of Engineers to, inter alia, declare the Corps' approval of
the Casino World, Inc. Permit without prior preparation of an
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environmental impact statement, to be arbitrary, capricious, an abuse of
discretion and in violation of the National Environmental Policy Act, applicable
Council on Environmental Quality regulations and applicable U.S. Army Corps of
Engineers regulations and to enjoin the U.S. Army Corps of Engineers from
permitting Casino World, Inc. or its successors-in-interest and all other casino
developers from proceeding with future development of any dockside gambling
facilities or related infrastructure in certain areas, including the Company's
site on the Bay of St. Louis, in Mississippi, until the Corps prepares an
environmental impact statement. The Company was not named as a party in the
action. On or about August 31, 1998, the Company filed a motion for leave to
intervene as a party defendant in the action. On November 4, 1998, the Court
granted the Company's motion. Various motions and cross-motions in the case have
been filed and briefed, including motions and cross-motions for summary
judgment.
LIBERIS-RELATED LITIGATION
The following litigation relates to Charles S. Liberis, the founder of the
Company, a former Chairman of the Board of Directors, President, Director and
Chief Operating Officer of the Company.
LIBERIS V. EUROPA CRUISES CORPORATION (Court of Chancery of the State of
Delaware in and for New Castle County, C.A. 13103)
CASE DECIDED
On July 30, 1993, Charles S. Liberis attempted to exercise 1,417,500 Europa
Common Stock options at $.15625 per share. The Company refused Liberis' attempt
to exercise these alleged options. On August 30, 1993, Liberis filed a Complaint
for Specific Performance of Stock Options against the Company in the Court of
Chancery of the State of Delaware in and for New Castle County. On or about
October 7, 1993, the Company filed an Answer denying the substantive allegations
of the Complaint and asserting counterclaims against Liberis for breach of
fiduciary duties and mismanagement of corporate assets in connection with the
purchase and sale of Europa's interest in Sea Lane Bahamas/Marne Delaware. On or
about October 27, 1993, Liberis filed his reply to the counterclaims denying the
substantive allegations of the counterclaims. On or about May 2, 1995, Liberis
amended his Complaint seeking damages in the amount of $1,282,948.00 for
Europa's refusal to allow Liberis to exercise his stock options.
The case was tried from May 22, 1995 to May 25, 1995. On February 8, 1996, the
trial Court entered a Memorandum Opinion in which it ruled, in pertinent part,
that Liberis, who had filed suit to enforce an alleged stock option agreement to
purchase 1,417,500 shares of stock at $.15625 per share, "ha[d] no right to
enforce the alleged stock option agreement." The decision further required
Liberis to return 250,000 shares of common stock to the Company. On October 9,
1996, the trial Court entered an Order and Judgment. On November 7, 1996,
Liberis filed a Notice of Appeal from the Final Order to the Supreme Court of
Delaware.
Oral argument was heard in the Supreme Court of Delaware on or about July 22,
1997. On July 24, 1997, the Delaware Supreme Court issued an Order remanding the
case to the trial court for further supplemental findings in explanation of its
decision of February 8, 1996 and its Order and Judgment of October 9, 1996. On
September 2, 1997, the trial court filed a Supplemental Opinion. On September
10, 1997, the Supreme Court issued an Order requesting additional supplemental
briefs from the parties. On November 10, 1997, the Supreme Court issued an Order
affirming the judgment of the lower court.
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LIBERIS V. EUROPA CRUISES CORPORATION (In the Court of Chancery of the State of
Delaware In and For New Castle County) (Civil Action No. 14889)
CASE DISMISSED
On March 12, 1996, Charles S. Liberis filed a Complaint Under 8 Delaware Code
Section 220, to inspect and/or copy the Company's shareholders' list and other
materials, books and records of the Company and for attorneys fees incident to
the action. On April 8, 1996, the Company filed an Answer denying that Mr.
Liberis was entitled to inspect and/or copy the Company's shareholders' list
and/or other materials, books and records of the Company. The Company maintained
that Mr. Liberis was not entitled to the inspection sought inasmuch as he was
not a shareholder of record, as required under the statute at the time the
request to inspect was made. Mr. Liberis agreed to dismiss the case. A
Stipulation and Order of Dismissal was signed on March 24, 1998.
LIBERIS V. EUROPA CRUISES CORPORATION, CASINO WORLD, INC., CASINOS AUSTRIA
MARITIME CORPORATION (CAMC), SERCO INTERNATIONAL LIMITED, CHARLES H. REDDIEN,
STEPHEN M. TURNER, DEBORAH A. VITALE, WILLIAM A. HEROLD AND SHARON E. PETTY (IN
THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY)
(CASE NO. 12955)
CASE DISMISSED
On April 22, 1993, Charles S. Liberis filed an action in the Court of Chancery
of the State of Delaware in and for New Castle County against Europa and its
subsidiary, Casino World, Inc. (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.
CHARLES S. LIBERIS, AS TRUSTEE OF THE CHARLES S. LIBERIS, P.A., PROFIT SHARING
PLAN V. EUROPA CRUISES CORPORATION (IN THE CIRCUIT COURT IN AND FOR ESCAMBIA
COUNTY, FLORIDA) (CASE NO. 93-1187-CA-01-J)
CASE DISMISSED
In or about March, 1993, Charles S. Liberis, as Trustee of the Charles S.
Liberis, P.A. Profit Sharing Plan, filed suit against Europa for amounts
allegedly due from Europa in connection with a promissory note Liberis received
from Europa in conjunction with a purported December 1990 transfer to Europa of
Liberis' interest in Sea Lane. The Complaint alleged that a principal balance of
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<PAGE> 24
approximately $141,000.00 was owed on the note. On or about April 9, 1996, the
parties filed a Stipulation of Dismissal dismissing this case without prejudice
on grounds that the action was moot.
EUROPA CRUISES CORPORATION V. LIBERIS, ET AL. (IN THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF FLORIDA) (CASE NO. 93-30158)
CASE DISMISSED
On or about May 11, 1993, the Company filed an action in the United States
District Court for the Northern District of Florida against Charles S. Liberis
and one of the Company's former Chief Financial Officers, seeking compensatory
and punitive damages. The Company and the former Chief Financial Officer
involved have settled this and other disputes between them. The Company was
seeking damages from Liberis for substantially the same events and transactions
alleged in Europa's counterclaim in Delaware Case No. 13103. Liberis also filed
a counterclaim requesting the same relief sought in Delaware Case No. 13103.
Most of Europa's claims against Liberis and all of Liberis' pending claims
against Europa in this case were the subject of Delaware Case No. 13103. Europa
also made a claim for securities fraud against Liberis in this Florida case
which was not made in the Delaware case. On or about April 9, 1996, the parties
filed a Stipulation of Dismissal of all claims and counterclaims as moot.
LIBERIS V. STEVE TURNER, DEBORAH A. VITALE, WILLIAM A. HEROLD, ERNST G. WALTER,
SHARON E. PETTY, CHARLES H. REDDIEN, VICTOR B. GERSH, SERCO INTERNATIONAL
LIMITED, CASINOS AUSTRIA MARITIME CORPORATION (CAMC), AUSTROINVEST INTERNATIONAL
LIMITED, PETER MUELLER AND EUROPA CRUISES CORPORATION (CIRCUIT COURT IN AND FOR
PINELLAS COUNTY, FLORIDA)(CIVIL ACTION NO. 93-001626-CI-008)
CASE DISMISSED/POST DISMISSAL MOTIONS PENDING
On or about May 5, 1993, Liberis filed suit in the Circuit Court in and for
Pinellas County, Florida (Case No. 93-001626-CI-008) for rescission, fraud and
conspiracy. On or about August 4, 1993, Liberis filed an Amended Complaint,
naming additional defendants and adding a count for defamation. Liberis alleges
that the defendants conspired to defraud, coerce and trick Liberis into
resigning his position as Chief Executive Officer and Chairman of the Board of
Europa Cruises Corporation and defamed him. Liberis seeks compensatory,
punitive, treble damages and attorneys' fees from the above-named defendants.
The case was stayed pending the outcome of certain other cases involving several
of the parties. On or about August 7, 1995, the defendants agreed to lift the
stay for discovery purposes and for the purpose of finalizing the pleadings. On
or about April 22, 1996, Liberis filed a Motion for Leave to Amend, a Second
Amended Complaint and a Motion for Substitution of Parties. On or about October
20, 1997, Liberis filed a Motion for Leave to File a Third Amended Complaint and
to Join Additional Party Plaintiff which motion was granted. In the Third
Amended Complaint, Liberis, inter alia, adds an additional co-Plaintiff, Ginger
Liberis, his former wife; names new defendants, including Europa Cruises
Corporation and Peter Mueller, Senior Vice President of Casinos Austria Maritime
Corporation, and John Does A-Z; and adds several new theories and claims for
relief, including fraud, breach of fiduciary duties, defamation, slander per se,
intentional infliction of emotional distress, a RICO (Racketeer Influenced and
Corrupt Organizations Act) claim, and other claims for other tortious conduct.
On or about October 30, 1997, Liberis filed an appeal from the Order of the
Court granting the motion of Defendant Victor Gersh/Estate of Victor Gersh to
dismiss the Complaint against them. Liberis' appeal was denied. Liberis also
filed a separate action against the Estate of Victor Gersh which remains
pending. On or about December 31, 1997, the case was removed to the
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<PAGE> 25
United States District Court for the Middle District of Florida, Tampa Division
(Case No. 97-3062-CIV-T-24-E).
On September 30, 1998, the Honorable Susan C. Bucklew, granted the Motions to
Dismiss filed by Europa and Casinos Austria Maritime Corporation. The Judge
ordered the Court Clerk to close the case. Liberis filed a motion to have the
Court reconsider its ruling and to have certain claims remanded to the state
court. The Company filed a motion for attorneys' fees. Various other post-
ruling motions were filed.
LIBERIS V. STEVEN M. TURNER, DEBORAH A. VITALE, WILLIAM A. HEROLD, DR. ERNST
WALTER, SHARON PETTY, CHARLES "KIP" REDDIEN, SERCO INTERNATIONAL LIMITED,
CASINOS AUSTRIA MARITIME CORPORATION (CAMC), AUSTROINVEST INTERNATIONAL LIMITED,
BERTHA GERSH, AS ADMINISTRATOR OF THE ESTATE OF VICTOR GERSH, EUROPA CRUISES
CORPORATION, PETER MUELLER, STEVEN B. SOLOMON, AND JOHN DOES A-Z (CIRCUIT COURT
IN AND FOR PINELLAS COUNTY, FLORIDA)(CIVIL ACTION NO. 98-007120-CI-008)
On or about October 30, 1998, one month after the Court dismissed the previous
case, Liberis and his former spouse, Ginger Liberis, filed suit in the Circuit
Court in and for Pinellas County, Florida for fraud and conspiracy, intentional
interference with advantageous business relationships, intentional breach of
duty to facilitate stock transfers, conspiracy, negligence-failure to facilitate
stock transfers, defamation, conspiracy to defame, and intentional infliction of
emotional distress. The Company intends to file a motion to dismiss.
