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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, 1999
COMMISSION FILE NO: 0-17529
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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)
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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
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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: $8,418,388
The aggregate market value of the voting stock held by non-affiliates of the
Company is $12,887,051 based on the last reported sales price of $ .52 per share
on April 4, 2000 multiplied by 24,782,791 shares of Common Stock outstanding and
held by non-affiliates of the Company on April 4, 2000. As of the close of
business April 4, 2000, there were 31,886,402 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
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ITEM 1. DESCRIPTION OF BUSINESS ................................................ 3
ITEM 2. PROPERTIES ............................................................. 13
ITEM 3. LEGAL PROCEEDINGS ...................................................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................... 25
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ............... 25
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 ................................ 31
ITEM 10. EXECUTIVE COMPENSATION ................................................. 33
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ......... 35
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................... 37
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ....................................... 38
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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 conducted the majority of its business through six of
them in 1999. These active subsidiaries were:
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 1999, Europa Cruises Corporation, through its subsidiaries, owned four
vessels, the Europa Sun, the Europa Star, the Europa Sky, and the Europa
Stardancer. On or about December 1999, the Company sold two of its vessels, the
Europa Sun and the Stardancer. The Company also sold its Miami Beach, Florida
operation together with the Europa Sun. As a result of the two sales, the
Company currently owns two vessels, the M/V Europa Sky, which it operates in
Madeira Beach, Florida and the M/V Europa Star, which is docked, but not
operating, in Ft. Myers Beach, Florida.
All gaming on the Company's vessels is conducted in international waters only.
The Company operated 1,128 cruises in 1999 and carried 110,005 passengers in
1999. The Company earned total revenues of $ 8,418,388 in 1999. The Company's
vessels, when operating, generally sailed twice daily and provided dining,
dancing, and entertainment. The on-board casinos offer blackjack, slot machines,
craps, roulette and other games.
EMPLOYEES
As of December, 1999, the Company employed approximately 111 employees. The
Company currently employs approximately 105 employees. Of the Company's current
employees, 4 are
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executive and management personnel and 2 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 satisfactory.
VESSELS
SUN/STAR
The Europa Sun which the Company sold at the end of 1999, and the Europa Star
which the Company still owns, 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 Europa Sun had
approximately 213 gaming positions in 1999, including approximately 120 slot
machines. The Europa Sun was operated by a third party through most of 1999. The
Europa Star had approximately 256 gaming positions, including approximately 139
slot machines in 1999 and operated until August of 1999. Each vessel had a
dining area, entertainment stage, dance floor, main lounge, bars and a fully
equipped galley. The Europa Sun and the Europa Star, which were registered in
Panama, were previously registered in the United States. The Star is required to
be drydocked before it can carry passengers again.
In February, 1999, the Company entered into a preliminary agreement, subject to
certain contingencies, with Stardancer Casino, Inc., an unrelated 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
received a nonrefundable deposit in the amount of $300,000. The Company's
landlord objected to an assignment of the Company's lease. Therefore, the
Company entered into a management contract. Stardancer Casino, Inc. managed the
port beginning approximately March 1, 1999. One or more of the principals of
Stardancer Casino, Inc. were affiliated with Seven Star Charters, Inc. which
chartered the Europa Stardancer. On December 30, 1999, the Company sold a
Vessel (the Europa Sun) and Business Assets for a total purchase price of Four
Million, Six Hundred and Fifty Thousand Dollars ($4,650,000). The Company sold
the M/V Europa Sun, certain equipment, and any transferable lease rights it had
to its Miami Beach, Florida port to Stardancer Casino, Inc. The purchase price
included the payment by the Purchaser over time of approximately $1,800,000 to
Debis Financial Services, Inc., which held a first mortgage on the Europa Sun.
The payment to Debis was secured with a $1,800,000 Letter of Credit. The
remaining approximate $2,850,000 was paid in three installments of
approximately $950,000 each. The Company holds title to the Vessel as security
until the full amount due Debis Financial Services, Inc. has been paid, however
the buyer has assumed full risk of loss. The Company used the proceeds of the
sale to pay down a significant portion of the Company's debt.
SKY
The Europa Sky, 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 a capacity for 440 passengers. The EuropaSky has
approximately 254 gaming positions, including approximately 130 slot machines.
The Europa Sky 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 Europa Sky was built to U.S.
safety standards in order to receive a United States Coast Guard Certificate of
Inspection. The Europa Sky'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.
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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 previously attempted to charter the vessel during
periods when it was not being used as a replacement vessel when one of the
Company's other operating vessels was in drydock. The M/V Stardancer had 99
gaming positions, including approximately 70 slot machines. The Stardancer had 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 called for an annual charter fee of $1,080,000 in
addition to certain insurance payments. The Agreement gave 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 was
operated out of Myrtle Beach, South Carolina in 1999. One or more of the
principals of Seven Star Charters, Inc. were affiliated with Stardancer Casino,
Inc., which operated the Europa Sun in Miami Beach, Florida. On December 3,
1999, the Company sold the M/V Europa Stardancer for One Million Eight Hundred
Thousand Dollars ($1,800,000) to Stardancer Casino, Inc. The Company used the
proceeds of the sale to pay $800,000 to First Union National Bank of Florida and
to pay down a significant portion of the Company's debt.
COMPETITION
When the Company began its Florida operations in or about 1988, there were few
vessels operating day or evening gambling cruises out of Florida. These cruises
are commonly known as "cruises-to-nowhere." Currently, there are approximately
twenty-six vessels offering such cruises, many of which compete directly with
the Company's vessels. In recent years, competition in the day cruise industry
has been fierce. New competition has located in areas in which the Company
previously enjoyed a virtual monopoly or very limited competition. Many of the
competing vessels offer free cruises or minimally priced cruises. This has
forced the Company to drastically reduce its fares and to offer free cruises
simply to remain competitive. The dramatic reduction in fares has heavily
affected revenue, which in prior years, was substantially fare-based. The
increase in competition also caused a dramatic reduction in the Company's gaming
revenues. In 1998, the advent of new competitors in all three of the Company's
then-operating ports caused an immediate and serious decline in the Companys'
total revenues. In addition, the business of the Company has experienced a
further decline in revenues as a result of competition from the Biloxi,
Mississippi casino industry. In addition to competition in the Florida
cruise-to-nowhere industry, the Company competes with a variety of other
activities. These include, but are not limited to, land-based Indian gaming
casinos, poker rooms, short-term cruises, resort attractions, sports activities
and numerous other recreational activities.
MADEIRA BEACH, FLORIDA
On or about May 21, 1998, SunCruz, 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.
SunCruz expends significant amounts of money in advertising, marketing and
promotion and provides bus service for its passengers. The Company does not have
sufficient funds to do likewise. SunCruz operates a 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 older when compared to the slot machines on the competitor's vessel. The
Company's revenues substantially decreased as a result of the introduction of
SunCruz 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
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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. In 1999, while it operated the Miami Beach 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 was a small, but beautifully decorated and fully equipped
vessel. This operation also took a percentage of the Company's business in early
1999 while the Company operated the Miami Beach port.
FT. MYERS, FLORIDA
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. The Big M is located within a few hundred yards of the Europa
Star. The Big M expends significant amounts of money in advertising, marketing
and promotion. The Company does not have sufficient funds to do likewise. 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 in 1998 as a direct result of the introduction of the Big
M in Ft. Myers. The Star was required to be drydocked before January 2000. The
Company closed the Ft. Myers operation in August 1999 inasmuch as the vessel had
to be drydocked and because the Company was experiencing an unacceptably low
hold percentage in its casino.
WEATHER AND SEASONAL FLUCTUATIONS
The business of the Company suffers as a direct result of inclement weather and
tidal conditions. Inclement weather has a direct effect on the number of cruises
conducted and on passenger counts. The business of the Company is also subject
to seasonal fluctuations. In addition to inclement weather, the Company was
plagued in 1999 with tide-related problems in Madeira Beach. The U.S. Army Corps
of Engineers began dredging operations in John's Pass early in 2000, but the
dredging was temporarily discontinued and, as of this date, has not been
resumed. As a direct result of tidal problems, the cruise schedule in Madeira
Beach is unpredictable and a number of cruises must be cancelled due to a lack
of sufficient water in John's Pass. In 1999, weather conditions and tidal
conditions severely affected the Company's operations and revenues.
MARKETING AND PROMOTION
The Company does not have sufficient funds with which to sufficiently advertise,
market and promote its cruises. The Company focuses its marketing efforts on its
repeat customers and the local population so as to survive the seasonal
fluctuations that are known to occur in the Florida tourist industry. The
Company's financial ability to advertise is minimal when compared to the heavy
advertising, marketing and promotion of the Company's competitors.
