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U.S. SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File No. 000-24452
PREMIER EXHIBITIONS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Florida 20-1424922
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3340 Peachtree Rd, NE, Suite 2250, Atlanta, GA 30326
Address of principal executive offices
Issuer's telephone number, including area code: (404) 842-2600
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 $.0001 per share
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ ] No [ X ]
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, as of June 1, 2005, was: $30,195,840
The number of shares outstanding of each of the registrant's classes of
common stock, as of June 1, 2005 were:
NUMBER OF SHARES
TITLE OF EACH CLASS OUTSTANDING
Common Stock, par value $.0001
per share 22,299,939
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, this Annual Report on Form
10-K contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 that involves certain risks and
uncertainties. The Company's actual results or outcomes may differ materially
from those anticipated. Although the Company believes that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements contained in the Report will prove to be
accurate. In light of the significant uncertainties and risks inherent in the
forward-looking statements included herein, such information should not be
regarded as a representation by the Company that the objectives and plans of the
Company will be achieved. Included in these risks is the Company's expectation
that it does not have sufficient working capital for the next 12 months of
operations and its resultant need for financing, its history of losses, its
fluctuations in operating results, uncertainty regarding the results of certain
legal proceedings, competition and other risks set forth herein and in other
reports the Company has filed. Such statements consist of any statement other
than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may", "expect", "will", "anticipate",
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. The Company does not have any obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
ITEM 1. BUSINESS
Overview
We are in the business of developing and touring museum quality
exhibitions. We are known best for our Titanic exhibitions, which we conduct
through our wholly-owned subsidiary RMS Titanic, Inc. and which honor the
ill-fated liner RMS Titanic. The Titanic has continued to captivate the thoughts
and imagination of millions of people throughout the world since 1912, when it
struck an iceberg and sank in the North Atlantic Ocean, causing the loss of more
than 1,500 of the 2,228 lives on board.
At the present time, we are recognized as the salvor-in-possession of
the Titanic wreck. As such, we have the exclusive right to recover items from
the Titanic wreck site. Through our explorations, we have obtained oceanic
material and scientific data, including still photography and videotape, as well
as artifacts from the Titanic wreck site, which lies more than 12,500 feet below
the surface of the Atlantic Ocean, approximately 400 miles off the southern
coast of Newfoundland. We utilize this data and the artifacts for historical
verification, scientific education and public awareness. These activities
generate income for us through touring exhibitions, television programs and the
sale of merchandise. We believe that we are in a unique position to present
exhibitions of Titanic artifacts. We intend to continue to present exhibitions
throughout the world, as demand warrants, in an enlightening and dignified
manner that embodies respect for those who lost their lives in the disaster.
We believe that we are in the best position to provide for the
archaeological survey, scientific interpretation, public awareness, historical
conservation, and stewardship of the Titanic shipwreck. We possess (but do not
own) the largest collection of data, information, images, and cultural materials
associated with the shipwreck. Our Titanic exhibitions have toured throughout
the world and have been viewed by more than 15 million people.
We intend to operate our exhibitions through wholly-owned subsidiaries.
At this time, our wholly-owned subsidiary RMS Titanic, Inc. is operating our
Titanic exhibitions. We adopted this holding company structure during October
2004. Prior to that, we conducted all of our business activities, including our
exhibitions, exclusively through RMS Titanic, Inc. We plan to conduct additional
exhibitions in the future, and we expect that those exhibitions will be
conducted through other subsidiaries that we will organize in the future as
needed.
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To date, we have generated most of our revenue from activities related
to our Titanic exhibitions. Our principal sources of revenue are exhibition
tickets sales, merchandise sales, licensing activities and sponsorship
agreements. Prior to April 2004, we relied on the services of Clear Channel
Communications, Inc. to present our exhibitions. However, we are now solely
responsible for our own exhibitions. Currently, we are operating and touring
three exhibitions.
Background
Titanic Ventures Limited Partnership, or TVLP, a Connecticut limited
partnership, was formed in 1987 for the purposes of exploring the wreck and
surrounding oceanic areas of the Titanic. In August 1987, TVLP contracted with
the Institute of France for the Research and Exploration of the Sea, or IFREMER,
which is among the world's largest oceanographic institutes and is owned by the
French government, to conduct an expedition and dive to the wreck of the
Titanic. Using state-of-the-art technology provided by IFREMER, approximately 60
days of research and recovery operations were performed by TVLP at the Titanic
wreck site through the use of a manned submersible named Nautile. Approximately
1,800 objects were recovered during the course of the 32 dives in that
expedition. The recovered objects were conserved and preserved by Electricite de
France, or EDF, a French government-owned utility. In addition to the recovery
of historic objects, the 1987 expedition also produced approximately 140 hours
of videotape footage and an estimated 7,000 still photographs of the wreck site.
Although the French government subsequently conveyed title to these artifacts to
us, the U.S. District Court for the Eastern District of Virginia has concluded
that such conveyance is not valid.
On May 4, 1993, we acquired all the assets and assumed all the
liabilities of TVLP. In June 1993, we successfully completed our second
expedition to the Titanic wreck site, during which we recovered approximately
800 artifacts and produced approximately 105 hours of videotape footage during
the course of fifteen dives. In July 1994, we recovered more than 1,000 objects
and produced approximately 125 hours of videotape footage during our third
expedition to the Titanic wreck site. In August 1996, we again recovered
numerous objects and produced approximately 125 hours of videotape footage
during our fourth expedition to the Titanic wreck site. In August 1998, we
recovered numerous objects and produced approximately 350 hours of videotape
footage during our fifth expedition to the Titanic wreck site. Among the
highlights of our 1998 expedition were the successful recovery of the "Big
Piece," a section of the Titanic's hull measuring approximately 26 feet by 20
feet and weighing approximately 20 tons, and extensive mapping of the Titanic
and portions of the wreck site through the capture of thousands of
high-resolution color digital photographs.
Our 1987, 1993, 1994, 1996, and 1998 Titanic expeditions were completed
by charter agreements with IFREMER. The objects recovered during those
expeditions were ultimately transported to a privately-owned conservation
laboratory in France for restoration and preservation in preparation for
exhibition, except for several objects conserved by EDF that were recovered in
1987 and the "Big Piece," which went through its conservation process in the
United States. All of the artifacts not on exhibition are either in conservation
or housed in our storage facility in Atlanta, Georgia.