WAREHOUSE FIRE/GAMBLING EQUIPMENT SEIZURE
On or about September 18, 1998, the Company was informed there had been one or
two fires in a Madeira Beach warehouse used by the Company. Investigators have
informed the Company that the fire was the result of arson. A former employee of
the Company was arrested and charged with First Degree Arson and Burglary by the
Pinellas County Sheriff's Office. The Company has been informed that this
employee confessed to committing burglary and setting fire to the warehouse to
cover up this criminal activity.
During the course of the fire investigation, the investigators seized all
gambling equipment and paraphernalia found in the warehouse pursuant to a search
warrant and Chapters 849.15 and 849.231 of the Florida Code which prohibit,
among other things, the manufacture, sale or possession of certain gambling
devices except under exemption for those registered with the United States
Government pursuant to 15 U.S.C. Section 1171 et seq. The Company is registered
with the United States Government pursuant to 15 U.S.C. Sections 1171-1178 and
believes it falls within the exemption. The Company believes the investigators
who seized the equipment did not know that the Company was so registered. The
Company has retained an attorney to handle this matter and to obtain the return
of the seized equipment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ELECTION OF BOARD OF DIRECTORS
The annual meeting of Europa Cruises Corporation was held on July 10, 1998. The
election of a Board of Directors was submitted to a vote of the securities
holders. The annual meeting was reconvened to July 24, 1998, for the purpose of
receiving the official results of the election of the Board of Directors. The
Company reported that a total of 19,757,791 shares voted. Of those, 12,866,980,
or approximately 65%, voted for the incumbent Board of Directors, Deborah A.
Vitale,
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John R. Duber, Paul J. DeMattia and Gregory A. Harrison. A total of 6,757,658
shares, or approximately 34%, voted for the opposition slate. Approximately
133,000 votes were withheld.
PART II
ITEM 5. MARKET FOR 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 price 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>
1998 Quarters 1997 Quarters
------------------ -------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 1.03 .66 1 5/8 5/8
Second Quarter 15/16 10/16 1 3/16 25/32
Third Quarter 13/16 7/16 14/16 10/16
Fourth Quarter 11/16 7/32 1 19/32
</TABLE>
On December 31, 1998, there were 841 registered holders of record of the Common
Stock of the Company. On April 9, 1999, there were 853 registered holders of
record of the Common Stock of the Company.
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
REVENUES
The Company operated 2,076 cruises in 1998 as compared to 2,236 cruises in 1997,
a decrease of 160 cruises or 7.16%. The Company carried 267,738 passengers in
1998 as compared to 330,814 passengers in 1997, a decrease of 63,076 passengers,
or 19.07%. The average revenue per passenger was approximately $62.75 in 1998 as
compared to $63.02 in 1997, a decrease of $.27 or .4 %. The Company carried an
average of 129 passengers per cruise in 1998 as compared to an average of 148
passengers per cruise in 1997, a decrease of 19 passengers per cruise, or
12.84%.
TOTAL REVENUES/GAMING REVENUES
The Company earned total revenues of $16,802,550 in 1998 as compared to
$20,847,788 in 1997, a decrease of $4,045,238 or 19.4%. The Company had gaming
revenues of $13,092,182 in 1998 as compared to gaming revenues of $15,208,517 in
1997, a decrease of $2,116,335 or 13.9%. The
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<PAGE> 27
Company attributes the decrease in gaming revenues in 1998 to new competition,
especially in Ft. Myers.
PASSENGER FARES
Passenger fares continue to decline as a direct result of competition. Passenger
fares fell from $3,353,016 in 1997 to $2,260,960 in 1998, a decrease of
$1,092,056, or 32.6 %. The decrease in passenger fare revenue is a direct result
of increased and intense competition in the day cruise industry and the fare
wars that now characterize the industry. Passenger fares in the industry range
from "FREE" to whatever a particular port can command. The Company must stay
competitive with respect to passenger fares charged if it is to remain
competitive in the industry.
FOOD AND BEVERAGE REVENUES
Revenue from food and beverage sales decreased from $1,282,377 in 1997 to
$865,356 in 1998, a decrease of $417,021 or 32.5%. The decrease is
attributable to an increase in the number of passengers who are permitted to
sale for free and who are provided with complimentary meals due to intense
competition and fare wars in the industry.
CHARTER FEES
The Company tries to charter its fourth vessel, the M/V Stardancer, to unrelated
third parties. On February 6, 1998, the Company entered into an agreement to
charter the M/V Stardancer to Hudson Day River Line, Inc. for a three month
period beginning February 9, 1998 for a total charter fee of $240,000. The
charter was renewed for several additional months. In 1998, Charter fee income
from the charter of the M/V Stardancer was $ 406,000, as compared to charter fee
income of $327,500 in 1997, during which year the Stardancer was chartered for
five months, representing an increase in charter fees of $78,500, or 23.96%.
OTHER REVENUE
Other revenue decreased from $676,378 in 1997, to $178,052 in 1998, a decrease
of $498,326 or 73.7%. The decrease is attributable to the fact that the Company
received a $400,000 option fee from Hilton Gaming Corporation in 1997.
COSTS AND EXPENSES
VESSEL OPERATING EXPENSES
Vessel operating costs and expenses decreased substantially from $13,121,189 in
1997 to $11,999,487 in 1998, a decrease of $1,121,702, or 8.5%. The decrease is
attributable to a reduction in the number of cruises and cost reductions
instituted by the Company.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
Administrative and general costs and expenses decreased from $2,832,498 in 1997
to $2,510,943 in 1998, a decrease of 321,555 or 11.4%. The decrease is
attributable, in large part, to a decrease in payroll.
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ADVERTISING AND PROMOTION
Advertising and promotion costs decreased from $1,571,275 in 1997 to $634,032
in 1998, a decrease of $937,243, or 59.6%. The decrease is attributable to cost
reductions instituted by the Company.
OTHER OPERATING EXPENSES
Other operating expenses decreased from $1,053,871 in 1997 to $307,716 in 1998,
a decrease of $746,155, or 70.8%. The decrease is attributable to annual
meeting and proxy expenses in 1997 of $428,331, a Gaming Concession termination
fee in 1997 of $361,694, and lower ESOP expenses in 1998.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $1,836,164 in 1997 to $2,035,936 in
1998, an increase of $199,772, or 10.9%. The increase is attributable to a full
year amortization of substantial capital expenditures made in 1997.
NOTICE OF INTENT TO MAKE AUDIT CHANGES/NOTICE OF PROPOSED ASSESSMENT
On November 28, 1994, the Florida Department of Revenue issued a Notice of
Intent to make Sales and Use Tax Audit Changes to the Company for the period
February 1, 1989 through June 30, 1994. The total proposed assessment, including
estimated penalties and interest, through June 15, 1997, totalled approximately
$7.4 million. In June, 1997, the Company settled this liability by entering into
Closing Agreements with the Florida Department of Revenue. The settlement, which
includes all audits for the covered period, is approximately $1.9 million. The
settlement includes a payment schedule of approximately $21,000 per month for
seven years (payment reduced to $10,475.89 in March 1998). The settlement
provides for no interest for the first 3 years and interest accruing at a rate
of 6% per year for the last 4 years.
In January of 1999, the Florida Department of Revenue issued a Notice of Intent
to Make Audit Changes to Europa Cruises Corporation and its subsidiaries for
the period April 1, 1993 and July 1, 1994 through March 31, 1998. The proposed
audit changes include an alleged tax due in the amount of $1,030,823, penalties
in the amount of $515,412 and interest in the amount of $402,120 for a total of
$1,948,355. On April 13, 1999, the Company received Notices of Assessment
relating to the foregoing which include continuing interest to date.
In February of 1999, the Florida Department of Revenue issued a Notice of Intent
to Make Audit Changes to Europa Cruises of Florida 1, Inc. for the period July
1, 1994 through March 31, 1998, inclusive. The proposed audit changes include an
alleged tax due in the amount of $423,481.78, penalties in the amount of
$211,740.97 and interest in the amount of $166,986.82, for a total of
$802,209.57.
It is the Company's understanding that a Notice of Intent to Make Audit Changes
to Europa Cruises of Florida 2, Inc. (relating to the Miami Beach operation)
will also be forthcoming. The Company was informed on April 13, 1999 that the
Florida Department of Revenue had placed or would be placing liens on one or
more of the Company's vessels. The Company recorded a contingency in 1998 in the
amount of $1,400,000 for this matter.
LIQUIDITY AND CAPITAL RESOURCES
In 1998, the Company experienced new competition, a proxy contest and an
inordinate amount of lost revenue due to inclement weather. The Company took
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<PAGE> 29
aggressive steps in 1998 to reduce operating expenses at the corporate level and
in all three of its operating ports. The Company believes it will be able to
meet its normal operating costs and expenses from its 1999 cash flow from
operations. In 1999, the Company expects to receive substantial income from the
lease of the Stardancer and from a management agreement to operate the Sun. The
Company expects to keep its costs of operating the Madeira Beach port and the
Ft. Myers port at or about their present levels. Thus, assuming revenues for the
Madeira Beach and Ft. Myers operations compare to those of 1998, the Company
should be able to meet its normal operating costs and expenses. The Company,
however, may be unable to meet any unusual or unanticipated cash requirements
should they arise during 1999, except through the sale of common stock or
borrowing.
The Company's working capital deficiency is $6.2 million at December 31, 1998
as compared to $5.7 million at December 31, 1997. During 1998, operating
activities provided cash of $1,855,687, which is principally attributable to
non-cash expenses of approximately $2.2 million.
Investing activities (principally vessel improvements, major vessel repair and
maintenance, gaming equipment purchases, and Mississippi development costs)
required cash of approximately $699,552 in 1998.
BANK FINANCING
On May 23, 1995, the Company obtained an 11.35% term loan in the amount 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 then-existing debt,
except for a capital equipment lease with Casinos Austria
Liegenschaftsverwaltung-Und Leasing, GESMBH.
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 payables. The $1.2 million
due to First Union National Bank of Florida initially matured September 1, 1996
and was extended to January 31, 1997.