GAMING EQUIPMENT
Most of the gaming equipment on board the vessels which the Company operated in
1999 were leased from Casinos Austria Leigenshalftwerwaltung-Und Leasing
(hereafter "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 Company defaulted on its
lease payments. CALL agreed to work with the Company until the Company could
afford to reach an amicable resolution of the matter. As of December 31, 1999,
the Company was past due approximately $148,193.
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FEDERAL LEGISLATION
There can be no assurance that legislation will not be passed at the federal
level which could adversely affect the business of the Company or the ability of
the Company to continue operating cruises-to-nowhere.
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. This
Bill, or a similar Bill, should they 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 anti-gaming forces and others continue to lobby for various legislation
designed to ban or prohibit cruises-to-nowhere. There can be no assurance that
attempts to introduce legislation at the federal level to prohibit gambling
cruises will not be successful.
STATE REGULATION - FLORIDA
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. Legislation is repeatedly
introduced in the Florida legislature which is designed to ban all
cruises-to-nowhere originating from the State of Florida. Such proposed
legislation has been defeated in the past. However, there can be no assurance
that any proposed legislation to ban cruises-to-nowhere currently pending in the
Florida legislature or introduced in the future, will also be defeated. In
addition, legislation has been introduced in the past in the Florida legislature
to impose new state taxes on the cruise-to-nowhere industry. The proposed
legislation has been defeated in the past. There can be no assurance that
similar legislation will not be introduced and passed in the future.
The political atmosphere in Florida is antagonistic towards the gaming industry
and cruise-to-nowhere industry. In 1999, the Governor of Florida and his Cabinet
passed an executive order that would prohibit gambling vessels from operating
from certain submerged Florida lands. An administrative law judge ruled that the
Governor and his Cabinet lacked authority to do so. However, the Governor and
Cabinet have appealed the decision.
CERTAIN RECENT FLORIDA LITIGATION RELATING TO THE FLORIDA CRUISE-TO-NOWHERE
INDUSTRY
On or about 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., 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.
On or about February 1, 2000, Robert A. Butterworth, the Attorney General for
the State of Florida, ("Plaintiff") filed another, similar Complaint for
Injunctive Relief against Tropic Casino Cruises, Inc. d/b/a SunCruz Casinos
("Defendant"), in the Circuit Court of the Seventh Judicial Circuit In and For
Volusia County, Florida (Case No. CIV-2000-30251-CI). The Attorney General is
again seeking a temporary and permanent injunction restraining SunCruz from
allegedly "possessing illegal slot machines" "or any other gambling
paraphernalia," and "from maintaining a gambling house" in the State
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of Florida. There can be no assurance that SunCruz will prevail in the case or
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 a Florida
port.
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.
FUTURE PORTS
The Company has no present intent to open any additional ports in Florida or to
expand its' day cruise operations in or 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 Mandalay Resort Group,
formerly known as 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, and a business conference center. Subject to certain
assumptions, the site was appraised as of March 26, 1996, at $8,000,000 by J.
Daniel Schroeder Appraisal Company. The site was again appraised, subject to
certain assumptions, as of August 27, 1999 at $41,700,000 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.
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.
A hearing on the merits of the case is expected to be held on June 22, 2000.
(See Mississippi-Related Litigation.)
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On or about October 1, 1999, Casino World, Inc. requested that the Permit be
extended for a period of one year to August 12, 2000. On or about December 8,
1999, the Mississippi Department of Marine Resources granted the request.
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
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. On March 27, 1998, several groups filed suit against the
U.S. Army Corps of Engineers to declare the approval of the Casino World, Inc.
Permit to be arbitrary, capricious, an abuse of discretion and in violation of
the National Environmental Policy Act and other regulations. Argument in the
case is scheduled for May 19, 2000. (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
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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. The Mississippi statute relating to the
lease of tidelands requires all proceeds of the leases to go to the State of
Mississippi. 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.
On October 15, 1999, 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 October 21, 1999, the Hancock
County Planning Commission passed a resolution extending the Waterfront Special
Use District designation for a period of one year from January 6, 2000 to
January 6, 2001. The resolution was submitted to the Hancock County Board of
Supervisors for ratification and approval. On November 15, 1999, 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
<PAGE> 11
for a specified location that has been approved as a gaming site by the
Mississippi Commission prior to issuing a license. The Mississippi Act also
requires that each officer or director of a gaming licensee, or other person who
exercises a material degree of control over the licensee, must be found suitable
by the Mississippi 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. 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.
ITEM 2. PROPERTIES
OFFICES/PORTS
The Company owns an office condominium which it uses as its headquarters at 150
- - 153rd Ave., Suite 202, in Madeira Beach, Florida. The Company paid
approximately $104,000 for the condominium. The condominium is adjacent to other
office space that was leased by the Company in 1999. The Company substantially
reduced its leased office space in 1999. The Company leased property at the
following locations during the year ended 1999.
<PAGE> 12
FLORIDA:
<TABLE>
<CAPTION>
LOCATION LEASE TERMS
- -------- -----------
<S> <C>
150 - 153rd Ave., Suite 200, Month-to-month lease.
Madeira Beach, Florida 33708
150 - 153rd Ave., Suite 204 Twelve months with automatic renewal for
Madeira Beach, Florida 33708 additional two years.
This lease was terminated.
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.
This lease was renewed.
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. The party which
purchased the Miami operation and the Sun
makes the payments on this lease.
</TABLE>
DOCK SPACE
The Company leased dock space at the following locations in 1999:
<TABLE>
<CAPTION>
LOCATION LEASE TERMS
- -------- -----------
<S> <C>
150 - 129th Ave. Three years commencing October, 1996
Madeira Beach, Florida 33708 with option to renew for two additional
three year periods. The Company exercised its
option to renew this lease.
545 San Carlos Boulevard Five years commencing December 1, 1995
Ft. Myers Beach, Florida 33931 with option to renew for three years.
This lease was renewed.
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. The party which purchased the
Miami operation and the Sun makes the payments
on this lease.
MISSISSIPPI:
5403 Indian Hill Blvd. Two years commencing June 1, 1998
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
<PAGE> 13
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.
MGC entered into an Option Agreement with Purcell Co., Inc. on June 19, 1993,
to purchase approximately 100 acres included within the site, for Ten Dollars.
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.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS.
TAX-RELATED LITIGATION
FLORIDA DEPARTMENT OF REVENUE TAX AUDITS
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, totaled 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.
SETTLED
In January of 1999 through April 1999, the Florida Department of Revenue issued
various Notices 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 included an alleged tax due in the amount
of $1,710,209, penalties in the amount of $855,105 and interest in the amount of
$663,621 for a total of $3,228,935. On April 13, 1999, the Company received
Notices of Assessment relating to the foregoing which included continuing
interest.
Under threat of action by the Department to immediately collect all amounts
owing under the assessment, the Company entered into a settlement of the matter
in June 1999. This settlement calls for Europa to pay $1,600,000 to the
Department in monthly installments of $50,000 until satisfied. In the event that
the Company should sell the Sky or the Star, $800,000 would be immediately due
to the Department. Should the second vessel be sold, the remainder of the
then-unpaid settlement amount would be due from the proceeds of that sale. As of
the filing date of this report, $1,000,000 of the $1,600,000 settlement remains
due to the Department pursuant to this settlement agreement. Deborah A. Vitale,
the President and Chairman of the Board of the Company and James Illius, a
Director of the Company, and now its largest holder of common stock, have each
personally guaranteed payments totalling $250,000 to the Florida Department of
Revenue. Each has provided the Department of Revenue with personal check in the
amount of $125,000 to be held as partial security by the Department. Upon
payment of the $1,600,000, the checks will be returned to Ms. Vitale and Mr.
Illius.
The Company recorded a liability in the fourth quarter of 1998 in the amount of
$1,400,000 for this matter. The remaining $200,000 of the $1,600,000 settlement
was charged to operations in the second quarter of 1999.