In March 1999, we entered into an agreement with Magicworks
Entertainment, Inc., a direct subsidiary of PACE Entertainment, Inc. and an
indirect subsidiary of SFX Entertainment, Inc., pursuant to which SFX was
granted an exclusive worldwide license to exhibit Titanic artifacts. This
license agreement later transferred to Clear Channel Communications, Inc., the
successor to SFX. In April 2004, we elected not to renew this agreement so that
we could begin to develop and market Titanic exhibitions on our own. In
addition, we acquired all of the display equipment necessary for the Titanic
exhibition from Clear Channel Communications for an aggregate cost of $600,000.
During July and August of 2000, we conducted an expedition to the
Titanic wreck site. During this expedition, we utilized the services of the P.P.
Shirshov Institute of Oceanology of Moscow, which provided us with the research
vessel Akademik Mstislav Keldysh and two manned submersibles, the MIR-1 and the
MIR-2. This expedition consisted of a total of twenty-eight dives over a
four-week period and resulted in the recovery of more than 900 objects from the
wreck site, as well as the discovery of a new debris field. Among the artifacts
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recovered during this expedition were the ship's wheel and stand, nine leather
bags containing more than 100 objects, the whistle control timer from the
navigation bridge, the main telegraph base and the docking bridge telephone.
Also recovered were binoculars, a pair of opera glasses, sixty-five intact
perfume ampoules, a camera, a bowler hat, a first class demitasse and dinner
plate, a base for a cherub (likely from the ship's grand staircase), as well as
gilded wood from a balustrade.
In May 2001, we acquired ownership of the wreck of the RMS Carpathia,
which was sunk during World War I off the coast of Ireland. This ship rescued
more than 700 of the Titanic's survivors. We intend to utilize the RMS Carpathia
in our future business activities by salvaging objects from the wreck, which
shall be used for exhibition and/or sold to collectors, and by exploring the
production of television documentaries. At the present time, however, we have no
expedition to the RMS Carpathia planned.
We recently conducted our seventh expedition to the Titanic wreck site
and were successful in recovering more than 75 important historic artifacts. We
plan to continue recovery work in the future by planning expeditions to the
Titanic wreck-site. Expedition 2004 departed from Halifax, Nova Scotia, Canada
on August 25, 2004 and for the first time allowed us to rely exclusively on a
deep ocean remotely operated vehicle, or ROV, that permitted the expedition to
utilize round-the-clock underwater operations. This expedition ended on
September 9, 2004 with the recovery of 75 historic artifacts from the Titanic
wreck site. In addition, a new debris field was discovered that included
remnants from the first class a la carte restaurant.
Our executive offices are located at 3340 Peachtree Road, NE, Suite
2250, Atlanta, Georgia 30326 and our telephone number is (404) 842-2600. We are
a Florida corporation and maintain a web site located at
www.premierexhibitions.net. Information on our website is not part of this
prospectus.
Exhibitions
We generate a substantial portion of our revenue by presenting
exhibitions of Titanic artifacts. We estimate that more than fifteen million
people throughout the world have attended our exhibitions. We have exhibits that
are currently on display in Philadelphia, Pennsylvania, Salt Lake City, Utah,
and Manchester, England. Two successful exhibitions recently concluded in
Shanghai, China and Omaha, Nebraska. We expect to continue conducting Titanic
exhibits in North America and throughout the world.
From August to early October 2004, we previewed in the United Kingdom
our newest exhibition Bodies Revealed, which is a scientific human anatomy
exhibition of museum quality. This new exhibition presents to patrons a
fascinating examination of the human body made available for public viewing
through a process known as polymer preservation. We plan to eventually operate
several Bodies Revealed exhibitions that are now in various stages of
development.
Donation Initiative
In keeping with our desire to conserve Titanic artifacts for history
and keep the collection of artifacts together, we are exploring the possibility
of donating our Titanic artifacts to a charitable institution. Doing so might
also be in our best financial interests, as it could clarify and finalize the
ownership of the artifacts. In the event we donate the artifacts that we have
recovered from the Titanic, we will seek a long-term lease back arrangement from
the recipient of the artifacts pursuant to which we would continue to exhibit
the artifacts and continue to salvage the Titanic wreck and wreck site. At this
time, however, we have not undertaken any affirmative action with respect to
donating our Titanic artifacts.
Merchandising
We earn revenue from the sale of Titanic merchandise, such as catalogs,
posters and jewelry. We have a contractual relationship with Events Management,
Inc., which is an unaffiliated company that operates gift shops at exhibitions
and other locations. Events Management sells our Titanic merchandise at
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exhibitions, as well as through its web site and its other distribution
channels. In connection with these sales, we receive 10% of the gross sale
proceeds. We also receive license fees from Events Management for the use of our
names and logos. We also sell merchandise directly to the public, and we plan to
begin distributing a catalog of our merchandise in the near future, with the
hope that we can develop new revenues from the sales of merchandise through
catalogs. Finally, we have produced a high quality, high content Titanic
exhibition catalog, which we sell at exhibitions through Events Management.
Marketing
We have developed several retail products utilizing coal recovered from
the Titanic, which has been incorporated into jewelry. We intend to continue
developing such products to increase our merchandising revenues. We also intend
to pursue the direct marketing of merchandise and our video archives through our
web site and through third parties.
Expeditions to the Titanic
With the depth of the Titanic wreck approximately two and one-half
miles below the surface of the ocean in the North Atlantic, we are dependent
upon chartering vessels outfitted with highly advanced deep sea technology in
order to conduct expeditions to the site. In our 1987, 1993, 1994, 1996, and
1998 expeditions, we entered into charter agreements with IFREMER, pursuant to
which IFREMER supplied the crew and equipment necessary to conduct research and
recovery efforts. In addition to utilization of the research vessel Nadir,
recovery efforts were undertaken through the manned submersible Nautile. Small,
hard-to-reach areas necessary for visual reconnaissance efforts were accessed by
a small robot, known as Robin, controlled by crewmen on board the Nautile. The
dive team had the capability of retrieving heavy objects, such as a lifeboat
davit weighing approximately 4,000 lbs. and fragile objects weighing only a few
ounces. Because of the immense pressure of approximately 6,000 pounds per square
inch at the depth of the wreck site, it is impossible for a dive team to reach
such depths and explore the wreck site through any means other than a
submersible. The Nautile and Robin were each equipped with video and still
cameras that recorded all recovery and exploration efforts. In connection with
our 1987, 1993, 1994, 1996, 1998, 2000, and 2004 expeditions to the wreck site,
we engaged maritime scientists and other professional experts to assist in the
exploration and recovery efforts.