On October 31, 1996, the Company obtained a $2,250,000 loan from dEBIS Financial
Services, Inc. The loan carries a fixed rate of interest of 10.5% over a term of
ten years with a balloon in 5 years. The Company used the proceeds of the loan
to pay off the $1,100,000 balance due on the loan with First Union National Bank
of Florida due January 31, 1997 and to pay an additional $600,000 to First Union
National Bank of Florida on its original loan of approximately $6,400,000 dated
May 25, 1995. Of the remaining proceeds, $400,000 was placed in an interest
bearing escrow account at First Union National Bank of Florida to be used to
effect the buy-out of the Casinos Austria Consulting contract. The remaining
$150,000 of proceeds were used to purchase a new engine for the M/V Europa Sun
and to pay closing costs.
First Union National Bank of Florida, which holds the majority of the Company's
long-term debt, further agreed to modify certain loan covenants contained in
that Credit Agreement dated May 25, 1995. The Bank agreed to release its
security interest in the EuropaSun to facilitate the dEBIS loan, revised the
cash flow covenant to reduce the cash flow requirements required to be met by
the Company and reduced the maturity date of the note from 7 years to 5 years
with no corresponding increase in monthly payments. First Union National Bank of
Florida was also granted two Warrants from the Company to purchase 200,000
shares of common stock at a price of $2.00 per share. First
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<PAGE> 30
Union National Bank of Florida has piggyback registration rights for one year
and one demand registration right after one year.
As of December 31, 1998, the Company was not in compliance with the cash flow
and tangible net worth covenants required under the terms of its bank loan
agreement and the loan can be called for payment upon demand. The loan balance
of $3,610,259 as of December 31, 1998 has been classified as a current
liability in the accompanying 1998 consolidated balance sheet.
In the event that payment is demanded, the Company believes that the value of
the underlying collateral is sufficient to refinance or extinguish the debt. The
ultimate outcome of the matter may have a material adverse effect on the
Company's financial position and operations.
DRYDOCK
1998
In January, 1998, the Europa Star went to drydock for repairs to its tailshaft.
The vessel's tailshaft was replaced. It underwent a cleaning and painting of the
hull and a Coast Guard inspection. The total cost of the drydocking was $61,051.
In January, 1998, the Europa Sky was forced to go to drydock early due to an
emergency which required repairs to its hull. It also underwent painting and a
Coast Guard inspection. The total cost of the drydocking was $43,863.
The Europa Sun was required to be drydocked in November, 1998. The drydock was
performed in Mexico. The cost of the drydocking, including internal steel
replacement, was approximately $415,000. The Company did not have sufficient
funds to pay for drydock. The funds for drydock were advanced by the Company's
President, Deborah A. Vitale and a major shareholder of the Company.
The next required drydocking for all of the Company's vessels is as follows:
Europa Stardancer: February 2001
Europa Sun: December 2000
EuropaStar: January 2000
Europa Sky: January 2001
CAPITAL EXPENDITURE REQUIREMENT
The Company has no firm commitment for capital expenditures.
The Company has not yet evaluated its computer system for "Year 2000"
compliance and cannot presently estimate the cost of any necessary conversion.
However, the Company does not anticipate any material disruption in its
operations with respect thereto.
FORWARD LOOKING STATEMENTS
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Except for historical information contained herein, the matters discussed in
this Item 6, in particular, statements that use the words "believes," "intends,"
"anticipates" or "expects" are intended to identify forward looking statements
that are subject to risks and uncertainties including, but not limited to,
inclement weather, mechanical failures, increased competition, financing,
governmental action, environmental opposition, legal actions, and other
unforeseen factors.
The development of the Diamondhead, Mississippi project, in particular, is
subject to additional risks and uncertainties, including, but not limited to,
risks relating to permitting, financing, the activities of environmental groups,
the outcome of litigation and the actions of federal, state, or local
governments and agencies. The results of financial operations reported herein
are not necessarily an indication of future prospects of the Company. Future
results may differ materially.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the balance sheet and
to measure them at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in operations in the period
of change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.
Historically, except for certain loan agreements with First Union National Bank
of Florida, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard on January 1, 2000 to have a material
effect on its consolidated 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.
None.
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<PAGE> 32
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTRACT PERSONS.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
A. CURRENT DIRECTORS AND OFFICERS:
The current executive officers of the Company and their titles are as follows:
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Deborah A. Vitale 49 Chairman of the Board,
President, Chief Executive
Officer, Secretary and Treasurer
John R. Duber 43 Director, Vice-President, Assistant Secretary
and Director of Investor Relations
Paul J. DeMattia 39 Director
Gregory A. Harrison 54 Director
Robert Zimmerman 49 Chief Financial Officer
</TABLE>
DEBORAH A. VITALE was elected Chairman of the Board of Directors in March 1995
and was appointed Secretary of the Company in November 1994. She has been a
Director of the Company since December 1992. On February 14, 1997, Ms. Vitale
was appointed Chairman of the Board of Directors of Casino World, Inc. and
Chairman of the Board of Directors of Mississippi Gaming Corporation. On
September 2, 1997, Ms. Vitale was appointed President of Casino World, Inc. and
Mississippi Gaming Corporation. On February 20, 1998, Ms. Vitale was appointed
President and Chief Executive Officer of Europa Cruises Corporation. Ms. Vitale
is a trial attorney by background, with over twenty years of experience handling
complex civil litigation. Ms. Vitale is licensed to practice law in Maryland,
Virginia and Washington D.C. 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 had served as Listing Official for the
Environmental Protection Agency.
JOHN R. DUBER was named as a Director of the Company on February 18, 1998. Since
January, 1998, Mr. Duber has been employed by the Company as its Director of
Investor Relations. Mr. Duber was elected Vice-President and Assistant Secretary
of the Company in February 1998. Since 1992, Mr. Duber has worked as a
consultant in the trucking industry. Mr. Duber received his Bachelor of Science
Degree from John Carroll University in 1977.
PAUL J. DEMATTIA was named as a Director of the Company on February 20, 1998.
Mr. DeMattia attended the West Side Institute of Technology from 1979 to 1983.
Mr. DeMattia is the founder of
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<PAGE> 33
DeMattia Cartage, Incorporated, and has served as President of the Company,
which owns and operates various trucks and trailers for specialized delivery
service, since 1983. Mr. DeMattia is the recipient of the W.W. Grainger, Inc.
Outstanding service for 1992-1993.
GREGORY A. HARRISON was named as a Director of the Company on February 20, 1998.
Mr. Harrison is a consulting forensic engineer with over twenty-eight years of
diversified safety engineering experience with NASA, DOD, NBS, NRC, ARAMCO, and
Tenera, L.P. Mr. Harrison has qualified as an expert witness in various courts
in eight states. Mr. Harrison received a B.S. degree in Fire Protection
Engineering from the University of Maryland in 1966; an M.S. degree in Civil
Engineering from the University of Maryland in 1970, an M.S. degree in
Engineering Administration from George Washington University in 1979 and a PH.D.
in Safety Engineering from Kennedy-Western University in 1994. Mr. Harrison
holds a top secret security clearance with the U.S. Department of Energy. Mr.
Harrison has served on the Board of Directors of Data Measurement Corporation
and First Patriot National Bank and is a current Advisory Board member of United
Bank.
ROBERT ZIMMERMAN was appointed Chief Financial Officer of the Company on July
27, 1998. From May of 1994 until joining Europa, Mr. Zimmerman served as
Controller for the North and Central American operations of Casinos Austria
Internation, Ltd. From 1980 through 1993, Mr. Zimmerman served as Vice-President
of Finance for the Industrial Controls subsidiary of Emerson Electric Company.
Prior to 1980, Mr. Zimmerman was employed with the public accounting firm of
Fiddler and Co. for seven years.
33
<PAGE> 34
B. CHANGES IN MANAGEMENT AND THE BOARD OF DIRECTORS
There were material changes in management and the Board of Directors of the
Company during 1998. The following summarizes these changes in chronological
order.
34
<PAGE> 35
As of September 2, 1997, there were three Directors of the Company. These were:
Deborah A. Vitale, Piers Hedley, and Lester Bullock. On September 2, 1997, the
Board of Directors added two new Directors to the Board, thus increasing the
size of the Board to five members. The two new members were: Brian D'Isernia and
Jack Jevne.
On or about January 12, 1998, Ms. Vitale requested that Mr. Jevne resign from
the Board of Directors because of questions raised as to whether Mr. Jevne's
membership on the Board would adversely impact the Company's ability to get
licensed in Mississippi and to obtain a joint venture partner and financing for
its Mississippi project. (See Schedule 13D/A filed by Mr. Jevne with the
Securities and Exchange Commission on January 16, 1998 and other documents filed
by Mr. Jevne with the Securities and Exchange Commission.) On January 19, 1998,
the Board of Directors voted to remove Ms. Vitale as an officer of the Company
and any of its subsidiaries and as Chairman of the Board. Ms. Vitale remained a
Director of the Company. On January 21, 1998, Mr. D'Isernia and Mr. Jevne
resigned as Directors of the Company. On January 21, 1998, the Board of
Directors voted to rescind all resolutions passed at the January 19, 1998 Board
of Directors meeting and reinstated Ms. Vitale as Chairman of the Board and to
all offices she held in the Company and any of its subsidiaries. The Board then
consisted of the previous three Board members: Deborah A. Vitale, Piers Hedley,
and Lester Bullock.
On February 18, 1998, the Board of Directors voted to add two new directors to
the Board, thus increasing the size of the Board to five members. The two new
members were: John R. Duber and Jerry McCall.
On February 20, 1998, the Board of Directors voted to add Gregory Harrison to
the Board of Directors. The Board then consisted of the following six members:
Deborah A. Vitale, Piers Hedley, Lester Bullock, John R. Duber, Jerry McCall,
and Gregory Harrison. On February 20, 1998, following the addition of the new
Director, Piers Hedley resigned from the Board of Directors. On February 20,
1998, following the resignation of Piers Hedley, the Board then elected Paul
DeMattia to the Board of Directors. During the Board meeting, Jerry McCall
resigned as a Director, Mr. Bullock was removed as President and Chief Executive
Officer of the Company, and Ms. Vitale was named as President and Chief
Executive Officer of the Company. Mr. Bullock was subsequently removed from any
offices he held in the Company or any of its subsidiaries. On February 20, 1998,
following the Board meeting, Mr. Bullock resigned as a Director and Debra
Gladstone resigned as Chief Financial Officer of the Company.
On March 6, 1998, Mr. Bullock was terminated as an employee of the Company.