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))
<PAGE> 15
On or about November 29, 1994, William Poulos filed a class action lawsuit on
behalf of himself and all others similarly situated against approximately
thirty-three defendants, including Europa Cruises of Florida 1, Inc. and Europa
Cruises of Florida 2, Inc. in the United States District Court, Middle District
of Florida, Orlando Division (Case No. 94-1259-CIV-ORL-22). Europa Cruises of
Florida 1, Inc. and Europa Cruises of Florida 2, Inc. were served with the
Complaint on or about March 15, 1995. The suit was filed against the owners,
operators and distributors of cruise ship casinos which utilized casino video
poker machines and electronic slot machines. The Plaintiff alleges violation of
the Federal Civil RICO statute, common law fraud and deceit, unjust enrichment
and negligent misrepresentation. The plaintiff had filed a similar action
against most major, land-based casino operators in the United States. The
earlier action, which did not name the Company or any of its subsidiaries as
defendants, was transferred from the U.S. District Court in Orlando, Florida to
the U.S. District Court in Las Vegas, Nevada. The plaintiff contends in both
actions that the defendant owners and operators of casinos, including cruise
ship casinos, along with the distributors and manufacturers of video poker
machines and electronic slot machines have engaged in a course of fraudulent and
misleading conduct intended to induce people to play their machines based on a
false understanding that the machines operate in a truly random fashion. The
plaintiff alleges that these machines actually follow fixed, preordained
sequences that are not random, but rather are both predictable and subject to
manipulation by defendants and others. The plaintiff seeks damages in excess of
$1 billion dollars against all defendants. 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.
The Company continues to defend the case.
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
<PAGE> 16
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.
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 Europa Jet 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
Europa Jet 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. The Eleventh Circuit issued a decision
dismissing the appeal for lack of jurisdiction, ruling that the Order of the
District Court was not an appealable Order.
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.
<PAGE> 17
HUBBARD ENTERPRISES, INC. V. EUROPASKY CORPORATION (Circuit Court for Pinellas
County, Florida, Case No. 99-003715)
EUROPA PREVAILS IN LOWER COURT ON MOTION FOR SUMMARY JUDGMENT/HUBBARD APPEAL
PENDING
On or about May 28, 1999, Hubbard Enterprises, Inc., the landlord for the
Madeira Beach operation, filed a Complaint for Declaratory Relief and damages
against EuropaSky Corporation claiming that Europa is required to pay a rental
fee for both paying and non-paying passengers as opposed to only paying
passengers. On or about June 22, 1999, Europa filed an Answer denying the
contention. In addition, Europa filed a Counterclaim for tortious interference
in business relations and/or contractual relations and breach of contract.
Europa alleges, among other things, that Hubbard's interfered with the sale of
the Madeira Beach operation which was then-scheduled to close on May 10, 1999.
Europa is seeking compensatory and punitive damages. On or about January 13,
2000, Europa filed a Motion for Summary Judgment requesting that the Court rule
in favor of Europa with respect to Hubbard's Complaint for Declaratory Relief.
On February 15, 2000, Lester Bullock, the former President of Europa, who had
been removed as President of Europa in February 1998, signed an Affidavit in
support of Hubbard's Opposition to Europa's Motion for Summary Judgment.
Nevertheless, on March 7, 2000, the Court granted Europa's Motion and adopted
the proposed Findings of Fact submitted by Europa. On March 31, 2000, Hubbard
appealed the Court's decision in favor of Europa. Europa intends to aggressively
pursue its claims against Hubbard.
ELLIS V. EUROPASKY CORPORATION AND EUROPA CRUISES CORPORATION (United States
District Court for the Middle District of Florida, Case Number 00-410-CIV-T-17B)
On February 29, 2000, Anne Ellis filed a Complaint in the United States District
Court against EuropaSky Corporation and Europa Cruises Corporation seeking
compensatory and punitive damages, attorneys fees and injunctive relief under
the Florida Civil Rights Act and Title VII of the Civil Rights Act of 1964,
alleging, inter alia, sexual harassment, discrimination and retaliation. Ms.
Ellis was, at the time of the alleged acts, employed by the Company as a dealer,
and was, upon information and belief, the fiance of the adopted son of Lester
Bullock, the former President of Europa, who was terminated by the Company in
March 1998. The Company intends to vigorously defend this action, the ultimate
outcome of which cannot be reasonably estimated. The Company has filed a
countersuit against Ms. Ellis and her then-fiance for damages, attorneys' fees
and costs for recording telephone communications in violation of Florida
Statutes 934.03-934.10.
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
<PAGE> 18
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. On or about October 26, 1998, the case was remanded to the
lower court for a hearing on the merits. A hearing on the merits of the case is
expected to be held on June 22, 2000.
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)).
CASE DISMISSED
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 June 30, 1999, the District Court granted the defendants' motion
to dismiss.
<PAGE> 19
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)
CASE PENDING
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 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. Argument is
scheduled to be heard on May 19, 2000.
LIBERIS-RELATED LITIGATION
The following litigation relates to Charles S. Liberis, the founder of the
Company, and 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 November 10, 1997, the Supreme Court issued an Order affirming the
judgment of the lower court.
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)
<PAGE> 20
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
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
<PAGE> 21
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 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)
<PAGE> 22
CASE PENDING
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 vigorously defend this case.
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 August 27, 1999 at
the Beau Rivage Hotel and Casino in Biloxi, Mississippi. The election of a
Board of Directors was submitted to a vote of the securities holders. The
Company reported that a total of approximately 27,745,200 shares voted. Of
those, 27,386,059, or approximately 98.7 %, voted for the incumbent Board of
Directors, Deborah A. Vitale, James Illius, John R. Duber, Paul J. DeMattia and
Gregory A. Harrison. A total of 359,141 shares, or approximately 1.3 %, 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>
1999 Quarters 1998 Quarters
------------- -------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ .37 $ .26 $ 1.03 $ .66
Second Quarter .75 .31 .94 .63
Third Quarter .74 .42 .81 .44
Fourth Quarter .78 .40 .69 .22
</TABLE>
On December 31, 1999, there were 933 registered holders of record of the Common
Stock of the Company. On April 4, 2000, there were 922 registered holders of
record of the Common Stock of the Company.
The Company has never paid a cash dividend on its Common Stock. The Companys'
ability to pay a cash dividend on its Common Stock is limited due to covenants
contained in its loan documents.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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
<PAGE> 23
simply did not justify the significant 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 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
1999, given the state of the cruise-to-nowhere industry in Florida and the
political climate and competition, management made significant changes in the
core business of the Company. It anticipates doing so as well during the year
2000.
The operations of the Company changed dramatically during 1999. The M/V
Stardancer was chartered as of January 1, 1999 and the M/V Europa Sun was
chartered as of March 1, 1999, and, therefore, have produced only charter
revenue less residual expenses beginning January 1, 1999 and March 1, 1999
respectively through the end of 1999, as compared to the classic revenues and
expenses normally associated with a day cruise vessel. The M/V Europa Star
ceased operations in Ft. Myers Beach on July 25, 1999, due to poor business
conditions and to ready the vessel for drydock which was required to carry
passengers by the end of 1999. Prior to ceasing operations, the M/V Star took on
water while docked the night of April 26th, 1999 and did not operate from April
27th through May 7th, 1999, resulting in a loss of 22 cruises. Finally, in
December 1999, the Company sold both the M/V Europa Sun and M/V Europa
Stardancer for proceeds totaling $6.45 million dollars.
TOTAL REVENUES
The Company reported total revenues of $8,418,388 in 1999 as compared to total
revenues of $16,802,550 in 1998, a decrease of $8,384,162 of which approximately
$3,777,000 is attributable to the chartering of the Sun and approximately
$3,452,000 to the non-operation of the Star. The Sky earned revenue of
$3,297,991 in 1999 as compared to revenue of $5,810,792 in 1998, a decrease of
$2,512,801, attributable to intense competition, adverse weather and tidal
conditions. The Sky carried 60,649 passengers on 646 cruises in 1999 as
compared to 90,082 passengers on 674 cruises in 1998. The average revenue per
passenger decreased as a result of competition.
The Company earned charter revenues totaling $2,312,142 in 1999, as compared to
charter revenues of $406,000 in 1998, an increase of approximately $1,906,142.
CHARTER REVENUE
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 called for an annual charter fee of $1,080,000 in
addition to certain insurance payments. 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 operated out of Myrtle Beach, South Carolina. In December 1999,
the Company sold the vessel to the lessee. Closing occurred on or about December
5, 1999. One or more of the principals of Seven Star Charters, Inc. are
affiliated with Stardancer Casino, Inc., which chartered the Europa Sun. Revenue
associated with this charter amounted to $1,085,000 for 1999.
In February, 1999, the Company entered into an 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 received a nonrefundable deposit in the
amount of $300,000. The Company's landlord objected to an assignment of the
Company's lease. Therefore, the Company entered into an agreement pursuant to
which Stardancer Casino, Inc. operated the port beginning March 1, 1999. One or
more of the principals of Stardancer Casino, Inc. are affiliated with Seven Star
Charters, Inc. which chartered the Europa Stardancer. Revenue associated with
this charter amounted to $1,227,142 for 1999.