Our ability to conduct expeditions to the Titanic has been subject to
the availability of necessary research and recovery vessels and equipment for
chartering by us from June to September, which is the "open weather window" for
such activities. Research and recovery efforts with a manned submersible are
presently limited to the availability and the co-operation with the Nautile
through charter arrangements with IFREMER and MIR I and MIR II using charter
arrangements with P.P. Shirshov Institute of Oceanology. To our knowledge, no
other manned submersible with the capability of reaching the depth of the
Titanic is presently commercially available, however there are a number of
remote operated vehicles available for hire. Based upon our experience with the
2004 expedition, remote operated vehicles are a viable and more efficient
alternative to manned submersibles. The availability of remote operated vehicles
has substantially increased our flexibility in chartering for future
expeditions.
Restoration and Conservation of Titanic Artifacts
Upon recovery from the Titanic wreck site, artifacts are in varying
states of deterioration and fragility. Having been submerged in the depths of
the ocean for more than 90 years, objects have been subjected to the corrosive
effects of chlorides present in seawater. The restoration of many of the metal,
leather, and paper artifacts requires the application of sophisticated
electrolysis and other electrochemical techniques. Some of the artifacts
recovered from the 1987 expedition were restored and conserved by the
laboratories of Electricite de France, the French government-owned utility.
Except for un-restored artifacts that are currently being exhibited, many of the
artifacts recovered from the 1987, 1993, 1994, 1996 and 1998 expeditions have
undergone conservation processes at LP3, a privately-owned conservation
laboratory in Semur-en-Auxois, France. When not being exhibited or not being
conserved at other conservation facilities, almost all of our Titanic artifacts
are housed in our conservation and warehouse facility located in Atlanta,
Georgia.
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Science and Archaeology Related to the Titanic
The Titanic was a great luxury liner, which bequeathed to the
world a classic story of tragedy at sea. Today, this shipwreck is treated as an
archaeological site, historic structure, attraction for adventure tourism,
ecological phenomenon, international memorial, and as valuable property to be
recovered and shared with humanity. With the exception of adventure tourism, we
believe that all of these purposes are legitimate and beneficial to society. We
also believe that the multiple values of Titanic and its status as a social and
cultural icon demand the perspectives of many experts in scientific
interpretation and stewardship of the site.
We believe we are in the best position to provide for archaeological
survey, scientific interpretation, and stewardship of the Titanic shipwreck. We
possess the largest collection of data, information, images, and cultural
materials associated with the shipwreck. We have developed a partnership with
the Center for Maritime & Underwater Resource Management, a nonprofit
corporation, for services in archaeology, scientific research, and resource
management to aid in stewardship of the Titanic wreck site.
We intend to work with the U.S. government to present our collection of
knowledge and cultural materials to researchers, educators, and other audiences
in the form of scientific reports, associated interactive website, and other
intellectual products that advance our purposes. Revenues from the sale of these
intellectual products are expected to at least meet the total production costs.
The scientific reports will integrate the results of all expeditions to the
Titanic wreck site since its discovery. In addition, the publication will
include the first comprehensive site plan of the Titanic, which will assist in
determining future products in research, materials conservation and education.
The interactive website will present this scientific knowledge as well as its
entire collection of cultural materials.
RMS Carpathia
In May 2001, we acquired ownership of the wreck of the RMS Carpathia,
which was sunk in during World War I off the coast of Ireland. This ship rescued
more than 700 of the Titanic's survivors. We intend to utilize the RMS Carpathia
in our future business activities by salvaging objects from the wreck, which
shall be used for exhibition and/or sold to collectors, and by exploring the
production of television documentaries. We plan to conduct a research and
recovery operation at the Carpathia wreck site in the future. At the present
time, no definitive schedule has been set for this endeavor.
Competition
The entertainment and exhibition industries are intensely competitive.
Given our limited capital resources, there can be no assurances that we will be
able to compete effectively. Many enterprises with which we will be competing
have substantially greater resources than we do. Additionally, following the
success of the motion picture "Titanic" in December 1997, a number of entities
have undertaken, or announced an intention to offer, exhibitions or events with
the theme of Titanic or involving memorabilia related to its sinking. Although
we are the only entity that exhibits artifacts recovered from the wreck site of
the Titanic, competition may be encountered from these exhibitions or events for
the consumer's interest in Titanic or our Titanic exhibitions. We intend to
compete with other entities based upon the mass appeal of our planned exhibits
to consumers of entertainment, museum, scientific and educational offerings, and
the quality and value of the entertainment experience. We intend to emphasize
the unique and distinctive perspective of the Titanic in our exhibits and as the
only entity that has ownership rights to objects recovered from the wreck site.
The success of our merchandising efforts will depend largely upon the
consumer appeal of our merchandise and the success of our exhibitions. We
believe that our merchandise will compete primarily because of both its unique
character and quality.
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Employees
As of June 15, 2005, we had fourteen full-time employees. We are not a
party to any collective bargaining agreement and we believe that our relations
with are employees are good.
Environmental Matters
We are subject to environmental laws and regulation by federal, state
and local authorities in connection with our planned exhibition activities. It
is undetermined, at the present time, what environmental laws may need to be
complied with should we undertake an expedition to the RMS Carpathia. We do not
anticipate that the costs to comply with such laws and regulations will have any
material effect on our capital expenditures, earnings, or competitive position.
Description of Properties
We have our principal executive offices located at Tower Place, 3340
Peachtree Road N.E., Suite 2250, Atlanta, Georgia. This space of approximately
4,706 square feet is used for management, administration, and marketing for our
operations. The lease for our principal executive offices commenced in April
2000 and was amended on August 8, 2003, when the term was extended until
February 29, 2008. The amended lease provides for base lease payments of
$110,591 annually with a 2.5% annual adjustment thereafter.
We also have a thirty-eight month lease obligation that commenced
November 1, 2001 for approximately 10,080 square feet of space at an undisclosed
location (for security purposes) in Atlanta, Georgia. This facility is used for
conservation, restoration, and storage of Titanic artifacts. The monthly rent is
$6,720 through December 31, 2004. On October 6, 2004 we extended this lease for
an additional three years with monthly payments of $6,855 for the first year
beginning January 1, 2005, with 2% increases for each of the second and third
years.