C. CURRENT MANAGEMENT AND THE CURRENT BOARD OF DIRECTORS
The Company, under the current Board of Directors and current management, is
united in a single, common goal. Its first and foremost priority is the
development of the Diamondhead, Mississippi, casino resort. In the opinion of
the current Board, this project holds the greatest potential for increasing
shareholder value. The Company's management, financial resources and assets will
be devoted towards the development of this goal.
In the opinion of the current Board of Directors, while the Company's cruise
ship operations in Florida may have constituted the original and core business
of the Company in the past, the return on investment simply did not justify the
enormous expenditures of time, resources, money and assets required or the
enormous risks incurred. Given the highly competitive nature of the cruise-to-
nowhere business in Florida today and the Company's lack of financial resources
with which to
35
<PAGE> 36
expand and compete with the expensive, new, and more luxurious vessels entering
the market and with better capitalized competitors, the Company's best prospect
for increasing shareholder value lies with the development of the Company's
Mississippi casino resort. Moreover, in the opinion of the Board, any return on
investment the shareholders might realize from the operation of cruise ships,
even if operated profitably, would pale in comparison to the return on
investment the shareholders might realize from the development of the
Diamondhead project. In 1998, given the state of the cruise-to-nowhere industry
in Florida and the advent of new competition, new management made immediate,
significant and dramatic changes in the core business of the Company. It
anticipates doing so as well in 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon its review of Forms 3, 4 and 5 and any amendments thereto
furnished to the Company pursuant to Section 16 of the Securities Exchange Act
of 1934, as amended, all of such forms were filed on a timely basis by reporting
persons during 1998.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
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<PAGE> 37
ITEM 10. EXECUTIVE COMPENSATION
The following table provides information concerning the compensation of certain
current and former executive officers of the Company and its wholly owned
subsidiaries, Casino World, Inc. and Mississippi Gaming Corporation. No other
person serving as an executive officer on December 31, 1998, received cash
compensation in excess of $100,000 during any of the last three fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
OTHER
ANNUAL RESTRICTED ALL OTHER
COMPEN- STOCK LTIP COMPEN-
OCCUPATION YEAR SALARY BONUS SATION AWARDS OPTIONS PAYOUTS SATION
- ---------- ---- ------ ----- ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deborah A. Vitale 1998(2) $125,000 None None None 750,000(4) None None
President as of February 20, 1998 1997(2) $ 84,135 $50,000 None None None None None
1996(2) None None None None 800,000(3) None None
1995(1) None None None None None None None
Lester E. Bullock(5) 1998 $ 40,865 None $75,000(7) None None None Car Rental(8)
Former President of the Company 1997 $125,000 $25,000 None None None None Car Rental(8)
1996 $134,000 None None None 400,000(6) None Car Rental
1995 $100,000 $29,000 None None None None None
Debra L. Gladstone 1998 $ 20,101 $ 7,500 None None None None None
Former Chief Financial Officer 1997 $ 85,000 $ 7,500 None None None None Car Rental(9)
1996 $ 70,000 None None None 50,000 None None
and 15,000
shares of
common
stock
John Duber 1998 $ 45,000 None None None 100,000(10) None None
Vice President
Robert Zimmerman 1998 $ 55,000 None None None None None None
Current Chief Financial Officer
</TABLE>
(1) Ms. Vitale received no cash compensation during 1995 or 1996 as an
executive officer of the Company.
(2) Ms. Vitale did not receive any salary or bonus for 1997 until 1998.
(3) On April 18, 1996, Ms. Vitale was granted options to purchase 800,000
shares of Common Stock exercisable at $.75 per share; 250,000 were
granted for services rendered as a Director and 550,000 where granted
for services on the Board not traditionally provided by a Director.
(4) On April 3, 1998, Ms. Vitale was granted options to purchase 750,000
shares of Common Stock exercisable at $1.00 per share for services
rendered as a Director and President of Europa and its subsidiaries.
(5) On July 18, 1994, Mr. Bullock became President of the Company. On
February 20, 1998, Mr. Bullock was removed as President and Chief
Executive Officer of the Company. On February 20, 1998, Mr. Bullock
resigned as a Director. On March 6, 1998, Mr. Bullock was terminated as
an employee of the Company.
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<PAGE> 38
(6) On April 18, 1996, Mr. Bullock was granted options to purchase 400,000
shares of Common Stock exercisable at $.75 per share; 250,000 were
granted for services rendered as a Director and 150,000 were granted
for services on the Board not traditionally provided by a Director.
(7) On March 3, 1998, the Company entered into an Agreement to Cancel
500,000 Options to Purchase Common Stock held by the Company's former
President, Lester Bullock, for $75,000 or $.15 per share.
(8) In 1997, Mr. Bullock's monthly vehicle lease payment, including tax,
was $783.10.
(9) In 1997, Mrs. Gladstone's monthly vehicle lease payment, including tax,
was $503.54.
(10) On March 24, 1998, John R. Duber, a Director, was awarded 100,000
options exercisable at $1.00 per share, 50,000 of which were awarded
for services rendered as a Director provided he remained a Director for
six months from the date of his appointment (unless removed by vote of
the shareholders or a failure to be nominated to the next Board of
Directors or unless unable to serve due to death or by reason of
physical or mental incapacity) and 50,000 of which were awarded for
other services rendered to the Company which were not conditioned on
continued service.
OPTION GRANTS IN LAST FISCAL YEAR
During the year ended December 31, 1998, options were awarded to Directors and
Officers of the Company who were also Directors of the Company. See Directors'
Compensation following.
AGGREGATE OPTION EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table shows stock options exercised by certain executive officers
during the fiscal year ended December 31, 1998. In addition, this table includes
the number of shares covered by both exercisable and non-exercisable stock
options as of December 31, 1998. None of the following options are "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Value Options at Year-End At Year-End(2)
Acquired Realized ---------------------------------------------------------
On Exercise (1) Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Deborah A. Vitale None None 1,650,000 None $ 0 --
John Duber None None 100,000 None $ 0 --
Lester E. Bullock None None 50,000 None $ 0 --
Piers Hedley None None 250,000 None $ 0 --
Debra L. Gladstone None None 50,000 None $ 0 --
Charles H. Reddien None None 300,000 None $ 0 --
</TABLE>
(1) The "Value realized" reflects the appreciation on the date of exercise
(based on the excess of the fair market value of the shares on the date
of exercise over the exercise price). However, because the officer may
keep the shares acquired upon the exercise of options or sell them at a
different price, this amount does not necessarily reflect cash realized
upon the sale of those shares.
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<PAGE> 39
(2) "In-the-Money Options" are options outstanding at the end of the last
fiscal year for which the fair market value of the Common Stock at the
end of the last fiscal year exceeded the exercise price of the options.
DIRECTORS' COMPENSATION
From January 1, 1995 through August 1997, Directors were paid $1,500 per month
for serving as Directors of the Company. Directors are reimbursed for certain
approved expenses incurred in connection with Company business and for certain
approved expenses incurred in connection with attendance at non-telephonic Board
meetings and non-telephonic committee meetings.
In 1996, Lester E. Bullock, a Director, was awarded 400,000 stock options
exercisable at $.75 per share, 250,000 of these options were awarded for
services rendered as a Director. In 1996, Piers Hedley, a Director, was awarded
250,000 stock options exercisable at $.75 per share for services rendered as a
Director. In 1996, Deborah A. Vitale, a Director, was awarded 800,000 options
exercisable at $.75 per share, 250,000 of these options were awarded for
services rendered as a Director.
On March 3, 1998, the Company entered into an Agreement to Cancel 500,000
Options to Purchase Common Stock held by the Company's former President, Lester
Bullock, for $75,000 or $.15 per share. These options were used, in part, to
compensate the new Board of Directors and management. On March 24, 1998, Gregory
Harrison, a Director was awarded 50,000 options exercisable at $1.00 per share
for services rendered as a Director, provided he remained a Director for six
months from the date of his appointment (unless removed by vote of the
shareholders or a failure to be nominated to the next Board of Directors or
unless unable to serve due to death or by reason of physical or mental
incapacity.) On March 24, 1998, Paul DeMattia, a Director, was awarded 50,000
options exercisable at $1.00 per share for services rendered as a Director,
provided he remained a Director for six months from the date of his appointment
(unless removed by vote of the shareholders or a failure to be nominated to the
next Board of Directors or unless unable to serve due to death or by reason of
physical or mental incapacity.) On March 24, 1998, John R. Duber, a Director,
was awarded 100,000 options exercisable at $1.00 per share, 50,000 of which were
awarded for services rendered as a Director provided he remained a Director for
six months from the date of his appointment (unless removed by vote of the
shareholders or a failure to be nominated to the next Board of Directors or
unless unable to serve due to death or by reason of physical or mental
incapacity) and 50,000 of which were awarded for other services rendered to the
Company which were not conditioned on continued service. On April 3, 1998,
Deborah A. Vitale, a Director, was awarded 750,000 options exercisable at $1.00
per share for services rendered as Director and President of Europa and its
subsidiaries, provided she remained a Director for six months from the date the
Board awarded the options (unless removed by vote of the shareholders or a
failure to be nominated to the next Board of Directors or unless unable to serve
due to death or by reason of physical or mental incapacity.)
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<PAGE> 40
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AS OF
APRIL 9, 1999
The only persons who owned of record or were known by the Company to own
beneficially on April 9, 1999, more than 5% of any class of the outstanding
voting shares of the Company were as follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF PERCENT
NAME AND ADDRESS SHARES OWNED CLASS VOTING(1)
- ---------------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Serco International Limited(2) 1,440,334 Common 461% 9.88%
P.O. Box 15, A-9010 900,000 S-NR Preferred 100.00%
Klagenfurt, Austria 926,000 S Preferred 100.00%
Austroinvest International Limited(2) 1,440,334 Common 4.61% 9.88%
P.O. Box 15, A-9010 900,000 S-NR Preferred 100.00%
Klagenfurt, Austria 926,000 S Preferred 100.00%
Gaming Invest Corporation(2) 1,440,334 Common 4.61% 9.88%
P.O. Box 15, A-9010 900,000 S-NR Preferred 100.00%
Klagenfurt, Austria 926,000 S Preferred 100.00%
Europa Cruises Corporation(3) 4,000,000 Common 12.80% 12.09%
Employee Stock Ownership Plan
Trust Agreement
150 153rd Avenue East
Madeira Beach, Florida 33708
Deborah A. Vitale(3)(4)(5)(7) 6,403,500 Common 20.49% 19.36%
1013 Princess Street
Alexandria, VA 22314
John R. Duber(3)(4)(6) 4,237,560 Common 13.56% 12.81%
20018 Westover Avenue
Rocky River, Ohio 44116
Ernst G. Walter(2) 1,440,334 Common 4.61% 9.88%
14700 Gulf Blvd., Apt.401 900,000 S-NR Preferred 100.00%
Madeira Beach, Florida 33708 926,000 S Preferred 100.00%
James Illius(8) 1,472,051 Common 4.71% 4.45%
3791 Francis Drive
Rocky River, Ohio 44116
</TABLE>
- ----------------------
(1) Common Stock and S-NR Preferred and S Preferred shares have been
combined for the purpose of calculating voting percentages.