<PAGE> 24
STARDANCER SALE
On or about November 2, 1999, the Company entered into an Agreement for Purchase
and Sale of a Vessel (the M/V Europa Stardancer) with Seven Star Charters, Inc.,
the company which previously chartered the Vessel. The Company agreed to sell
the Stardancer, including on board equipment for $1.8 million dollars. The
Closing took place on or about December 5, 1999. The sale resulted in a net
loss, as compared to book value, of the related assets in the amount of
$1,165,187. The Company used the proceeds of the sale to pay $800,000 to First
Union National Bank of Florida and to pay down a significant portion of the
Company's remaining debt.
SUN SALE
On December 30, 1999, the Company sold a vessel (the M/V Europa Sun) and certain
business assets for a total purchase price of $4,650,000. The Company sold the
M/V Europa Sun, certain equipment, and any transferable lease rights it had to
its Miami Beach, Florida port to Stardancer Casino, Inc. The purchase price
included the payment by the Purchaser over time of approximately $1,786,057 to
Debis Financial Services, Inc., which holds a first mortgage on the Europa Sun.
The payment to Debis was secured with a Letter of Credit. The remaining
$2,863,943 was paid in three installments of approximately $950,000 each during
the first quarter of 2000. The Company holds title to the Vessel as security
until the full amount due Debis has been paid. The Company used the proceeds of
the sale to pay down a significant portion of the Company's debt. As of the
filing date of this report, all cash payments due the Company under the terms of
this sale have been received and all amounts due Debis to date have been paid.
The sale resulted in a net gain, as compared to book value, of the related
assets in the amount of $2,792,097.
COSTS AND EXPENSES
VESSEL OPERATING EXPENSES
Vessel operating costs and expenses decreased from $11,999,487 in 1998 to
$5,950,010 in 1999, a decrease of $6,049,477 or 50.4%. Of that decrease,
$2,999,000 was associated with the difference in operating costs of the Europa
Sun and $1,348,000 with the non-operation of the Star. The remaining decrease is
the result of managements' continuing attempt to reduce costs to keep pace with
the decrease in revenue due to competition. Should revenue continue to decrease,
management cannot offer any assurances that significant cost decreases can
continue.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING EXPENSES
Administrative and general costs and expenses decreased from $2,510,943 in 1998
to $1,518,602 in 1999, a decrease of $992,341, or 39.5%. Of that decrease,
$147,200 was attributable to the chartering of the Europa Sun. The remaining
decrease of $845,141, was realized principally through elimination of
administrative positions and other salary reductions.
Other operating expenses increased from $307,716 in 1998 to $390,567 in 1999.
The increase is associated with IRS penalties assessed on late payment of excise
taxes.
ADVERTISING AND PROMOTION
Advertising and promotion decreased from $634,032 in 1998 to $122,336 in 1999, a
decrease of $511,696 or 80.7%. The decrease was necessitated to offset loss of
revenues resulting from new competition and to provide additional cash necessary
to meet the payments required by the latest agreement with the Florida
Department of Revenue referred to below.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased from $2,035,936 in 1998 to $1,937,290 in
1999, a decrease of $98,646 or 4.8%.
NOTICE OF INTENT TO MAKE AUDIT CHANGES/NOTICE OF PROPOSED ASSESSMENT
See Item 3. Legal Proceedings: Tax-Related Litigation-Florida Department of
Revenue Tax Audits.
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
In 1999, the Company was unable to meet its normal operating costs and expenses
from operating cash flow. Cash flow from operations for 1999 was a negative
$857,740 and, at December 31, 1999, the Company had an excess of current
liabilities over current assets of $1,689,216. During 1999, additional capital
was injected into the Company through the sale of common stock and the sale of
assets. Additionally, the Company restructured its borrowing terms in an effort
to improve cash flow.
In an effort to raise working capital, the Company offered restricted common
shares to accredited investors beginning in July 1999, and continuing through
December of 1999. The Company received $725,813 for the sale of 1,612,917
shares. In addition, a shareholder advance in the amount of $300,000 was
satisfied through the issuance of 1,000,000 shares of common stock in July 1999,
and a refundable deposit from International Hospitality Inc., in the amount of
$300,000 was satisfied through issuance of 750,000 shares of common stock. The
sale of two vessels during 1999 generated cash in the amount of $1,741,500 and a
note and account receivable in the amount of approximately $4,650,000 of which
$2,863,943 has been collected in 2000.
The Company believes that it will be able to meet its normal operating costs and
expenses from its year 2000 cash flow from operations. The Company, however, may
be unable to meet any unusual or unanticipated cash requirements except through
the sale of stock, assets, or borrowing.
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 Europa Sun 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
<PAGE> 26
200,000 shares of common stock at a price of $2.00 per share. First Union
National Bank of Florida had piggyback registration rights for one year and one
demand registration right after one year.
On or about September, 1999, in an effort to maintain adequate cash for
operations, the Company agreed to certain new repayment terms with First Union
National Bank which, at the time, held a note with an outstanding balance of
$3,400,364. The former terms called for monthly installments of principal and
interest at a rate of 11.35%, or approximately $103,000 and was primarily
secured by first mortgages on the Europa Sky, Europa Star, and Europa
Stardancer. Under the new terms, the Company pays interest only on the
outstanding balance, at a rate of 10.75%, through March 2000. The new agreement
required the Company to pay unwind and restructuring fees of $183,900. The cash
flow and tangible net worth covenants required under the original terms of its
bank loan agreement continue. As of the date of this report, First Union has
agreed to a 90 day extension of the note to June 30, 2000. The Company has
reduced the balance currently owed First Union to $2,500,364 with proceeds
derived from the sale of the Sun and Stardancer.
As of December 31, 1999, the Company was not in compliance with the cash flow
and tangible net worth covenants required under the continuing terms of its bank
loan agreement, for which a waiver has been obtained through June 30, 2000. 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 could have a material adverse effect on the
Company's financial position and operations.
CAPITAL EXPENDITURE REQUIREMENT
The Europa Star is required to go to drydock at an estimated cost of
approximately $400,000. The Company has not scheduled the vessel for drydock
and is considering its alternatives, including sale. In addition, the Europa
Sky is scheduled for drydock in June 2000 at an estimated cost of $75,000. No
additional major capital expenditures are planned for now or the forseeable
future.
FORWARD LOOKING STATEMENTS
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, 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
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 SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires companies to recognize all derivative 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 as amended by SFAS 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, except for certain bank loan agreements the Company has not
entered into derivative contracts either to hedge existing risks or for
speculative purposes. Accordingly, the Company does not expect adoption of the
new standard on January 1, 2001 to affect its consolidated financial statements.
<PAGE> 27
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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTRACT PERSONS.
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.
A. 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 44 Director, Vice-President, Assistant Secretary and
Director of Investor Relations
Paul J. DeMattia 40 Director
Gregory A. Harrison 55 Director
James Illius 49 Director
Robert Zimmerman 50 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, each a
subsidiary of the Company. 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
<PAGE> 28
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 Quality Carrier Service Award 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.
JAMES ILLIUS was named a Director of the Company on May 20, 1999. Mr. Illius has
been a shareholder of the Company since June of 1994 and is the largest holder
of common stock of the Company. Mr. Illius is the founder and President of
Builders Loft, Inc., a wholesale building supplier. The Company, which employs
eleven persons, has sales of approximately five million dollars annually. Mr.
Illius has been involved in the building and construction area for approximately
thirty years. Mr. Illius is an active stock market investor and manages his
Company's pension fund. Mr. Illius invests in and develops real estate. Mr.
Illius is a lifelong resident of the Cleveland, Ohio area.
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
International, 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.
B. CHANGES IN MANAGEMENT AND THE BOARD OF DIRECTORS
James Illius, the largest holder of common stock of the Company, was named a
Director of the Company on May 20, 1999. Otherwise, there were no material
changes in management during the year ended 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 not timely filed by reporting
persons during 1999, but all purchases and sales of stock have been disclosed by
the Company.
ITEM 10. EXECUTIVE COMPENSATION
The following table provides information concerning the compensation of current
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, 1999, received cash compensation in excess of
$100,000 during any of the last three fiscal years.
<PAGE> 29
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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 1999 $125,000 NONE NONE NONE NONE NONE NONE
President as of February 20, 1998 1998(1) $125,000 None None None 750,000(2) None None
1997(1) $ 84,135 $50,000 None None None None None
</TABLE>
(1) Ms. Vitale did not receive any salary or bonus for 1997 until 1998.
(2) 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.
OPTION GRANTS IN LAST FISCAL YEAR
During the year ended December 31, 1999, no options were awarded to Directors
and Officers of the Company who were also Directors of the Company.
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table shows stock options exercised by the named executive officer
during the fiscal year ended December 31, 1999. In addition, this table includes
the number of shares covered by both exercisable and non-exercisable stock
options as of December 31, 1999. None of the following options are "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986.