ITEM 3. LEGAL PROCEEDINGS
Status of International Treaty Concerning Titanic Wreck
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The U.S. Department of State and the National Oceanic and Atmospheric
Administration of the U.S. Department of Commerce are working together to
implement an international treaty with the governments of the United Kingdom,
France and Canada concerning the Titanic wreck site. This treaty could impair
our salvor-in-possession rights to the Titanic. We have raised numerous
objections to the U.S. Department of State regarding the participation of the
U.S. in efforts to reach an agreement governing salvage activities with respect
to the Titanic. The treaty, as drafted, does not recognize our existing rights
in the Titanic. The treaty becomes effective when any two parties sign it. At
this time, both the United Kingdom and the U.S. have signed the treaty, so it
has become effective. However, Congress has not yet adopted implementing
legislation for the treaty, so the treaty is not yet operative under U.S. law.
On April 3, 2000, we filed a motion for declaratory judgment in United
States Federal District Court asking that the court declare unconstitutional the
efforts of the U.S. to implement the treaty. On September 15, 2000, the court
ruled that our motion was not ripe for consideration and that we may renew our
motion when and if the treaty is agreed to and signed by the parties, final
guidelines are drafted, and Congress passes implementing legislation. As
discussed above, the treaty has been finalized and is now in effect; but it is
not yet operative because Congress has not adopted implementing legislation, so
it is not yet time for us to consider re-filing our motion. We expect that
whatever the outcome of this matter, there will be no impact as to artifacts
that we have already recovered; but we do not know what effect, if any, this
treaty will have on our future operations with respect to the Titanic.
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Status of Salvor-in-Possession and Interim Salvage Award Proceedings
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On April 12, 2002, the U.S. Court of Appeals for the Fourth Circuit
affirmed two orders of the U.S. District Court in our ongoing
salvor-in-possession case. These orders, dated September 26, 2001 and October
19, 2001, restricted the sale of the artifacts we recovered from the Titanic
wreck site. In its opinion, the U.S. Court of Appeals for the Fourth Circuit
declared ambiguous the June 1994 order of the district court that had awarded
ownership to us of all items then salvaged from the wreck of the Titanic as well
as all items to be salvaged in the future so long as we remained
salvor-in-possession. Having found the June 1994 order to be ambiguous, the
court of appeals reinterpreted the order to convey only possession, not title,
pending determination of a salvage award. We petitioned the U.S. Supreme Court
to hear our appeal of the April 12, 2002 decision of the court of appeals,
however, our petition was denied on October 7, 2002.
On May 17, 2004, we appeared before the United States District Court
for the Eastern District of Virginia for a pre-trial hearing to address issues
in preparation for an interim salvage award trial. At that hearing, we informed
the court that the U.S. government had declined our proposal to transfer our
salvor-in-possession rights to the government. We confirmed our intent to retain
our salvor-in-possession rights in order to exclusively recover and preserve
artifacts from the wreck site of the Titanic. In addition, we stated our intent
to conduct another expedition to the wreck site. As a result of that hearing, on
July 2, 2004, the court rendered an opinion and order in which it held that it
would not recognize the 1993 Proces-Verbal, pursuant to which the French
government granted us all artifacts recovered from the wreck site during the
1987 expedition. The court also held that we will not be permitted to present
evidence at the interim salvage award trial for the purpose of arguing that we
should be awarded title to the Titanic artifacts.
We have appealed the July 2, 2004 Court Order, which appeal is now
pending in the U.S. Court of Appeals for the Fourth Circuit. The court granted a
stay of proceedings on August 2, 2004 that will indefinitely delay the interim
salvage award trial.
Other Legal Proceedings
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On September 7, 2000, Mr. G. Michael Harris, a former officer and
director of the Company filed suit in the Circuit Court of the Sixth Judicial
Circuit in and for Pinellas County, Florida, Civil Division. In that suit, Mr.
Harris alleged that the Company breached an employment agreement entered into
between him and the Company, that he was damaged by the breach, that he was
wrongfully terminated and had been defamed. The Company denied the validity and
enforceability of the employment agreement. Moreover, the Company filed a
counter-suit against Mr. Harris and others, to recover monies that the Company
believed were misappropriated. On April 23, 2003, after a jury trial, a verdict
was rendered that affirmed the unenforceability of any of Mr. Harris' employment
agreements and further found that $70,000 of Company monies were misappropriated
by Mr. Harris and others. During the quarter ended August 31, 2003, the Company
settled this litigation by agreeing to certain payments and an exchange of
releases. Upon the advice of counsel, this settlement is less than the expected
legal costs and expenses of continuing litigation.
On May 3, 2001, the Company was served with a lawsuit in Superior Court
in the State of California which later was removed to the United States District
Court for the Central District of California by Westgate Entertainment
Corporation, a California corporation, and its wholly owned subsidiary, Weyland
& Chase Engineering, NV, a Netherlands Antilles corporation. The complaint
claims that on January 18, 2000, the plaintiffs entered into oral five year,
"pay or play" contracts of $200,000 per year for Westgate Entertainment and
$100,000 per year for Weyland & Chase. Westgate Entertainment further claimed
the Company agreed to pay or provide other additional consideration. The Central
District Court entered an order denying the Company's motion for summary
judgment. In July 2002, the matter was settled between the parties whereby the
Company agreed to pay $388,000 over a thirty-month period, releases were
exchanged and certain restrictive covenants were agreed upon, among other
considerations. Subsequently, we agreed to extend the payments over a forty-two
month period.
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On April 25, 2002, we were served with a lawsuit filed by Lawrence
D'Addario, in the U.S.District Court for the Eastern District of Virginia,
Norfolk Division Case No. 2:02cv250. The lawsuit alleges fraud, self-dealing,
mismanagement, diversion and waste of corporate assets by our company and some
of our officers, directors and shareholders. On April 23, 2004, the court
dismissed the lawsuit. On May 24, 2004, we received notice that the plaintiff
had appealed the dismissal to the U.S. Court of Appeals for the Fourth Circuit.
On February 24, 2005 the appellate court partially affirmed and partially
vacated the dismissal of the case. It remanded back to the district court for
trial the one derivative count alleging that certain of the officers and
directors breached their fiduciary duties to the company. Trial of this matter
is currently scheduled to begin on July 25, 2005.
On March 22, 2004, we were served with a lawsuit filed by David Shuttle
and Barbara Shuttle in the U.S. District Court for the Middle District of
Florida. The suit seeks to recover damages to the plaintiffs and to all minority
shareholders allegedly caused by alleged breaches of fiduciary duties by some of
our directors and officers in connection with an alleged hostile takeover in
November 1999. On March 1, 2005, the court issued an order granting the
plaintiffs' motion to certify this matter as a class action. The class is
defined as all persons who owned shares of RMS Titanic, Inc. as of November 26,
1999 but who were not members of the group of shareholders who voted to remove
previous officers and directors from their positions with the company. No
determination can be made at this time as to the likely outcome of this matter
or what the consequences could be for us, but we intend to vigorously defend
ourselves in this matter, and we expect to seek recovery of all costs and
expenses in defending this litigation from the plaintiffs once this matter is
adjudicated.