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<PAGE> 41
(2) Serco International Limited, Austro Invest International Limited and
Gaming Invest Corporation are affiliated entities. The Company
understands that Dr. Ernst Walter is the sole director of each company.
The total beneficial ownership of securities of the Company by the
three corporations and Dr. Walter includes: 900,000 shares of Series
S-NR Preferred Stock and 1,040,334 shares of Common Stock owned by
Serco International Limited; 926,000 shares of S Preferred Stock owned
by Austroinvest International Limited; 200,000 shares of Common Stock
owned by Gaming Invest Corporation; and 200,000 shares of Common Stock
underlying options Dr. Walter has the current right to exercise.
(3) The Europa Cruises Corporation Employee Stock Ownership Plan, Trust
Agreement ("ESOP") was established on August 18, 1994. The Trustees of
the ESOP are Deborah A. Vitale, President, CEO, and Chairman of the
Board and John R. Duber, Vice-President and a Director. As of December
31, 1998, 1,000,000 ESOP shares had been released and 750,000 ESOP
shares had been allocated to participants in the ESOP. The participants
in the ESOP are entitled to direct the Trustees as to the manner in
which the Company's allocated shares are voted. Unallocated shares are
voted by the Trustees. The Trustees are required to vote the ESOP
shares in the best interests of ESOP beneficiaries.
(4) Includes 4,000,000 unallocated shares of Common Stock which will be
voted by Ms. Vitale and Mr. Duber as Trustees of the ESOP.
(5) Includes options to purchase 1,650,000 shares of Common Stock.
(6) Includes options to purchase 100,000 shares of Common Stock.
(7) Includes 750,000 shares of common stock held by International
Hospitality, Inc. for which Ms. Vitale holds a proxy for one year.
(8) The percentage of Common Stock owned is 5.10% and the percentage of
Voting Stock owned is 4.80% when calculated without regard to options.
The following table sets forth, as of April 9, 1999, the beneficial and record
ownership of the outstanding Common Stock of the Company held by Directors,
Nominees, Executive Officers and all Directors and Executive Officers as a
Group.
<TABLE>
<CAPTION>
Number of Percent Percent
Shares of of Common of Voting
Common Stock Stock Stock(1)
Owned
<S> <C> <C> <C>
Name and Address
Deborah A. Vitale 6,403,500(3)(4)(7) 20.49% 19.36%
Chairman, President, CEO,
Secretary and Treasurer;
Chairman, President,
Secretary and Treasurer of
Casino World, Inc. and
Mississippi Gaming Corp.
1013 Princess Street
Alexandria, VA 22314
John R. Duber 4,237,560(3)(5) 13.56% 12.81%
Director, Vice-President
and Assistant Secretary
20018 Westover Avenue
</TABLE>
41
<PAGE> 42
<TABLE>
<S> <C> <C> <C>
Rocky River, OH 44116
Gregory Harrison 490,000(6) 1.56% 1.48%
Director
16209 Kimberly Grove
Gaithersburg, MD 20878
Paul DeMattia 139,000(6) .44% .42%
Director
6366 Eastland Rd.
Brookpark, Ohio 44142
All Directors and Officers 7,270,060 23.27% 21.98%
as a Group (4 persons):
</TABLE>
- -------------------
(1) Common Stock and Preferred Stock amounts have been combined for the
purpose of calculating percentages of Voting Stock. None of the persons
listed owns any Preferred Stock.
(2) Casino World, Inc. and Mississippi Gaming Corporation are wholly owned
subsidiaries of the Company.
(3) Includes 4,000,000 unallocated shares of Common Stock which will be
voted by Ms. Vitale and Mr. Duber as Trustees of the ESOP.
(4) Includes options to purchase 1,650,000 shares of Common Stock.
(5) Includes options to purchase 100,000 shares of Common Stock.
(6) Includes options to purchase 50,000 shares of Common Stock.
(7) Includes 750,000 shares of Common Stock held by International
Hospitality, Inc. for which Ms. Vitale holds a proxy for one year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 18, 1994, the Company established the Europa Cruises Corporation
Employee Stock Ownership Plan (the "ESOP"). This ESOP, which is 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 1,000 hours of service 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 are Deborah A. Vitale
and John R. Duber. As of December 31, 1998, 750,000 shares of Common Stock had
been allocated to participants in the ESOP. Unallocated shares are voted by the
Trustees. The Trustees are required to vote the ESOP shares in the best
interests of the ESOP beneficiaries.
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 were pledged to the Company as security for
the loans. The
42
<PAGE> 43
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. Through December 31, 1997, the Company
paid $6,925,000 to the ESOP which was used to repay principal and interest on
the promissory notes.
The Board held sixteen meetings during 1998 and seven meetings during 1997. Each
Director attended at least 75% of the total number of Board meetings held during
the period for which he or she was a Director. The Board does not have an audit
compensation or nominating committee. The Board's audit committee consists of
Paul DeMattia and Gregory Harrison, both of whom are outside Directors and
Deborah A. Vitale and John R. Duber, both of whom are Directors and Officers of
the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
<TABLE>
<S> <C> <C>
(a) 3(a)(i) Certificate of Incorporation of the Company.
(ii) Amendment to Certificate of Incorporation of the
(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 Corporation
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.
(g) 4.3.5 Agreement between Marc N. Geman and Europa Cruises
Corporation dated June 15, 1993.
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C> <C>
(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.
5.1 Qualified plan determination letter from the Internal
Revenue Service dated April 4, 1996, issued to the
Europa Cruises Corporation Employee Stock Ownership
Plan.
(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.
</TABLE>
44
<PAGE> 45
<TABLE>
<S> <C> <C>
(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.
(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.
</TABLE>
45
<PAGE> 46
<TABLE>
<S> <C> <C>
(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 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 Company and Sea Lane
Bahamas, Ltd. dated February 4, 1994.
(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.
</TABLE>
46
<PAGE> 47
<TABLE>
<S> <C> <C>
(f) 10(uu) Settlement Agreement dated May 9, 1994 between Europa
Cruises Corporation and Harlan G. Allen, Jr.
(f) 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.
(f) 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.
(f) 10(xx) Snug Harbor Group, Inc. Lease dated September 20,
1996 between Snug Harbor Group, Inc. and Europa
Cruises of Florida 1, Inc.
(f) 10(yy) Tidelands Lease and Land Lease dated February 1,
1996, between Hancock County Port and Harbor
Commission and Mississippi Gaming Corporation.
10.2 Warrant Agreement Between First Union National Bank
of Florida and Europa Cruises Corporation dated
October 30, 1996 and February 4, 1997.
10.2.1 Second Modification of Credit and Security Agreement
and other Loan Documents and Renewal Promissory Note
between First Union National Bank of Florida and
Europa Cruises Corporation dated October 31, 1996.
10.2.2 Promissory Note between Europa Cruises of Florida 2,
Inc. and dEBIS Financial Services, Inc. dated October
30, 1996.
10.2.3 Form of Stock Option Agreements for options granted
April 18, 1996 to Lester Bullock, Deborah Vitale,
Piers Hedley, Debra Gladstone, Andy Rufo, Michael
Reeves, and Jim Monninger.
10.2.4 Lease Agreement between Tierra Verde Marina
Development Corporation and Europa Stardancer
Corporation dated October 1, 1996.
10.2.5 Agreement between the Company and McDonald & Company
Securities, Inc. dated April 2, 1998.
(f) 18 Letter from BDO Seidman, LLP regarding 1995 change in
accounting principle.
27 Financial Data Schedule (for SEC use only)
(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.
</TABLE>
47
<PAGE> 48
<TABLE>
<S> <C>
(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.
</TABLE>
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)
48
<PAGE> 49
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
DATE: April 15, 1999 /s/ Deborah A. Vitale
----------------------------------------
By: Deborah A. Vitale, President
/s/ Robert Zimmerman
----------------------------------------
By: Robert Zimmerman
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.