<PAGE> 30
<TABLE>
<CAPTION>
Number of Securities
Shares Value Value of Unexercised Underlying Unexercised
Acquired Realized Options at Year-End At Year-End(2)
On Exercise(1) Exercisable Unexercisable Exercisable Unexercisable
-------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Deborah A. Vitale None None 1,550,000 None $0
</TABLE>
(1) The "Value realized" reflects the appreciation on the date of exercise
(based on the excess of the fair market value of the shares on the date
of exercise over the exercise price). However, because the officer may
keep the shares acquired upon the exercise of options or sell them at a
different price, this amount does not necessarily reflect cash realized
upon the sale of those shares.
(2) "In-the-Money Options" are options outstanding at the end of the last
fiscal year for which the fair market value of the Common Stock at the
end of the last fiscal year ($.36 per share) 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. The current Board of Directors are not
paid for their services as a Director. 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.
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).
<PAGE> 31
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AS OF
APRIL 4, 2000
The only persons who owned of record or were known by the Company to own
beneficially on April 4, 2000, more than 5% of any class of the outstanding
voting shares of the Company and 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, were as follows:
<TABLE>
<CAPTION>
AMOUNT &
NATURE OF
NAME AND ADDRESS BENEFICIAL TITLE OF PERCENT PERCENT
OF BENEFICIAL OWNER OWNERSHIP CLASS OF CLASS VOTING(1)
- ------------------- --------- ----- -------- ---------
<S> <C> <C> <C> <C>
Europa Cruises Corporation(2) 3,750,000 Common 10.53% 10.02%
Employee Stock Ownership Plan
Trust Agreement
150 153rd Avenue East
Madeira Beach, Florida 33708
Deborah A. Vitale (2)(3)(4) 5,328,500 Common 14.97% 14.24%
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 (2)(3)(5) 3,987,560 Common 11.20% 10.65%
Director, Vice-President
and Assistant Secretary
20018 Westover Avenue
Rocky River, Ohio 44116
James Illius 2,472,051 Common 6.94% 6.60%
Director
3791 Francis Drive
Rocky River, Ohio 44116
Gregory Harrison(6) 780,000 Common 2.19% 2.08%
Director
16209 Kimberly Grove
Gaithersburg, Md 20878
Paul DeMattia(6) 139,000 Common .39% .37%
Director
6366 Eastland Rd
Brookpark, Ohio 44142
Serco International Limited (7) 1,330,334 Common 3.74% 8.43%
P.O. Box 15, A-9010 900,000 S-NR Preferred 100.00%
Klagenfurt, Austria 926,000 S Preferred 100.00%
Austroinvest International Limited(7) 1,330,334 Common 3.74% 8.43%
P.O. Box 15, A-9010 900,000 S-NR Preferred 100.00%
Klagenfurt, Austria 926,000 S Preferred 100.00%
Gaming Invest Corporation (7) 1,330,334 Common 3.74% 8.43%
P.O. Box 15, A-9010 900,000 S-NR Preferred 100.00%
Klagenfurt, Austria 926,000 S Preferred 100.00%
Ernst G. Walter(7) 1,330,334 Common 3.74% 8.43%
14700 Gulf Blvd., Apt.401 900,000 S-NR Preferred 100.00%
Madeira Beach, Florida 33708 926,000 S Preferred 100.00%
All Directors and Officers
as a Group (6 persons): 9,003,611 Common 25.29% 24.06%
</TABLE>
<PAGE> 32
- ----------------------
(1) Common Stock and S-NR Preferred and S Preferred shares have been
combined for the purpose of calculating voting percentages.
(2) 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, 1999, 1,250,000 ESOP shares had been released and 1,000,000 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.
(3) Includes 3,750,000 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 1,550,000 shares of Common Stock.
(5) Includes options to purchase 100,000 shares of Common Stock.
(6) Includes option to purchase 50,000 shares of Common Stock.
(7) 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 980,334 shares of Common Stock owned by Serco
International Limited; 926,000 shares of S Preferred Stock owned by
Austroinvest International Limited; 150,000 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.
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, 1999, 1,000,000 shares of Common Stock had
been allocated to participants in the ESOP.
<PAGE> 33
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 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.
OPTION AGREEMENT-INTERNATIONAL HOSPITALITY, INC.
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.
OPTION AGREEMENT-JAMES ILLIUS
On November 12, 1998, James Illius, a large shareholder of the Company, loaned
the Company $150,000. On December 4, 1998, Mr. Illius loaned the Company another
$150,000. The funds were used to pay the costs of drydock for the M/V Europa
Sun. There was no interest attached to these loans. Mr. Illius had the right to
the return of the funds forwarded or an option to purchase 1,000,000 shares of
common stock of the Company. In or about July 1999, Mr. Illius exercised his
right to purchase 1,000,000 shares of common stock of the Company.
BOARD MEETINGS
The Board held 13 meetings during 1999 and sixteen meetings during 1998. 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 a
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
(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.
<PAGE> 34
(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.
(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.
<PAGE> 35
(c) 10(g) Lease Agreement, dated June 30, 1991, between Palm
Grove Marina, Inc., and Europa Cruises of Florida 1,
Inc.
(c) 10(h) Memorandum of Agreement for lease, dated March 29,
1992, between Durwood Dunn and Mississippi Gaming
Corporation.
(c) 10(i) Lease Agreement, dated January 29, 1992, between
Claiborne County, Mississippi Port Commission and
Mississippi Gaming Corporation.
(c) 10(j) Contract of Sale, dated February 21, 1992, between
Ferry Binghamton, Inc., and Mississippi Gaming
Corporation.
(b) 10(k) Lease Agreement, dated November 30, 1990, between
Europa Cruises of Florida 2, Inc., and Hubbard
Enterprises, Inc.
(b) 10(l) Reciprocal Relationship Agreement, dated December 28,
1990, amongst Europa Cruises of Florida 1, Inc.,
Europa Cruises of Florida 2, Inc., the Company and
Cordis, A.G.
(b) 10(m) Promissory Note, dated December 31, 1990, and
Addendum thereto, dated May 2, 1991, from the
Company to Charles S. Liberis, P.A., Profit Sharing
Plan.
(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.
<PAGE> 36
(b) 10(w) Coordination Agreement, dated February 20, 1991,
between Midlantic and Cordis, A.G.
(b) 10(aa) Assignment of Note Receivable, Account Receivable and
Common Stock from Harlan G. Allen, Jr. to the
Company.
(b) 10(bb) Stock Purchase Agreement, dated March 31, 1991,
between the Company and Freeport Cruise Line, Ltd.
(b) 10(cc) Pledge Agreement and Addendum thereto, dated April
18, 1991, between the Company and Harlan G. Allen,
Jr.
(b) 10(dd) Franchise and Development Agreements between
LoneStar Hospitality Corporation and Miami Subs
U.S.A., Inc., dated July 1, 1992.
(d) 10(ee) Vessel Purchase Agreement dated July 8, 1992 between
the Company and FLC, Re: Purchase of the EuropaSky.
(d) 10(ff) Contract of Sale dated July 21, 1992, between the
Company and Ferry Binghamton, Inc. Re: the Purchase
of Miss New York.
(d) 10(gg) Agreement to Lease and Option to Purchase dated July
7, 1992, between the Company and A&M Developers, Inc.
Re: Bossier City 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.
<PAGE> 37
(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.
(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.
<PAGE> 38
10.2.5 Agreement between the Company and McDonald & Company
Securities, Inc. dated April 2, 1998.
27.1 Financial Data Scedule (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.
(d) Previously filed as an exhibit to the Company's Form S-2
Registration Statement dated August 26, 1992 and incorporated by
reference.
(e) Previously filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1992 and
incorporated by reference.
(f) Previously filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the years ended December 31, 1993 and 1994 and
incorporated by reference.
(g) Previously filed as an exhibit to the Company's S-2 Registration
Statement (No. 33-89014) filed January 31, 1995 and incorporated
by reference.
Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of the
period covered by this report.