On May 10, 2001, we received a subpoena duces tecum from the Securities
and Exchange Commission requesting various documents relating to, among other
things, the change in control that occurred during November 1999; any
solicitations that may have been made without a written proxy statement of a
filing; the purchase of our common stock by certain shareholders; the accuracy
of our financial statements; information about our accounting procedures and
controls; documents about our subsidiaries; and other information about
consulting agreements, communications with certain individuals, employment of
officers, and other company matters. We complied with the subpoena. On November
22, 2004, the staff of the Securities and Exchange Commission informed us that
the investigation was terminated and that no action was recommended against our
company to the Securities and Exchange Commission.
On August 3, 2004, we filed a motion with the U.S. District Court for
the District of Connecticut against a former officer, director and lawyer of the
company. In this motion, we alleged that this former officer, director and
lawyer secretly spearheaded litigation against us, in direct violation of a
release and settlement agreement that he entered into with us in January 2000.
On May 12, the court denied our motion, but, noting the good faith basis for our
claim, refused to grant the defendant any award of attorneys' fees or costs.
On December 3, 2004 we filed a complaint in the Court of Common Pleas
in Cuyahoga County, Ohio against Gunther Von Hagens, doing business as Body
Worlds. We alleged that the defendant unfairly interfered with our ability to
conduct a Bodies Revealed Exhibition in Cleveland, Ohio. On February 16, 2005,
Mr. Von Hagens, through his company Plastination, Inc., served us with a lawsuit
in the United States District Court for the Northern District of Ohio in which
he alleges that we violated his intellectual property rights with respect to our
9
Bodies Revealed Exhibition. In order to reduce litigation costs we decided to
consolidate the litigation. We voluntarily dismissed without prejudice our
initial lawsuit filed in Cuyahoga County and we filed those same claims as a
counterclaim in the Plastination, Inc. lawsuit pending in federal court. No
trial date has been set at this time and no determination can be made at this
time as to the likely outcome of these matters or what the consequences could be
for us, but we intend to vigorously defend ourselves against the claims of
Plastination, Inc. and we likewise intend to vigorously prosecute the
counterclaim.
On May 13, 2005, John Glassey and Donna Andersen filed a complaint
against our wholly owned subsidiary, RMS Titanic, Inc. in the Superior Court of
New Jersey, Atlantic Division. The plaintiffs alleged that RMS Titanic, Inc.
owes them $9,900 plus interest, costs and fees for breach of a contract. No
trial date has been set at this time and no determination can be made at this
time as to the likely outcome of this matter but we dispute the claim and will
defend ourselves at trial.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on
December 10, 2004. Messrs. Arnie Geller, Gerald Couture, Doug Banker and Nick
Cretan were elected directors of the Company until their successors are duly
elected and qualified. The results of the election were as follows:
Shares
Voted
For
Arnie
Geller 12,276,146
--------------------------
Gerald
Couture 12,276,148
--------------------------
Doug Banker 12,283,908
--------------------------
Nick Cretan 12,283,909
--------------------------
Also at that Annual Meeting, Kempisty and Company, Certified Public
Accountants, P.C. was ratified as the Company's independent certified public
accountants for fiscal year 2005 with 12,284,809 shares of common stock voted in
favor and 316,501 shares of common stock voted against.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASE OF EQUITY SECURITIES.
MARKET INFORMATION. The Company's common stock is traded on the
over-the-counter market. The following table sets forth the range of high
and low bid quotations of the Company's Common Stock for the periods set
forth below, as reported by OTC Bulletin Board of NASDAQ Trading & Market
Services. Such quotations represent inter-dealer quotations, without
adjustment for retail markets, markdowns or commissions, and do not
necessarily represent actual transactions.
10
COMMON STOCK
FISCAL PERIOD HIGH LOW
BID BID
----- ------
2005
1st Quarter ending 5/31/04 $ 2.48 $ 0.97
2nd Quarter ending 8/31/04 1.48 1.02
3rd Quarter ending 11/30/04 1.18 0.77
4th Quarter ending 2/28/05 1.25 0.57
2004
1st Quarter ending 5/31/03 0.49 0.04
2nd Quarter ending 8/31/03 0.45 0.20
3rd Quarter ending 11/30/03 0.30 0.21
4th Quarter ending 2/29/04 1.90 0.26
2003
1st Quarter ending 5/31/02 0.35 0.15
2nd Quarter ending 8/31/02 0.29 0.19
3rd Quarter ending 11/30/02 0.29 0.09
4th Quarter ending 2/28/03 0.14 0.05
Common Stock
On June 10, 2005 there were approximately 2,300 stockholders of record of
common stock.
The Company has not paid or declared any dividends upon its common stock
since its inception, and intends to reinvest earnings, if any, in the Company
for future growth. Accordingly, the Company does not contemplate or anticipate
paying any dividends upon its common stock in the future.
The following is a summary of securities authorized for issuance under
equity compensation plans as of February 28, 2005:
----------------------------------------- --------------- ----------------- ---------------------
Number of
securities
Number of remaining available
shares to be for future issuance
issued upon Weighted under equity
exercise of average of compensation plans
outstanding exercise price (excluding
options, of outstanding securities
warrants and options, reflected in column
rights warrants and (a)
(a) rights (c)
(b)
----------------------------------------- --------------- ----------------- ---------------------
Equity compensation plans -- -- --
approved by security holders
----------------------------------------- --------------- ----------------- ---------------------
Equity compensation plans not
approved by security holders 2,350,000 $0.36 550,000
----------------------------------------- --------------- ----------------- ---------------------
Total 2,350,000 $0.36 550,000
----------------------------------------- --------------- ----------------- ---------------------
11
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below is qualified by reference
to, and should be read in conjunction with, the Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Form 10-K. The selected
financial data have been derived from the Company's Financial Statements that
have been audited by independent certified public accountants. The financial
statements as of February 28, 2005, February 29, 2004, and February 28, 2003 and
for each of the three years in the period ended February 28, 2005 is included
elsewhere in this Form 10-K.