<TABLE>
<CAPTION>
Signature and Title Date
- ------------------- ----
<S> <C>
/s/ Deborah A. Vitale, April 15, 1999
- ----------------------------------------
President and Chairman of the Board
/s/ John R. Duber April 15, 1999
- ----------------------------------------
Vice President, Director
/s/ Paul J. DeMattia April 15, 1999
- ----------------------------------------
Director
/s/ Gregory A. Harrison April 15, 1999
- ----------------------------------------
Director
</TABLE>
49
<PAGE> 50
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
CONTENTS
- --------------------------------------------------------------------------------------------------------------------
PAGE
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheet as of December 31, 1998 F-3
Consolidated Statements of Operations
for the Years Ended December 31, 1998 and 1997 F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1998 and 1997 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8 to F-34
</TABLE>
F-1
<PAGE> 51
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, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1998. 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, 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Miami, Florida BDO Seidman, LLP
April 8, 1999
F-2
<PAGE> 52
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1998
-----------
<S> <C>
ASSETS (NOTE 5(A))
CURRENT
Cash and cash equivalents $ 625,926
Accounts receivable (Note 5) 187,137
Prepaid insurance and other 393,270
-----------
Total current assets 1,206,333
VESSELS, EQUIPMENT AND FIXTURES, LESS ACCUMULATED DEPRECIATION
(Notes 2 and 5) 11,990,391
LAND UNDER DEVELOPMENT FOR DOCKSIDE GAMING (Note 4) 4,868,139
DOCKSIDE GAMING DEVELOPMENT COSTS (Note 4) 195,506
DEFERRED DRYDOCK COSTS, NET OF AMORTIZATION (Note 2) 586,838
OTHER ASSETS 162,010
-----------
$19,009,217
===========
</TABLE>
F-3
<PAGE> 53
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1998
------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (NOTE 5(A))
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note 14) $ 2,493,132
Current maturities of long-term debt (Note 5) 4,390,847
Due to stockholders (Note 6) 516,300
Unearned cruise revenues 31,595
------------
Total current liabilities 7,431,874
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 5) 2,868,733
OTHER LIABILITIES (Notes 10(a) and 10(d)) 1,800,000
------------
Total liabilities 12,100,607
------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Notes 7 and 8)
Preferred stock, $.01 par value; shares authorized 5,000,000;
outstanding 2,692,000 ($3,731,080 aggregate liquidation preference) 26,920
Common stock, $.001 par value - shares authorized
50,000,000; issued 28,875,059; outstanding 23,625,059 28,875
Additional paid-in capital 25,353,679
Unearned ESOP shares (5,961,564)
Deficit (12,349,144)
Treasury stock, at cost, 1,250,000 shares (190,156)
------------
Total stockholders' equity 6,908,610
------------
$ 19,009,217
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 54
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997
------------ ------------
<S> <C> <C>
REVENUES
Gaming revenue $ 13,092,182 $ 15,208,517
Passenger fares 2,260,960 3,353,016
Food and beverage 865,356 1,282,377
Charter fees 406,000 327,500
Other (Note 4) 178,052 676,378
------------ ------------
16,802,550 20,847,788
------------ ------------
COSTS AND EXPENSES
Vessel operating 11,999,487 13,121,189
Administrative and general 2,510,943 2,832,498
Advertising and promotion 634,032 1,571,275
Depreciation and amortization (Note 2) 2,035,936 1,836,164
Provision for sales taxes (Note 10) 1,400,000 1,284,664
Interest, net (Note 5) 878,107 907,502
Other operating (Note 12) 307,716 1,053,871
------------ ------------
19,766,221 22,607,163
------------ ------------
NET LOSS (2,963,671) (1,759,375)
PREFERRED STOCK DIVIDENDS (195,623) (221,248)
------------- ------------
NET LOSS APPLICABLE TO COMMON STOCK $ (3,159,294) $ (1,980,623)
============ ============
PER SHARE AMOUNTS
Net loss per common share, basic and diluted $ (.14) $ (.09)
------------ ------------
Weighted average number of common shares outstanding 23,320,053 22,620,251
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 55
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NOTES 7 AND 8)
<TABLE>
<CAPTION>
Additional Common
Preferred Common Paid-in Unearned Stock
Stock Stock Capital ESOP Shares Subscribed
-------- ------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 28,225 $27,176 $ 24,950,864 $(6,709,376) $ 234,974
Issuances of common stock, net of offering costs -- 1,212 510,207 -- --
ESOP compensation -- -- (152,187) 372,812 --
Preferred stock dividends -- 136 120,299 -- --
Common stock subscription -- -- -- -- (234,974)
Conversion of preferred to common (145) 14 131 -- --
Net loss for the year -- -- -- -- --
-------- ------- ------------ ----------- ---------
Balance, December 31, 1997 28,080 28,538 25,429,314 (6,336,564) --
ESOP compensation -- -- (219,103) 375,000 --
Preferred stock dividends -- 221 142,424 -- --
Conversion of preferred to common (1,160) 116 1,044 -- --
Net loss for the year -- -- -- -- --
-------- ------- ------------ ----------- ---------
Balance, December 31, 1998 $ 26,920 $28,875 $ 25,353,679 $(5,961,564) $ --
======== ======= ============ =========== =========
</TABLE>
<TABLE>
Treasury
(Deficit) Stock Total
------------ --------- -----------
<S> <C> <C> <C>
Balance, December 31, 1996 $ (7,209,227) $(190,156) $11,132,480
Issuances of common stock, net of offering costs -- -- 511,419
ESOP compensation -- -- 220,625
Preferred stock dividends (221,248) -- (100,813)
Common stock subscription -- -- (234,974)
Conversion of preferred to common -- -- --
Net loss for the year (1,759,375) -- (1,759,375)
------------ --------- ------------
Balance, December 31, 1997 (9,189,850) (190,156) 9,769,362
ESOP compensation -- -- 155,897
Preferred stock dividends (195,623) -- (52,978)
Conversion of preferred to common -- -- --
Net loss for the year (2,963,671) -- (2,963,671)
------------ --------- ------------
Balance, December 31, 1998 $(12,349,144) $(190,156) $ 6,908,610
============ ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 56
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 11)
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,963,671) $(1,759,375)
----------- -----------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Provision for sales taxes 1,400,000 1,284,664
Depreciation and amortization 2,035,936 1,836,164
ESOP provision 155,897 220,625
(Increase) decrease in:
Accounts receivable 139,391 72,204
Prepaids and other 43,404 144,628
(Decrease) increase in:
Accounts payable and accrued expenses 1,059,212 (481,644)
Unearned cruise revenues (14,482) (17,750)
Other liabilities -- 250,000
----------- -----------
Total adjustments 4,819,358 3,308,891
----------- -----------
Cash provided by operating activities 1,855,687 1,549,516
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment, net (142,730) (635,318)
Increase in deferred drydock costs (546,190) (282,857)
Land under development and dockside gaming costs (10,632) (150,917)
Decrease in restricted cash -- 400,000
----------- -----------
Cash used in investing activities (699,552) (669,092)
----------- -----------
FINANCING ACTIVITIES
Repayment of long-term debt (1,231,518) (1,858,562)
Preferred stock dividends (52,978) (100,813)
Advances from stockholders, net 516,300 --
Proceeds from:
Stock subscription payments -- 224,070
Issuance of common stock -- 52,375
Long-term debt -- 492,413
----------- -----------
Cash (used in) financing activities (768,196) (1,190,517)
----------- -----------
Net increase (decrease) in cash and cash equivalents 387,939 (310,093)
Cash and cash equivalents, beginning of year 237,987 548,080
----------- -----------
Cash and cash equivalents, end of year $ 625,926 $ 237,987
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 57
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT Organization and Business
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 in the consolidation.
Cash Equivalents
The Company considers all liquid debt
instruments with original maturities of three
months or less to be cash equivalents.
F-8
<PAGE> 58
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 expended 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 $3,652,100 in 1998 and $2,954,500
in 1997.
Passenger Fare Revenue and Unearned Cruise
Revenues
Unearned cruise revenues, which represent
customer cruise deposits, are included in the
consolidated balance sheet when received and
are recognized as passenger fare or food
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, 1998 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
F-9
<PAGE> 59
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 unallocated shares used to pay
debt service are reported as a reduction of
the indebtedness to the Company; (2) on
unallocated 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.
Long-Lived Assets
The Company evaluates the recoverability of
long-lived assets by measuring the carrying
amount of the assets against the estimated
undiscounted future cash flows associated
with them. At such time the evaluations
indicate that the future undiscounted cash
flows of the long-lived assets would not be
sufficient to recover the carrying value of
such assets, the assets would be adjusted to
their fair values.
F-10
<PAGE> 60
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 per Common Share
Net loss per common share (basic and diluted)
is based on the net loss after preferred
stock dividends divided by the weighted
average number of common shares outstanding
during each year. Common shares outstanding
includes issued shares less shares held in
treasury, and un-allocated and uncommitted
shares held by the ESOP trust.
F-11
<PAGE> 61
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's potentially issuable shares of
common stock pursuant to outstanding stock
purchase options and warrants and convertible
preferred stock are excluded from the
Company's diluted computation as their effect
would be antidilutive to the Company's net
loss.
Drydock Costs
The Company uses the deferral method to
account for major repairs and maintenance in
drydock whereby costs are capitalized when
incurred and amortized over the period to the
next drydock.
Reporting Comprehensive Income
During 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income. SFAS No.
130 establishes standards for reporting and
display of comprehensive income, its
components and accumulated balances.
Comprehensive income is defined to include
all changes in equity except those resulting
from investments by owners and distributions
to owners. Among other disclosures, SFAS No.
130 requires that all items that are required
to be recognized under current accounting
standards as components of comprehensive
income be reported in a financial statement
that is displayed with the same prominence as
other financial statements.
The adoption of SFAS No. 130 did not have any
effect on the Company's financial statements
for the year ended December 31, 1998.
Segment Information
Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments of
an Enterprise and Related Information,
supersedes SFAS No. 14, Financial Reporting
for
F-12
<PAGE> 62
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segments of a Business Enterprise. SFAS No.
131 establishes standards for the way that
public companies report information about
operating segments in annual financial
statements and requires reporting of
selected information about operating
segments in interim financial statements
issued to the public. It also establishes
standards for disclosures regarding products
and services, geographic areas and major
customers. SFAS No. 131 defines operating
segments as components of a company about
which separate financial information is
available that is evaluated regularly by the
chief operating decision maker in deciding
how to allocate resources and in assessing
performance.
The Company currently operates solely in one
line of business, short-term cruises.
Included in total assets, are $5,063,645
(27% of total assets) of land and dockside
gaming development costs which relate to
planned future operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 requires
companies to recognize all derivatives
contracts as either assets or liabilities in
the balance sheet and to measure them at fair
value. If certain conditions are met, a
derivative may be specifically designated as
a hedge, the objective of which is to match
the timing of gain or loss recognition on the
hedging derivative with the recognition of
(i) the changes in the fair value of the
hedged asset or liability that are
attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted
transaction. For a derivative not designated
as a hedging instrument, the gain or loss is
recognized in operations in the period of
change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning
after June 15, 1999.
Historically, except for certain bank loan
agreements, the Company has not entered into
derivatives contracts either to hedge
existing risks or for speculative purposes.
The Company does not expect adoption of the
new standard on January 1, 2000 to have a
material effect on its consolidated
financial statements.
F-13
<PAGE> 63
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. VESSELS, EQUIPMENT AND Vessels, equipment and fixtures consist of
FIXTURES, AND DEFERRED the following:
DRYDOCK COSTS
<TABLE>
<CAPTION>
1998
------------
<S> <C>
Vessels $ 13,527,221
Vessel improvements 1,789,838
Gaming equipment 2,208,361
Office and vessel equipment 965,337
Furniture, fixtures and other 289,863
Leasehold improvements 583,818
------------
19,364,438
Less accumulated depreciation (7,374,047)
------------
$ 11,990,391
------------
Deferred drydock costs consist of the following:
Deferred drydock costs $ 1,931,480
Less accumulated amortization (1,344,642)
------------
$ 586,838
============
</TABLE>
3. INVESTMENT IN AND On December 31, 1990, the Company rescinded a
ADVANCES TO transaction in which it had previously sold
UNCONSOLIDATED its twenty percent ownership interest in
AFFILIATE Marne (Delaware), Inc. (Marne) by reacquiring
its investment and a $340,000 note receivable
in exchange for $541,620 of promissory notes
payable to a principal stockholder and a
former officer of the Company.
In October, 1996, a final Order and Judgement
was issued by the Court of Chancery of the
State of Delaware in and for New Castle
F-14
<PAGE> 64
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
County. Under the judgement, the former
officer is required to return 250,000 shares
of common stock to the Company and must pay
money damages in the net amount of $24,962 to
rescind the Marne transaction. Accordingly,
the related investment, and promissory note
payable were eliminated in 1996 at no gain or
loss.