Subsidiaries of the Registrant
Europa Cruise Line, Ltd. (Delaware)
Europa Cruises of Florida 1, Inc. (Delaware)
Europa Cruises of Florida 2, Inc. (Delaware)
EuropaJet Corporation (Delaware)
Europa Cruise Lines, Ltd. (Cayman Island)
Mississippi Gaming Corporation (Delaware)
EuropaSky Corporation (Delaware)
American Gaming Corporation (Delaware)
Casino World, Inc. (Delaware)
Europa Stardancer Corporation (Delaware)
Europa Casino Management Corporation (Delaware)
Europa Leasing Corporation (Delaware)
<PAGE> 39
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 14, 2000
/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 14, 2000
- ------------------------------------------
President and Chairman of the Board
/s/John R. Duber April 14, 2000
- ------------------------------------------
Vice President, Director
/s/Paul J. DeMattia April 14, 2000
- ------------------------------------------
Director
/s/Gregory A. Harrison April 14, 2000
- ------------------------------------------
Director
/s/James Illius April 14, 2000
- ------------------------------------------
Director
</TABLE>
<PAGE> 40
EUROPA CRUISES CORPORATION
AND SUBSIARIES
CONTENTS
PAGE
----
Report of Independent Certified Public Accountants ...... F-2
Consolidated Balance Sheet as of December 31, 1999 ...... F-3
Consolidated Statements of Operations
for the Years Ended December 31, 1999 and 1998 ...... F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1999 and 1998 ...... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 .......................... F-7
Notes to Consolidated Financial Statements .............. F-8 to F-32
F-1
<PAGE> 41
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, 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1999. 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, 1999, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Miami, Florida BDO Seidman, LLP
March 31, 2000
F-2
<PAGE> 42
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
ASSETS (NOTE 6)
CURRENT
Cash and cash equivalents $ 418,045
Accounts receivable (Note 5) 3,062,484
Current maturity of note receivable (Note 5) 187,174
Prepaid insurance and other 158,395
-----------
Total current assets 3,826,098
VESSELS, EQUIPMENT AND FIXTURES, LESS ACCUMULATED DEPRECIATION
(Notes 2 and 6) 6,298,824
LAND UNDER DEVELOPMENT FOR DOCKSIDE GAMING (Note 4) 4,868,139
LONG-TERM NOTE RECEIVABLE (Note 5) 1,598,884
DOCKSIDE GAMING DEVELOPMENT COSTS (Note 4) 195,506
DEFERRED DRYDOCK COSTS, NET OF AMORTIZATION (Note 2) 11,169
OTHER ASSETS 40,000
-----------
$16,838,620
===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE> 43
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1999
- -------------------------------------------------------------------------------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (NOTE 6)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,345,502
Current maturities of long-term debt (Note 6) 3,953,512
Due to stockholders (Note 7) 216,300
------------
Total current liabilities 5,515,314
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 6) 3,237,967
OTHER LIABILITIES (Note 11(a)) 544,283
------------
Total liabilities 9,297,564
------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 11)
STOCKHOLDERS' EQUITY (Notes 8 and 9)
Preferred stock, $.01 par value; shares authorized 5,000,000;
outstanding 2,532,000 ($3,411,080 aggregate liquidation preference) 25,320
Common stock, $.001 par value - shares authorized
50,000,000; issued 33,017,866; outstanding 28,017,866 33,018
Additional paid-in capital 26,681,051
Unearned ESOP shares (5,586,564)
Deficit (13,421,613)
Treasury stock, at cost, 1,250,000 shares (190,156)
------------
Total stockholders' equity 7,541,056
------------
$ 16,838,620
============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE> 44
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Gaming revenue $ 4,604,291 $ 13,092,182
Charter fees 2,312,142 406,000
Passenger fares 1,038,086 2,260,960
Food and beverage 365,891 865,356
Other 97,978 178,052
------------ ------------
8,418,388 16,802,550
------------ ------------
COSTS AND EXPENSES
Vessel operating 5,950,010 11,999,487
Administrative and general 1,518,602 2,510,943
Advertising and promotion 122,336 634,032
Depreciation and amortization (Note 2) 1,937,290 2,035,936
Provision for sales taxes (Note 11) 200,000 1,400,000
Interest, net (Note 6) 826,002 878,107
Other operating (Note 13) 390,567 307,716
------------ ------------
10,944,807 19,766,221
------------ ------------
Net gain on sale of vessels (Note 5) 1,626,910 --
------------ ------------
NET LOSS (899,509) (2,963,671)
PREFERRED STOCK DIVIDENDS (172,960) (195,623)
------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $ (1,072,469) $ (3,159,294)
============ ============
PER SHARE AMOUNTS
Net loss per common share, basic and diluted $ (.04) $ (.14)
============ ============
Weighted average number of common shares outstanding 25,487,502 23,320,053
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE> 45
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NOTES 8 AND 9)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN UNEARNED
STOCK STOCK CAPITAL ESOP SHARES
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
ESOP compensation -- -- (245,625) 375,000
Preferred stock dividends -- 281 116,462 --
Conversion of preferred to common (1,600) 160 1,440 --
Issuance of common stock for cash -- 1,613 724,200 --
Issuance of common stock for services -- 339 132,645 --
Conversion of debt to common stock -- 1,750 598,250 --
Net loss for the year -- -- -- --
---------- ------- ---------- -----------
Balance, December 31, 1999 $ 25,320 $ 33,018 $ 26,681,051 $ (5,586,564)
========== ======= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
TREASURY
(DEFICIT) STOCK TOTAL
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
ESOP compensation -- -- 129,375
Preferred stock dividends (172,960) -- (56,217)
Conversion of preferred to common -- -- --
Issuance of common stock for cash -- -- 725,813
Issuance of common stock for services -- -- 132,984
Conversion of debt to common stock -- -- 600,000
Net loss for the year (899,509) -- (899,509)
------------- ------------- ------------
Balance, December 31, 1999 $(13,421,613) $ (190,156) 7,541,056
============= ============= ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE> 46
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 12)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (899,509) $(2,963,671)
---------- ----------
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Provision for sales taxes 200,000 1,400,000
Depreciation and amortization 1,937,290 2,035,936
ESOP provision 129,375 155,897
Net gain on sale of vessels (1,626,910) --
Commission accrued on sale of vessel (139,500) --
Consulting services paid with common stock 132,984 --
(Increase) decrease in:
Accounts receivable (11,404) 139,391
Prepaid insurance and other 154,876 43,404
(Decrease) increase in:
Accounts payable and accrued expenses (847,630) 1,059,212
Unearned cruise revenues (31,595) (14,482)
Other liabilities 144,283 --
---------- ----------
Total adjustments 41,769 4,819,358
---------- ----------
Cash (used in) provided by operating activities (857,740) 1,855,687
---------- ----------
INVESTING ACTIVITIES
Proceeds from sale of vessels 1,741,500 --
Purchase of property and equipment (93,136) (142,730)
Increase in deferred drydock costs -- (546,190)
Land under development and dockside gaming costs -- (10,632)
---------- ----------
Cash provided by (used in) investing activities 1,648,364 (699,552)
---------- ----------
FINANCING ACTIVITIES
Repayment of long-term debt (1,668,101) (1,231,518)
Preferred stock dividends (56,217) (52,978)
Advances from stockholders -- 516,300
Proceeds from issuance of common stock for cash 725,813 --
---------- ----------
Cash (used in) financing activities (998,505) (768,196)
---------- ----------
Net increase (decrease) in cash and cash equivalents (207,881) 387,939
Cash and cash equivalents, beginning of year 625,926 237,987
---------- ----------
Cash and cash equivalents, end of year $ 418,045 $ 625,926
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE> 47
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 cruise vessels offering day and
evening cruises in the State of Florida. The
Company's cruises include a variety of
shipboard activities such as dining, casino
operations, sightseeing, live music and other
entertainment.
In December 1999, the Company sold two of its
four cruise vessels. The Company may operate
the remaining vessels or alternatively may
seek to charter or sell one or more of them.
The Company's land and dockside gaming
development costs are held for planned future
operations.
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.
F-8
<PAGE> 48
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CASH EQUIVALENTS
The Company considers all liquid debt
instruments with original maturities of three
months or less to be cash equivalents.
VESSELS, EQUIPMENT AND FIXTURES
Vessels are depreciated over 20 years using
the straight-line method. Vessel
improvements, furniture, fixtures and
equipment are recorded at cost and are
depreciated over their estimated useful lives
(which range from two to twenty years) using
the straight-line method. Expenditures for
repairs and maintenance are expensed as
incurred. Renovations and improvements which
extend estimated useful lives are capitalized
and depreciated over the period of their
estimated useful life.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES
Casino revenue is the net win from gaming
activities, which is the difference between
gaming wins and losses. Revenue does not
include the retail amount of fares, food, and
beverage provided gratuitously to customers,
which was $1,382,761 in 1999 and $3,652,100
in 1998.
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, 1999 was at cost. Costs
directly related to site development such as
licensing and permits, engineering and other
costs are capitalized to the land.
F-9
<PAGE> 49
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DOCKSIDE GAMING DEVELOPMENT COSTS
Preopening expenses, which consist
principally of payroll and marketing costs
are expensed as incurred. Expenditures which
result in acquisition of assets which benefit
future periods are deferred and amortized
over the period of expected future benefit.