YEAR ENDED FEBRUARY 28(29) 2001 2002 2003 2004 2005
- ----------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
(In thousands, except per share
and weighted average shares)
Revenues:
Continuing operations $5,699 2,768 2,861 2,864 6,857
Discontinued operations 14 504 -- -- --
Net income (loss)
Continuing operations $ 36 (7,260) (827) (1,088) (1,475)
Discontinued operations (88) (168) -- -- --
Gain on sale 644
Income (loss) per share:
Continuing operations $ -- (.38) (.04) (.06) (.07)
Discontinued operations -- -- -- -- --
Weighted average number of
common shares
outstanding 16,732,991 18,058,573 18,615,294 18,960,047 20,818,898
FEBRUARY 28(29) 2001 2002 2003 2004 2005
- -------------------------------------------------------------------------------------------------------
Balance Sheet Data:
(In thousands)
Total Assets $ 15,002 8,839 8,399 7,253 10,764
Long Term Obligations -- -- -- -- --
Total Liabilities $ 2,251 1,497 1,849 1,249 3,085
Shareholders' Equity $ 12,751 7,342 6,550 6,004 7,679
Selected Quarterly Financial Information (unaudited)
(in thousands, except per share data)
Period ended 5/31/04 8/31/04 11/30/04 2/28/05
- ----------------------------------------------------------------------------------------------------
Revenues: $ 391 $2,381 $2,432 $ 1,653
Expenses: 1,263 2,232 2,178 2,263
Net income (loss): (875) 134 240 (974)
Net income (loss) per share: (.05) .01 .01 (.04)
12
Period ended 5/31/03 8/31/03 11/30/03 2/29/04
- ----------------------------------------------------------------------------------------------------
Revenues: $ 836 $ 741 $ 735 $ 552
Expenses: 1,113 822 806 1,220
Net income (loss): (273) (78) (69) (668)
Net income (loss) per share: (.01) -- -- (.05)
The Company has declared no cash dividends. Basic income (loss) per
common share ("EPS") is computed as net income (loss) divided by the weighted
average number of common shares outstanding for the period. Diluted EPS is not
presented since there was no effect of potential common shares or the dilution
effect of such potential common shares is not material.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides information to assist in the
understanding of the Company's financial condition and results of operations,
and should be read in conjunction with the financial statements and related
notes appearing elsewhere herein.
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 2005 AS COMPARED
TO YEAR ENDED FEBRUARY 29, 2004
During its fiscal year ended February 28, 2005, the Company's revenues
increased to $6,857,000 from $2,864,000 in the fiscal year ended February 29,
2004. This increase of approximately 139% as compared to the prior fiscal year
is primarily a result of an increase of $3,643,000 in the Company's exhibition
and related merchandise sales. We believe that these significant increases in
revenues for these respective periods reflect our direct management of our
Titanic exhibitions, which began during the first quarter of fiscal year 2005.
Merchandise and other revenue increased approximately 326% from
$119,000 to $507,000, during the fiscal year 2005 as compared to the fiscal year
2004. These increases are attributed to higher sales of Titanic merchandise sold
separately from the exhibitions during fiscal year 2005.
The Company's revenue from the sale of coal decreased from $68,000 to
$30,000 or approximately 56% during the 2005 fiscal year as compared to the 2004
fiscal year. This decrease is attributed to lower exhibit sales of coal sold
separately. Coal related jewelry is included in general merchandise sales.
The cost of sales of merchandise sold increased 134% to $257,000 from
$110,000 in the fiscal year 2005 as compared to the fiscal year 2004. This
increase was the result of higher revenues of merchandise during the 2005 fiscal
year.
We incurred exhibition costs of $2,891,000 for the fiscal year 2005 as
we now conduct our own exhibitions with museum venues and thereby incur costs
for advertising, marketing, promotion as well as installation and
de-installation of exhibitry and artifacts. There were no similar costs incurred
in the prior fiscal year 2004 as those costs were borne by our licensee who
conducted our Titanic exhibitions.
13
General and administrative expenses of the Company increased $995,000,
or approximately 23%, from $3,402,000 in 2004 fiscal year to $4,397,000 in the
2005 fiscal year. During fiscal year 2005, we hired personnel to organize,
administer, and manage our exhibitions. Increases in expenses for legal,
insurance, conservation and occupancy for fiscal 2005 represented the largest
portion of the remaining increase in general and administrative expenses.
The Company's depreciation and amortization expenses increased to
$378,000 from $253,000, or 49%, during the 2005 fiscal year as compared to the
2004 fiscal year. These increases primarily reflect the acquisition of fixed
assets during fiscal year 2005, including the five sets of exhibition exhibitry
acquired from our former licensee, as well as additional investments made in
fixed assets for our exhibitions.
The Company's loss from operations decreased to $1,075,000 in the 2005
fiscal year as compared to $1,097,000 in the 2004 fiscal year, a decrease of
approximately 2%. This operating loss is primarily attributed to the losses
incurred from the transition from being a licensor of Titanic artifacts to a
direct operator of Titanic exhibitions.
Interest income for the 2005 fiscal year amounted to $2,000 as compared
to $9,000 in the prior fiscal year. This decrease in interest income is a
consequence of maintaining lower cash balances and the minimal interest earned
on our bank accounts. We incurred interest expense of $46,000 and $-0- for the
fiscal year 2004. The interest expense is for a shareholder loan of $500,000
that was made in anticipation of our capital needs during our transition to the
direct management of our exhibitions. There was no interest expense incurred
during the corresponding fiscal year 2004, as we had no debt.
The Company's loss from operations before provision for income taxes
was $1,475,000 in fiscal year 2005 as compared to a loss from operations of
$827,000 in the 2004 fiscal year. There was no provision for income taxes in
either fiscal year. Basic and diluted earnings (loss) per common share were
$(.07) and $(.02), respectively, for the 2005 and 2004 fiscal years. The
weighted average common shares outstanding were 20,818,898 and 18,960,047 for
the 2005 and 2004 fiscal years, respectively.
As we begin to more efficiently manage our exhibitions, we expect our
operations to become more profitable. In addition, as we have been able to
devote less time to litigation, we have been able to focus on opportunities for
future growth of our business. We are optimistic that our plans to become a
major exhibitor of premier exhibitions can develop quickly with our present
strategy.
YEAR ENDED FEBRUARY 29, 2004 AS COMPARED
TO YEAR ENDED FEBRUARY 28, 2003
During its fiscal year ended February 29, 2004 (the "2004 fiscal
year"), the Company's revenues increased to $2,864,000 as compared to $2,861,000
in the fiscal year ended February 28, 2003 (the "2003 fiscal year"). This
increase of $3,000 in the 2004 fiscal year primarily reflects higher exhibition
income to the extent not offset by a sale of coal revenue decrease in the 2003
fiscal year.