4. LAND UNDER The Company through its two wholly-owned
DEVELOPMENT FOR subsidiaries, Casino World, Inc. (CWI) and
DOCKSIDE GAMING AND Mississippi Gaming Corporation (MGC) owns or
DOCKSIDE GAMING has options to purchase a total of 404.5 acres
DEVELOPMENT\ of unimproved land in Diamondhead, Mississippi
COSTS which was granted site approval by the
Mississippi Gaming Commission in June, 1995.
The ownership and operation of a gaming
business 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
various federal, state and local agencies.
Litigation brought by environmental groups,
neighbors, and competitors 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. This site approval is land
specific, and therefore, the cost associated
with obtaining this site approval has been
capitalized to the cost of the land. 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 the remainder of
the $2,250,000 will be paid over the remainder
of the lease after operation of the casino
commences. The lease incorporates the Memorandum
of Understanding between the Mississippi
Secretary of State and the
F-15
<PAGE> 65
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hancock County Port and Harbor Commission
dated November 19, 1995, which transfers
management and control of the subject
tidelands to the Port and Harbor Commission
and requires a signing of a tenant lease
within one year of signing and commencement
of casino operations within three years of
the signing of the memorandum.
Casino operations did not commence within
three years of signing of the transfer and
the Tidelands Lease has expired. The
Mississippi Secretary of State has indicated
that he will not renew a lease with the
Hancock County Port and Harbor Commission.
Therefore, Casino World, Inc. will be
required to apply directly to the Secretary
of State for a new Tidelands Lease. There
can be no assurance the Mississippi
Secretary of State will grant a Tidelands
Lease.
There are no assurances that the necessary
regulatory approvals can be obtained or that
financing will be available. At December 31,
1998, 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.
On January 31, 1997, the Company entered into
an agreement with Hilton Gaming Corporation,
which gave Hilton the exclusive right to
negotiate a joint venture agreement with the
Company for a 180 day period with respect to
the development of Europa's Diamondhead,
Mississippi property located on Bay St.
Louis, Diamondhead, Mississippi. The proposed
joint venture was not consummated. In
exchange for the exclusive right to
negotiate, Hilton paid Europa a nonrefundable
fee of $400,000, which is included in other
income in the accompanying 1997 consolidated
statement of operations.
Dockside gaming development costs consist of
the following:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Licenses $ 77,000
Other development costs 118,506
--------
$195,506
========
</TABLE>
F-16
<PAGE> 66
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The legal, financial, political, tax,
environmental, regulatory and competitive
environment in which the Company currently
operates gaming activities and in which it
intends to operate gaming activities is
uncertain, dynamic and subject to rapid
change. In addition, existing operators often
support legislation and litigation designed
to make it difficult or impossible for
competitors to develop and operate gaming
facilities. This environment makes it
impossible to predict the effects, including
costs, that changes in laws, rules,
regulations and other variables will have on
the Company's proposed dockside gaming
operations or on existing operations.
5. LONG-TERM DEBT At December 31, 1998, long-term debt consists
of:
<TABLE>
<CAPTION>
1998
--------------
<S> <C>
Bank term loan, principal and interest payable $102,000
monthly through August 2002, floating rate of interest
at Libor plus 325 basis points (9% at December 31,
1998) capped at 11.35% with an interest rate swap
agreement, collateralized by accounts receivable, three
vessels, equipment and fixtures. (a) $ 3,610,259
Equipment finance company term loan, principal and
interest payable $30,360 monthly through January 2001,
including interest at 10.5% with a balloon payment due
of $1,442,000. 1,953,189
State of Florida Sales Tax Closing Agreement, payable
$20,952 monthly through June 2004. With interest
charged at 6% per annum beginning June 2000 and payable
at maturity, less unamortized discount based on an
imputed interest rate of 10% of $415,995. 1,184,186
</TABLE>
F-17
<PAGE> 67
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Capital lease obligation on gaming equipment, payable
$25,000 monthly to May, 1999, including interest at
9%. ($250,000 past due) 287,648
9% note payable, principal and interest payable
$4,827 monthly through November 2000, collateralized by
400,000 escrowed shares of the Company's common stock. 190,588
9% note payable, principal and interest payable
$17,700 monthly through February 1999. 33,710
----------
Total 7,259,580
Less current maturities (4,390,847)
----------
$ 2,868,733
===========
</TABLE>
a) As of December 31, 1998, the Company
was not in compliance with the cash
flow and tangible net worth covenants
required under the terms of its bank
loan agreement and the loan can be
called for repayment upon demand. The
loan balance of $3,610,259 has been
classified as a current liability in
the accompanying 1998 consolidated
balance sheet.
In the event that payment is demanded, the
Company believes that the value of the
underlying collateral is sufficient to
refinance or extinguish the debt. The
ultimate outcome of the matter may have a
material adverse effect on the Company's
financial position and results of operations.
The Company's cash flow during 1998 was
sufficient to sustain its operations and the
Company believes it will continue to be so.
The Company however, may be unable to meet
any unusual or unanticipated cash
requirements should they arise during 1999,
except through the sale of stock or
borrowing.
F-18
<PAGE> 68
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, annual maturities of
long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 $4,390,847
2000 419,609
2001 445,831
2002 487,094
2003 481,968
Thereafter 1,034,231
----------
$7,259,580
==========
</TABLE>
Interest expense consists of:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Interest expense $ 897,145 $ 950,794
Less interest income (19,038) (43,292)
--------- ---------
Interest expense (net) $ 878,107 $ 907,502
========= =========
</TABLE>
6. RELATED PARTY During 1998, the Company borrowed $584,211
TRANSACTIONS from two stockholders which was used for
working capital purposes. These loans are
unsecured, do not bear interest and are due
on demand. Outstanding balance as of
December 31, 1998 is $516,300.
F-19
<PAGE> 69
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCKHOLDER'S At December 31, 1998, the Company had a
EQUITY stock option plan and non-plan options, which
are described below. The Company applies APB
Opinion 25. Accounting for Stock Issued to
Employees, and related Interpretations in
accounting for employee stock options. Under
APB Opinion 25, because the exercise price of
the Company's employee stock options equals
the market price of the underlying stock on
the date of grant, no compensation cost is
recognized.
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 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. As of December 31, 1998,
approximately 865,000 shares remain available
under the Plan and 810,000 options are
outstanding.
In March 1998, the Company granted five year
fixed non-plan stock options at an exercise
price of $1.00 (fair market value at the date
of grant) that expire in March 2003. The
options were granted as follows:
Immediately exercisable options to acquire
200,000 shares of common stock to three
members of the Board of Directors.
Immediately exercisable options to acquire
750,000 shares of common stock to the
President, Chief Executive Officer and
Chairman of the Board of Directors.
Immediately exercisable options to acquire
10,000 shares of common stock to an
employee of the Company.
In April, 1997, the Company granted to an
employee of Casino
F-20
<PAGE> 70
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
World, Inc., five year fixed non-plan stock
options to acquire 100,000 shares of common
stock at an exercise price of $.8438 (quoted
market value of the stock at the date of
grant) that expire in March, 2002.
During 1998, the Company reacquired options
to acquire 500,000 shares of common stock
from the former President of the Company for
$75,000. The total amount paid was accrued
at December 31, 1997 and included in general
and administrative expense in the
accompanying consolidated Statements of
Operations.
FASB Statement 123, Accounting for
Stock-Based Compensation, requires the
Company to provide pro forma information
regarding net loss and net loss per share as
if compensation cost for the Company's
employee stock options had been determined
in accordance with the fair value based
method prescribed in FASB Statement 123. The
Company estimates the fair value of each
employee stock option at the grant date by
using the Black-Scholes option-pricing model
with the following weighted-average
assumptions used for grants in 1998 and
1997: no dividend yield percent, expected
life of 5 years, expected volatility of
46.10% and 94.39% in 1998 and 1997 and
risk-free interest rate of 5.47% and 5.84%
in 1998 and 1997, respectively.
Under the accounting provisions of FASB
Statement 123, the Company's net loss and
loss per share would have been as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C> <C>
Net loss As Reported $ (3,159,294) $ (1,980,623)
Applicable to
Common Stock Proforma (3,354,294) (2,045,623)
Earning per As Reported $ (.14) $ (.09)
common share Proforma $ (.14) $ (.09)
</TABLE>
F-21
<PAGE> 71
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of status of the Company's fixed
Plan and non-plan options as of December
31, 1998 and 1997, and changes during the
years ended on those dates is presented
below:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------- ----------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ----- --------- -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 3,100,000 $ .95 3,000,000 $.95
Granted 960,000 1.00 100,000 .84
Exercised -- -- -- --
Forfeited (650,000) (1.06) -- --
---------- ----- --------- -----
Outstanding at end of year 3,410,000 $ .96 3,100,000 $.95
---------- ----- --------- -----
Options exercisable at
year-end 3,410,000 -- 3,100,000 --
Weighted-average fair value
of options granted during the
year -- $ .33 -- $.65
========== ===== ========= =====
</TABLE>
The following table summarizes information
about stock options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ ---------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise at Contractual Exercise at Exercise
Prices 12/31/98 Life Price 12/31/98 Price
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.75 - $2.25 3,410,000 2.5 $ .96 3,410,000 $ .96
-------------------------------------------------------------------------------------
</TABLE>
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.
F-22
<PAGE> 72
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 1998 and
1997, 116,000 and 14,500 of these shares were
converted to 116,000 and 14,500 common shares
respectively. 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 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
1998, the Company paid $142,645 of the total
preferred dividend of $195,623 with 220,471
shares of its common stock. During 1997, the
Company paid $120,395 of the total preferred
dividend of $221,248 with 136,000 shares of
its common stock.
F-23
<PAGE> 73
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with a refinancing in 1996, the
Company granted to First Union National Bank
of Florida five year warrants to purchase an
aggregate 200,000 shares of the Company's
common stock at $2 per share.
In September 1996, the Company offered for
sale up to $500,000 in common stock in a
Regulation S offering. At December 31, 1996,
$234,974 in proceeds had been received. The
remaining proceeds of approximately $224,000
net of issuance costs of approximately
$42,000 were received in January, 1997 and
the Company issued 1,163,843 shares of common
stock. An 8% commission, paid with 86,211
shares of Common Stock of the Company, was
paid to an entity in which a former Director
of the Company served as an officer and
consultant.
During 1997, the Company issued 47,289 shares
of Common Stock in exchange for approximately
$52,375.