EMPLOYEE STOCK OWNERSHIP PLAN
In August 1994, the Company established a
leveraged Employee Stock Ownership Plan
(ESOP). Compensation expense is measured at
the fair market value of shares
committed-to-be-released. Shares are
committed-to-be-released ratably over the
period of employees service. Dividends, if
any; (1) on un-allocated shares used to pay
debt service are reported as a reduction of
the indebtedness to the Company; (2) on
un-allocated shares paid to participants are
reported as compensation cost and; (3) on
allocated shares are charged to retained
earnings. The Company has not paid any
dividends.
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.
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
F-10
<PAGE> 50
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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
net drydock.
SEGMENT INFORMATION
Operating segments are 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.
F-11
<PAGE> 51
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company currently operates solely in one
line of business, short-term cruises.
Included in total assets, is $5,063,645 (30%
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 as amended by SFAS 137,
is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.
Historically, except for certain bank loan
agreements, the Company has not entered into
derivative contracts either to hedge existing
risks or for speculative purposes.
Accordingly, the Company does not expect
adoption of the new standard on January 1,
2001 to affect its consolidated financial
statements.
F-12
<PAGE> 52
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. VESSELS, EQUIPMENT AND Vessels, equipment and fixtures consist
FIXTURES, AND DEFERRED of the following:
DRYDOCK COSTS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------------------------
<S> <C>
Vessels $ 7,960,213
Vessel improvements 696,282
Gaming equipment 1,394,771
Office and vessel equipment 661,280
Furniture, fixtures and other 226,146
Leasehold improvements 505,905
--------------------------------------------------------------------------------
11,444,597
Less accumulated depreciation (5,145,773)
--------------------------------------------------------------------------------
$ 6,298,824
--------------------------------------------------------------------------------
Deferred drydock costs consist of the following:
--------------------------------------------------------------------------------
Deferred drydock costs $ 111,191
Less accumulated amortization (100,022)
--------------------------------------------------------------------------------
$ 11,169
================================================================================
</TABLE>
3. INVESTMENT IN AND On December 31, 1990, the Company rescinded a
ADVANCES TO transaction in which it had previously sold
AFFILIATE its twenty percent ownership interest in 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.
F-13
<PAGE> 53
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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
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 DEVELOPMENT The Company through its two wholly-owned
FOR DOCKSIDE GAMING subsidiaries, Casino World, Inc. (CWI)
AND DOCKSIDE GAMING and Mississippi Gaming Corporation (MGC)
DEVELOPMENT/COSTS owns or has options to purchase a total of
404.5 acres of unimproved land in
Diamondhead, Mississippi 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
incorporated the Memorandum of Understanding
between the Mississippi Secretary of State
and the Hancock County Port and Harbor
Commission dated November 19, 1995, which
transferred management and control of the
subject tidelands to the Port and Harbor
Commission and required 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.
F-14
<PAGE> 54
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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,
1999, 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.
Dockside gaming development costs consist of
the following:
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------------------------------------
<S> <C>
Licenses $ 77,000
Engineering and costs associated with permitting 118,506
--------------------------------------------------------------------------------
$ 195,506
================================================================================
</TABLE>
F-15
<PAGE> 55
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. NOTE RECEIVABLE AND SALE In December 1999, the Company sold two of its
OF VESSELS four cruise vessels for aggregate
consideration of $6,450,000 consisting of
cash of $1,800,000, accounts receivable of
$2,863,943 (collected in 2000) and an
approximate $1,800,000 note receivable
evidencing agreement by the buyer to pay,
secured by an irrevocable letter of credit,
the Company's $1,800,000 finance company term
loan (Note 6). Commissions of $198,000 were
incurred by the Company in connection with
sale of the vessels.
The Company realized a net gain of $1,626,910
from the sale of the vessels.
6. LONG-TERM DEBT At December 31, 1999, long-term debt
consists of:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------------
<S> <C>
Bank term loan, interest payable monthly through June
2000, at 10.75%, collateralized by accounts receivable,
two vessels, equipment and fixtures. (a) $ 2,600,364
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, such payments assumed by the buyer of a
vessel. (Note 5). 1,800,662
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. 1,147,879
</TABLE>
F-16
<PAGE> 56
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
State of Florida Sales Tax Closing Agreement, payable
$50,000 monthly through January 2002, with an earlier
$800,000 balloon payment upon future sale of a vessel,
$250,000 guaranteed by two members of the Company's
Board of Directors. 1,250,000
Capital lease obligation on gaming equipment, payable
$25,000 monthly to April 2000, including interest at 9%
($148,193 past due). 248,193
9% note payable, principal and interest payable
$4,827 monthly with a final balloon payment due
November 2000, collateralized by 400,000 escrowed
shares of the Company's common stock. 144,381
--------------------------------------------------------------------------------
Total 7,191,479
Less current maturities (3,953,512)
--------------------------------------------------------------------------------
$ 3,237,967
================================================================================
</TABLE>
a) As of December 31, 1999, the Company was
not in compliance with the cash flow and
tangible net worth covenants required
under the terms of its bank loan
agreement, for which a waiver has been
obtained through June 30, 2000. The loan
matures June 30, 2000.
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.
F-17
<PAGE> 57
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company's cash flow during 1999 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 2000,
except through the sale of stock or
borrowing.
At December 31, 1999, annual maturities of
long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
--------------------------------------------------------------------------------
<S> <C>
2000 $ 3,953,512
2001 2,403,971
2002 259,246
2003 229,858
2004 344,892
Thereafter --
--------------------------------------------------------------------------------
$ 7,191,479
================================================================================
</TABLE>
Interest expense consists of:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Interest expense and fees $ 828,792 $ 897,145
Less interest income (2,790) (19,038)
--------------------------------------------------------------------------------
Interest expense (net) $ 826,002 $ 878,107
================================================================================
</TABLE>
7. RELATED PARTY As of December 31, 1999, the Company is
TRANSACTIONS indebted in the amount of $216,300 on a
non-interest bearing unsecured demand loan
from an officer.
F-18
<PAGE> 58
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. STOCKHOLDERS' At December 31, 1999, 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, 1999,
approximately 865,000 shares remain available
under the Plan and 310,000 options are
outstanding.
In July 1999, the Company granted five year
fixed non-plan stock options at an exercise
price of $1.00 that expire in July 2004. The
options were granted as follows:
Immediately exercisable options to
acquire 25,000 shares of common stock to
a Director of Casino World, Inc. and
Mississippi Gaming Corporation.
Immediately exercisable options to
acquire 50,000 shares of common stock to
the Chief Financial Officer.
In March 1998, the Company granted five year
fixed non-plan stock options at an exercise
price of $1.00 that expire in March 2003. The
options were granted as follows:
F-19
<PAGE> 59
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
During 1998, the Company reacquired
options to acquire 500,000 shares of
common stock from the former President of
the Company for $75,000.
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 1999 and 1998: expected life of
5 years, no dividend yield percent,
expected volatility of 45.80% and 46.10%
in 1999 and 1998 and risk-free interest
rate of 5.73% and 5.47% in 1999 and 1998,
respectively.
Under the accounting provisions of FASB
Statement 123, the Company's net loss and net
loss per share would have been as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------
<S> <C> <C>
Net loss
Applicable to As Reported $ (1,072,469) $ (3,159,294)
Common Stock Proforma (1,085,969) (3,354,294)
Earning per As Reported $ (.04) $ (.14)
common share Proforma $ (.04) $ (.14)
</TABLE>
F-20
<PAGE> 60
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 the December
31, 1999 and 1998, and changes during the
years ended on those dates is presented
below:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year 2,910,000 $ .97 3,100,000 $ .95
Granted 75,000 1.00 960,000 1.00
Exercised -- -- -- --
Forfeited (400,000) (1.69) (1,150,000) (1.06)
---------------------------------------------------------------------------------------
Outstanding at end of year 2,585,000 $ .85 2,910,000 $ .97
---------------------------------------------------------------------------------------
Options exercisable at
year-end 2,585,000 -- 2,910,000 --
Weighted-average fair value
of options granted during the
year -- $ .18 -- $ .33
=======================================================================================
</TABLE>
The following table summarizes information
about stock options outstanding at December
31, 1999:
<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 12/31/99 LIFE PRICE 12/31/99 PRICE
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.75 - $1.00 2,585,000 2.2 $ .85 2,585,000 $ .85
=====================================================================================
</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-21
<PAGE> 61
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 1999 and
1998, 160,000 and 116,000 of these shares
were converted to 160,000 and 116,000 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.
During 1999, the Company paid $116,743 of the
total preferred dividend of $172,960 with
281,245 shares of its common stock. During
1998, the Company paid $142,645 of the total
preferred dividend of $195,623 with 220,471
shares of its common stock.