Exhibition revenue and related sales were $2,677,000 in the 2004 fiscal
year as compared to $2,646,000 in the 2003 fiscal year for an increase of
$31,000, or 1%. This increase in these revenues was principally attributable to
higher catalog sales during the 2004 fiscal year.
The Company's merchandise and other revenues, that included the sale of
merchandise, books and royalty payments, decreased slightly to $119,000 from
$121,000 in the prior fiscal year. This decrease of $2,000, or about 2%, is
primarily attributed to the lower contribution of poster income at each
exhibition venue during the 2004 fiscal year. The sale of coal recovered from
the TITANIC was $68,000 in the current fiscal year compared to $94,000 in the
prior year and this decrease is attributed to lower demand at the exhibitions.
14
Cost of goods sold were $131,000 for the 2004 fiscal year as compared
to $175,000 in the 2003 fiscal year. This decrease of $44,000 is primarily
attributed to lower total cost of goods on the lower merchandise revenues
experienced for these products sold during the 2004 fiscal year.
General and administrative expenses were $3,402,000 for the 2004 fiscal
year as compared to $2,809,000 in the 2003 fiscal year. This increase of
$593,000, or 21%, is primarily attributed to charges of $434,000 incurred in
expensing of options and warrants granted to employees, directors and
consultants during the 2004 fiscal year. The Company has now elected to fully
charge its operations for employee stock options issued in the year granted.
Depreciation and amortization expense for the 2004 fiscal year was
$253,000 as compared to $293,000 in the 2003 fiscal year. This decrease of
$40,000, or 14%, is primarily lower charges for depreciation as the fixed asset
lives of depreciable assets are realized.
In the 2003 fiscal year, the Company incurred a write-down of a note
receivable in the amount of $296,000. There was not a comparable charge for the
2004 fiscal year. During the 2004 fiscal year, the Company incurred a charge of
$175,000 for the settlement of litigation that compared to a charge in the prior
fiscal year of $413,000 for litigation settlement. These litigation settlements
were unrelated.
There was a loss from continuing operations of $1,097,000 for the 2004
fiscal year as compared to a loss from operations of $1,125,000 in the 2003
fiscal year. This decrease in income from operations is primarily attributed to
higher general and administrative expense in the 2004 fiscal year that was not
offset by the slightly higher revenues.
During the 2004 fiscal year, the Company earned interest income of
$9,000 as compared to $298,000 in the prior year. The Company maintained higher
cash balances during the 2003 fiscal year and also benefited from interest
earned on tax refunds received during that fiscal year.
Income (loss) after provision for income taxes was ($1,088,000) for the
2004 fiscal year as compared to ($827,000) in the 2003 fiscal year. Basic and
diluted earnings per common share were $(0.06) and $(0.04) for the 2004 and 2003
fiscal years, respectively. The weighted average common shares outstanding were
18,960,047 and 18,615,294 for the 2004 and 2003 fiscal years, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $595,000 for fiscal year
ended February 28, 2005 as compared to net cash used in operating activities of
$1,377,000 for the fiscal year ended February 29, 2004. This increase in cash
provided in operating activities for the current year is primarily attributed to
an increase in accounts payable and the issuance of non-cash consideration for
expenses and services.
For the fiscal year ended February 28, 2005, the total cash used in
investing activities was $1,613,000, which included acquisition of property and
equipment for $964,000 and an investment in our salvor-in-possession rights for
the expenditures for our seventh expedition to the Titanic wreck site during
August and September of 2004. $600,000 of the expense for property and equipment
was expended in connection with the purchase of exhibitry to allow us to conduct
our own Titanic exhibitions. For the year ended February 29, 2004, we spent
$21,000 on furniture and equipment.
For the fiscal year ended February 28, 2005, cash provided by financing
activities was $1,703,000, which included a private placement of securities in
August 2004 and a loan provided by two shareholders.
15
We closed a private placement in which we sold 1,469,927 shares of
common stock and warrants to purchase 441,003 shares of common stock for
aggregate consideration of $1,514,000. The net proceeds of the private placement
were $1,278,000 after fees, expenses and other costs. In connection with the
private placement, we issued warrants to purchase 293,985 shares of common stock
to our placement agent. All of the warrants issued in the private placement are
exercisable over a five-year term at an exercise price of $1.50 per share. The
private placement was used to supplement our working capital needs. During
fiscal year 2004, we did not have any comparable financing activities.
Our net working capital and stockholders' equity were $857,000 and
$7,679,000, respectively at February 28, 2005 as compared to $13,000 and
$6,004,000, respectively, at February 29, 2004. Our working capital ratio was
1.3 at February 28, 2005, as compared to 1.0 at February 29, 2004.
We recently conducted our seventh research and recovery expedition to
the Titanic wreck site and successfully recovered more than 75 historic
artifacts. We plan to continue our recovery work by planning future expeditions
to the Titanic wreck-site, as we intend to maintain our sole and exclusive
rights as salvor-in-possession. Expedition 2004 departed from Halifax, Nova
Scotia, Canada on August 25, 2004 and, for the first time, allowed us to rely
exclusively on a deep ocean remotely operated vehicle that permitted the
expedition to conduct round-the-clock underwater operations.
The mission objectives for Expedition 2004, in addition to recovering
important historical objects and identifying artifacts for future recovery, were
to inspect the wreck-site for possible harm caused by previous visitors in order
to determine whether we need to establish guidelines for future visits. During
fiscal year 2005, we spent $879,000 on Expedition 2004, which is accounted for
as a cost of our salvor-in-possession rights. A federal district court has ruled
that our salvor-in-possession rights are our principal assets.
Although no date has been set for an expedition, we continue to plan to
undertake a recovery operation to the RMS Carpathia to recover objects. As we
own this wreck, we intend to sell and/or exhibit any items recovered.
Although we have recently completed a private placement in which we
raised approximately $1.2 million after costs and expenses, we expect that we
will require additional outside funding to further implement our plans to
conduct future exhibitions for both Titanic and other newly developed
exhibitions.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported therein. The estimates
that required management's most difficult, subjective or complex judgments are
described below.
Impairment of assets held for use
- ---------------------------------
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," requires management to assess the recoverability of the carrying value
of long-lived assets when an event of impairment has occurred. Management must
exercise judgment in assessing whether an event of impairment has occurred. The
Company concluded an event of impairment occurred in the carrying values of its
artifacts in the fourth quarter of the 2002 fiscal year and the Company recorded
a pre-tax charge totaling $8.1 million. In this circumstance, a judicial ruling
prompted the determination that an assessment for impairment was required.