F-24
<PAGE> 74
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EMPLOYEE STOCK On August 18, 1994, the Company established
OWNERSHIP PLAN the Europa Cruises Corporation PLAN Employee
Stock Ownership Plan (ESOP). The ESOP, which
is intended to be a qualified retirement 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 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.
At December 31, 1998, 1,000,000 shares have
been legally released of which, 750,000 have
been allocated to participants
F-25
<PAGE> 75
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accounts. The remaining 250,000 are in the
process of being allocated to participants'
accounts in 1999. At December 31, 1998,
4,000,000 shares with a fair market value of
$1,500,000 are unearned.
9. INCOME TAXES At December 31, 1998, the Company had net
operating loss carry-forwards for income
taxes of approximately $17.3 million which
expire through 2014. 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 of approximately $7.9
million of the net operating losses for tax
purposes.
Deferred income taxes are comprised of the
following at December 31, 1998:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Depreciation $ 2,284,000
Deferred drydock 109,000
-----------
Gross deferred tax liability 2,393,000
-----------
Loss carry forwards (6,491,000)
-----------
Deferred tax asset valuation allowance 4,098,000
-----------
Net deferred tax asset $ --
===========
</TABLE>
Realization of any portion of the Company's
deferred tax asset at December 31, 1998 is
not considered to be more likely than not
and, accordingly, a $4,098,000 valuation
allowance has been provided.
F-26
<PAGE> 76
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. 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 and in Diamondhead, Mississippi.
Rental expense, which is primarily based on
a per passenger basis, aggregated
approximately $697,000 and $750,000 in 1998
and 1997, respectively.
Minimum rental obligations under all
noncancellable operating leases with terms of
one year or more as of December 31, 1998, are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 615,000
2000 545,000
2001 470,000
2002 245,000
2003 33,000
----------
$1,908,000
==========
</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
F-27
<PAGE> 77
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The
Company has accrued approximately $400,000
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 Agreement
On September 16, 1994, the Company
terminated a Gaming Concession Agreement and
entered into a consulting agreement with
Casinos Austria Maritime Corporation (CAMC).
Under the consulting agreement, Europa
manages and operates all casinos on board
its vessels and CAMC was to provide
consulting services through December 31,
1997. As a consultant to the Company, CAMC
received $37,500 per month or 3.5% of gross
gaming revenue, whichever is greater, CAMC
also received $140 per cruise for the
services of a Purser on board each vessel.
In February, 1997, the Company terminated
the consulting agreement with CAMC by paying
a termination fee of $361,694, which is
included in other operating cost in the
accompanying Consolidated Statement of
Operations. Under the terms of the
Termination Agreement, the Company was to
pay a monthly fee of 3.5% of the gross
gaming revenue, if any, from casino
operations on the M/V Stardancer through
December 31, 1997, which aggregated
approximately $54,000 during 1997.
On June 19, 1994, Casino World, Inc. and
Mississippi Gaming Corporation (MGC) entered
into a Management Agreement with CAMC.
Subject to certain conditions, under the
Management
F-28
<PAGE> 78
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Agreement, CAMC will operate on an exclusive
basis all of the proposed dockside gaming
casinos in the State of Mississippi. If the
Company enters into a joint venture
arrangement pursuant to which the joint
venture partner acquires a controlling
interest, the agreement with CAMC will
terminate. 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, the
Founder of the Company and Former
Chairperson of the Board of Directors, filed
a civil action in Florida seeking
compensatory, punitive, treble damages and
attorneys' fees against 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 agreement between
Mr. Liberis and Serco entered into on
December 12 and 14, 1992.
On September 30, 1998, the case was
dismissed. Various post-dismissal motions
are pending.
The litigation pending against the Company
may have an adverse impact on the Company's
ability to secure financing for its planned
Mississippi expansion and on licensing by
the Mississippi Gaming Commission. The
ultimate outcome of these matters cannot
presently be determined. Accordingly, the
accompanying consolidated financial
statements do not include any adjustments
that might result from this uncertainty.
F-29
<PAGE> 79
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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
totaled approximately $7.4 million. The
Florida Department of Revenue sought to
assess sales tax on gaming revenue,
passenger fares, the purchase, sale and
lease of fixed assets, repairs, and other
items.
In June, 1997, the Company settled the Sales
Tax assessment with the Florida Department
of Revenue. Under the terms of the
settlement the Company is to make principal
only payments for 84 months, with no
interest accruing the first 36 months and
accruing at 6% on the unpaid balance,
thereafter. The Company imputed interest at
10% per annum on the above payment streams
and recorded a discount in the amount of
$475,286 and approximately $1,300,000 in
expense in connection with the settlement.
In January and February of 1999, the
Florida Department of Revenue (DOR) issued
to the Company Notices of Intent to make
Sales and Use Tax Audit Changes for the
period of July 1, 1994 through March 31,
1998. The proposed audit changes, including
penalties and interest totaled
approximately $2.8 million. The DOR seeks
to assess tax on passenger fares, food and
beverage expenses, fixed asset purchases,
repairs and other items and place liens on
one or more of the Company's vessels to
collateralize payment. The Company strongly
disagrees with the proposed audit changes
and intends to contest the factual,
statutory and regulatory issues which form
the basis for the proposed audit changes.
However, the Company does believe that
certain matters may ultimately be sustained
by the DOR and/or agreed to by the Company
and has provided a $1.4 million charge to
1998 operations. The ultimate outcome of
this matter may be at amounts which differ
from the recorded $1.4 million and may have
a material adverse impact on the Company's
results of operations and financial
position.
F-30
<PAGE> 80
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(e) Casino Industry Litigation
WILLIAM POULOS, ET AL. V. AMBASSADOR CRUISE
LINES, INC., ET AL.
(United States District Court, District of
Nevada) (Case No. CV-S-95-936-LDG (RLH))
On or about November 29, 1994, William Poulos
filed a class action lawsuit on behalf of
himself and all others similarly situated
against approximately thirty-three
defendants, including Europa Cruises of
Florida 1, Inc. and Europa Cruises of Florida
2, Inc. in the United States District Court,
Middle District of Florida, Orlando Division
(Case No. 94-1259-CIV-ORL-22). Europa Cruises
of Florida 1, Inc. and Europa Cruises of
Florida 2, Inc. were served with the
Complaint on or about March 15, 1995. The
suit was filed against the owners, operators
and distributors of cruise ship casinos which
utilized casino video poker machines and
electronic slot machines. The Plaintiff
alleges violation of the Federal Civil RICO
statute, common law fraud and deceit, unjust
enrichment and negligent misrepresentation.
The plaintiff had filed a similar action
against most major, land-based casino
operators in the United States. The earlier
action, which did not name the Company or any
of its subsidiaries as defendants, was
transferred from the U.S. District Court in
Orlando, Florida to the U.S. District Court
in Las Vegas, Nevada. The plaintiff contends
in both actions that the defendant owners and
operators of casinos, including cruise ship
casinos, along with the distributors and
manufacturers of video poker machines and
electronic slot machines have engaged in a
course of fraudulent and misleading conduct
intended to induce people to play their
machines based on a false understanding that
the machines operate in a truly random
fashion. The plaintiff alleges that these
machines actually follow fixed, preordained
sequences that are not random, but rather are
both predictable and subject to manipulation
by defendants and others. The plaintiff seeks
damages in excess of $1 billion dollars
F-31
<PAGE> 81
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
against all defendants. Management believes
there is no support for plaintiff's factual
claims and the Company intends to vigorously
defend this lawsuit.
On September 13, 1995, the United States
District Court for the Middle District of
Florida, Orlando Division, transferred the
case pending in that Court against Europa
Cruises of Florida 1, Inc. and Europa Cruises
of Florida 2, Inc. and other defendants to
the United States District Court for the
District of Nevada, Southern Division.
Accordingly, the case against Europa and the
other defendants in the cruise ship industry
will be litigated and perhaps tried together
with those cases now pending against the
land-based casino operators and the
manufacturers, assemblers and distributors of
gaming equipment previously sued in federal
court in Nevada. Management believes the
Nevada forum provides a more favorable forum
in which to litigate the issues raised in the
Complaint. The Company is sharing the cost of
litigation in this matter with other
defendants. On November 3, 1997, the Court
heard various motions in the case, including
a Motion to Dismiss filed by the cruise ship
defendants. The motion was denied. On March
18, 1998, the Plaintiffs filed a motion for
Class Certification. The motion is pending.
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 and for interest and penalties in
the amount of $177,635. 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.
F-32
<PAGE> 82
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SUPPLEMENTAL CASH FLOW Supplemental schedules of interest paid are
INFORMATION as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash paid for interest $ 866,500 $ 919,000
Non-cash transactions are as follows:
1998 1997
---------- ----------
Preferred stock dividends paid with
shares of common stock $ 142,645 $ 120,435
Sales tax provision 1,400,000 1,284,664
</TABLE>
12. OTHER OPERATING Other operating costs consist of the
COSTS following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Annual meeting and proxy expenses $ 61,588 $ 428,331
Termination fee associated with the
Gaming Concession Agreement -- 361,694
ESOP provision 155,897 220,625
Other 90,231 43,221
---------- ----------
$ 307,716 $1,053,871
========== ==========
</TABLE>
13. FAIR VALUE OF The Company's financial instruments consist
FINANCIAL principally of cash and cash equivalents,
INSTRUMENTS accounts receivable and long-term debt. The
carrying amounts of such financial
instruments approximated fair value at
December 31, 1998 and 1997.
F-33
<PAGE> 83
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SUBSEQUENT On April 5, 1999, the Company entered into
EVENTS an agreement with Poseidon Sea Kruz, L.C., a
Florida limited liability company for the
sale of one of its vessels together with
related assets for a total price of
$6,000,000. The agreement is contingent on,
among other things, the buyer obtaining
financing to close this transaction.
At December 31, 1998, included in accounts
payable and accrued expenses is a $300,000
refundable fee received from a prospective
vessel management entity. Pursuant to the
terms of the option agreement, the Company
refunded the fee by issuing 750,000 shares
of the Company's Common Stock in February
1999.
F-34
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE EUROPA
CRUISES CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> DEC-31-1998
<CASH> 625,926
<SECURITIES> 0
<RECEIVABLES> 187,137
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,206,333
<PP&E> 11,990,391
<DEPRECIATION> 7,374,047
<TOTAL-ASSETS> 19,009,217
<CURRENT-LIABILITIES> 7,431,874
<BONDS> 0
0
26,920
<COMMON> 28,875
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,009,217
<SALES> 16,802,550
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 19,766,221
<OTHER-EXPENSES> 307,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 878,107
<INCOME-PRETAX> (2,963,671)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,963,671)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