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.
F-22
<PAGE> 62
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
During 1999, the Company issued 1,612,917
shares of Common Stock in exchange for cash
of approximately $725,813, 1,750,000 shares
of common stock as repayment for $600,000 of
debt and 338,695 shares of common stock in
exchange for approximately $132,984 in
services.
9. EMPLOYEE STOCK OWNERSHIP On August 18, 1994, the Company established
PLAN the Europa Cruises Corporation 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.
F-23
<PAGE> 63
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, 1999, 1,250,000 shares have
been legally released of which, 1,000,000
have been allocated to participants accounts.
The remaining 250,000 are in the process of
being allocated to participants' accounts in
2000. At December 31, 1999, 3,750,000 shares
with a fair market value of $1,950,000 are
unearned.
10. INCOME TAXES At December 31, 1999, the Company had net
operating loss carry-forwards for income
taxes of approximately $17.8 million which
expire through 2019. 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, 1999:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------------
<S> <C>
Depreciation $ 3,150,000
--------------------------------------------------------------------------------
Gross deferred tax liability 3,150,000
--------------------------------------------------------------------------------
Deferred Dry Docks 108,000
--------------------------------------------------------------------------------
Loss carry forwards 5,380,000
--------------------------------------------------------------------------------
Other 146,000
--------------------------------------------------------------------------------
Gross deferred tax asset 5,634,000
--------------------------------------------------------------------------------
Deferred tax asset valuation allowance 2,484,000
--------------------------------------------------------------------------------
Net deferred tax asset $ --
================================================================================
</TABLE>
F-24
<PAGE> 64
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Realization of any portion of the Company's
deferred tax asset at December 31, 1999 is
not considered to be more likely than not
and, accordingly, a $2,484,000 valuation
allowance has been provided.
11. COMMITMENTS (A) LEASES
AND
CONTINGENCIES The Company leases certain port facilities,
sales and office space and office equipment
under lease agreements which expire through
2003. 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
$484,000 and $697,000 in 1999 and 1998,
respectively.
Minimum rental obligations under all
noncancellable operating leases with terms of
one year or more as of December 31, 1999, are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
--------------------------------------------------------------------------------
<S> <C>
2000 $ 629,000
2001 629,000
2002 372,000
2003 212,000
--------------------------------------------------------------------------------
$ 1,842,000
================================================================================
</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
F-25
<PAGE> 65
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
lease settlement with Marne, whereby, the
lease was terminated as of December 31, 1993
in exchange for payment of outstanding lease
charges of $888,000, paid as of December 31,
1995.
The Company's liability, for alleged damages
arising out of the condition of the EuropaJet
upon its redelivery is in dispute. The lessor
claims the liability for damages to the
EuropaJet under the charterparty agreement is
in excess of $1 million. The Company and the
lessor were unable to settle this dispute
with respect to the condition of the
EuropaJet when it was redelivered, and the
amount of the Company's remaining obligation
will be determined in arbitration, subject to
pending settlement negotiations. During 1995,
the EuropaJet sank off the coast of Florida
in a hurricane. The Company has previously
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 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).
F-26
<PAGE> 66
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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.
HUBBARD ENTERPRISES, INC. V. EUROPASKY
CORPORATION (Circuit Court for Pinellas
County, Florida, Case No. 99-003715)
On or about May 28, 1999, Hubbard
Enterprises, Inc., the landlord for the
Madeira Beach port, filed a Complaint for
Declaratory Relief and damages against
EuropaSky Corporation (a wholly-owned
subsidiary of the Company) claiming that the
Company is required to pay a rental fee for
both paying and non-paying passengers as
opposed to only paying passengers. On or
about June 22, 1999, the Company filed an
Answer denying the contention. In addition,
the Company filed a Counterclaim for tortuous
interference in business relations and/or
contractual relations and breach of contract.
The Company alleges, among other things, that
Hubbard's interfered with the sale of the
Madeira Beach operation which was
then-scheduled to close on May 10, 1999. The
Company is seeking compensatory and punitive
damages. On or about January 13, 2000, the
F-27
<PAGE> 67
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Company filed a Motion for Summary Judgement
requesting that the Court rule in favor of
the Company with respect to Hubbard's
Complaint for Declaratory Relief. On February
15, 2000, Lester Bullock, the former
President of the Company, who had been
removed as President of the Company in
February 1998, signed an Affidavit in support
of Hubbard's Opposition to the Company's
Motion for Summary Judgment. Nevertheless, on
March 7, 2000, the Court granted the
Company's Motion and adopted the proposed
Findings of Fact submitted by the Company. On
March 31, 2000, Hubbard appealed the Court's
decision in favor of the Company. The Company
intends to pursue its claims against Hubbard.
ELLIS V. EUROPASKY CORPORATION AND EUROPA
CRUISES CORPORATION
(United States District Court for the Middle
district of Florida, Case Number
00-410-CIV-T-17B). On February 29, 2000, Anne
Ellis filed a Complaint in the United States
District Court against EuropaSky Corporation
and Europa Cruises Corporation seeking
compensatory and punitive damages, attorneys
fees and injunctive relief under the Florida
Civil Rights Act and Title VII of the Civil
Rights Act of 1964, alleging, INTER ALIA,
sexual harassment, discrimination and
retaliation. Ms. Ellis was, at the time of
the alleged acts, a dealer and the fiance of
the adopted son of Lester Bullock, the former
President of the Company. The Company intends
to vigorously defend this action, the
ultimate outcome of which cannot be
reasonably estimated.
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,
F-28
<PAGE> 68
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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.
(d) SALES AND USE TAXES
From January through April 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 $3.3
million. The DOR sought to assess tax on
passenger fares, food and beverage service,
fixed asset purchases, repairs and other
items.
In June 1999, the Company settled the Sales
Tax assessment with the Florida Department of
Revenue. Under the terms of the settlement
the Company is to make payments of $50,000
per month for 32 months. During 1999 and
1998, the Company recorded an aggregate
$1,600,000 expense in connection with the
settlement. Under the settlement terms, in
the event that the Company should sell one of
its two remaining vessels, an accelerated
payment of $800,000 would be then paid to the
Department.
F-29
<PAGE> 69
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
against all defendants.
F-30
<PAGE> 70
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
Management believes there is no support for
plaintiff's factual claims and the Company
intends to vigorously defend this lawsuit.
12. SUPPLEMENTAL CASH FLOW Supplemental schedules of interest paid are
INFORMATION as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------------
<S> <C> <C>
Cash paid for interest $ 686,000 $ 866,500
</TABLE>
F-31
<PAGE> 71
EUROPA CRUISES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Non-cash transactions are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------------
<S> <C> <C>
Accounts and note receivable from
sale of vessel $ 4,650,000 $ --
Preferred stock dividends paid with
shares of common stock 116,743 142,645
Sales tax provision 200,000 1,400,000
Issuance of common stock upon
conversion of debt 600,000 --
</TABLE>
13. OTHER OPERATING COSTS Other operating costs consist of the
following:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------------
<S> <C> <C>
Annual meeting and proxy expenses $ 28,602 $ 61,588
ESOP provision 129,375 155,897
Other 232,590 90,231
----------------------------------------------------------------------------------
$ 390,567 $ 307,716
==================================================================================
</TABLE>
14. FAIR VALUE OF FINANCIAL Statement of Financial Accounting Standards
INSTRUMENTS ("SFAS") No. 107 requires estimated fair
value amounts to be determined by the
Company's management using available market
information and other valuation methods.
However, considerable judgement is required
to interpret market data in developing the
estimates of fair value. Accordingly, the
estimates are not necessarily indicative of
the amounts the Company could realize in a
current market exchange. The use of different
market assumptions and/or estimation methods
may have a material effect on the estimated
fair value amounts. Furthermore, the Company
does not intend to dispose of a significant
portion of its financial instruments.
The Company's financial instruments consist
principally of cash and cash equivalents,
accounts and notes receivable and long-term
debt. The carrying amounts of such financial
instruments approximated fair value at
December 31, 1999.
F-32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE EUROPA CRUISES CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 418,045
<SECURITIES> 0
<RECEIVABLES> 3,062,484
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,826,098
<PP&E> 6,298,824
<DEPRECIATION> 5,145,773
<TOTAL-ASSETS> 16,838,620
<CURRENT-LIABILITIES> 5,515,314
<BONDS> 0
0
25,320
<COMMON> 33,018
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,838,620
<SALES> 8,418,388
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 10,944,807
<OTHER-EXPENSES> 390,567
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 826,002
<INCOME-PRETAX> (899,509)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (899,509)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