Management must also exercise judgment in the determination of expected future
cash flows against which to compare the carrying value of the assets being
evaluated. In this measurement, the carrying value far exceeded the expected
cash flows. Management then exercised judgment in determining the fair value of
the assets from which the impairment charge was measured.
16
In the event that facts and circumstances indicate that the carrying
value of long lived assets, including associated intangibles, may be impaired,
an evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows associated with the asset to the assets carrying amount
to determine if a write down to market value or discounted cash flows is
required.
Probability of litigation outcomes
- ----------------------------------
SFAS No. 5, "Accounting for Contingencies," requires management to make
judgments about future events that are inherently uncertain. In making its
determinations of likely outcomes of litigation matters, management considers
the evaluation of outside counsel knowledgeable about each matter, as well as
known outcomes in case law. See Item 3, "Legal Proceedings" for a detailed
discussion of the key litigation matters the Company faces.
Exchanges of Nonmonetary Assets
- -------------------------------
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets" (SFAS 153) which amends Accounting Principles Board Opinion
No. 29, "Accounting for Nonmonetary Transactions (APB 29). SFAS 153 amends APB
29 to eliminate the fair-value exception for nonmonetary exchanges of similar
productive assets and replace it with a general exception for nonmonetary
exchanges that do not have commercial substance. It is effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. This
statement is not anticipated to have a material impact on the Company's
financial position or results of operations.
Accounting for Stock-Based Compensation
- ---------------------------------------
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based
Payment" (SFAS 123(R), which establishes accounting standards for all
transactions in which an entity exchanges its equity instruments for goods and
services. SFAS 123(R) revises SFAS No. 123, "Accounting for Stock-Based
Compensation", supersedes Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and amends Financial Accounting
Standard No. 95, "Statement of Cash Flows", SFAS No. 123(R) generally requires
the Company to measure the cost of employee services received in exchange for an
award of equity instruments based on the fair value of the award on the date of
the grant. The standard requires the fair value on the grant date to be
estimated using either an option-pricing model which is consistent with the
terms of the award or a market observed price, if such a price exists. The
resulting cost must be recognized over the period during which an employee is
required to provide service in exchange for the award, which is usually the
vesting period. SFAS 123(R) must be adopted no later than periods beginning
after June 15, 2005 and the Company expects to adopt SFAS 123(R) on the
effective date. The Company expects the adoption of SFAS 123(R) will not have a
material impact on its net income and earnings per share.
SALVOR-IN-POSSESSION
In order to maintain its salvor-in-possession status as presently
required by the District Court and to prevent third-parties from salvaging the
TITANIC wreck and wreck site, or interfering with the Company's rights to
salvage the wreck and wreck site, the Company may have to commence judicial
proceedings against third-parties. Such proceedings could be expensive and
time-consuming. Additionally, the Company, in order to maintain its
salvor-in-possession status, needs to, among other things, maintain a reasonable
presence at the wreck through periodic expeditions. The Company is actively
pursuing the donation of its salvor status. Maintaining salvor status is
entirely dependent upon a mandate from the District Court in which the Company
is subject to jurisdiction.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
17
The Company is not presently exposed to interest rate risk but is
exposed to foreign currency exchange rate risk. The Company does not hold any
derivative financial instruments.
BUSINESS RISKS
Our business is subject to a number of uncertainties, including those discussed
below.
The Company may not be able to raise the required capital to conduct our
operations.
The Company does not have sufficient working capital to meet its needs
for the next twelve months. The exhibition tour agreement with CCE expired on
May 29, 2004 with the closing of the Tampa exhibition. Management expects that
it will require additional outside funding to implement plans to conduct its own
exhibitions that have begun in May 2004. Previously, the Company relied upon
third parties to conduct exhibitions under a licensing arrangement. There can be
no assurances that this outside financing can be made available upon reasonable
terms and as timely as management may require for the proper conduct of these
and other future endeavors. If the required financing is not available, it could
be seriously detrimental to the Company and its business.
The successful implementation of our business strategy depends on our ability to
generate cash flows from exhibition and other factors.
We have changed our business model from that of a licensor of artifacts
recovered from the TITANIC to that of direct exhibitor of these artifacts. The
success of our future operating results depends on our ability to implement our
business strategy by successfully operating these exhibitions, and others we may
develop and produce and by further exploiting our attractions assets. Our
ability to do this depends upon many factors, some of which are beyond our
control. These include:
o our ability to achieve positive cash flow from operations of our
TITANIC exhibitions within the anticipated ramp-up period;
o our ability to hire and retain staff skilled in the areas of
management and exhibition for our exhibition tours;
o our ability to capitalize on the strong brand recognition of TITANIC;
and
o the continued popularity and demand of the public to attend TITANIC
exhibitions.
If we are unable to successfully implement the business strategies described
above, our cash flows and eventual profitability will suffer.
Dependence on Key Management Personnel
The Company's future business and operating results depend in
significant part upon the continued contributions of Arnie Geller, the Company's
President, Gerald Couture, its Vice President of Finance and Tom Zaller, its
Vice President of Exhibitions. The Company does not maintain any key person life
insurance policies on Mr. Geller, Mr. Couture or Mr. Zaller. The Company's
future business and operating results also depends in significant part upon its
ability to attract and retain other qualified additional management and support
personnel for its operations.
18
Costs of Maintaining Salvor-in-possession Status.
In order to protect its salvor-in-possession status and to prevent
third-parties from salvaging the Titanic wreck and wreck site, or interfering
with the Company's rights and ability to salvage the wreck and wreck site, the
Company may have to commence judicial proceedings against third-parties. Such
proceedings could be expensive and time-consuming. Additionally, the Company, in
order to maintain its salvor-in-possession status, needs to, among other things,
maintain a reasonable presence at the wreck through periodic expeditions. The
Company will be required to incur the costs for future expeditions so as to
maintain its salvor-in-possession status. The Company's ability to undertake
future expeditions may be dependent upon the availability of financing.
Dependence on Consumer Discretionary Spending.
The amount spent by consumers on discretionary items, such as
entertainment activities and the purchase of merchandise, is dependent upon
consumers' levels of discretionary income, which may be adversely affected by
general or local economic conditions. A decrease in consumer spending on such
activities could have a material adverse effect on the Company's revenues from
exhibition activities and merchandising efforts.
International Exchange Rate Fluctuations.
In connection with its activities outside of the United States, the
Company is exposed to the risk of currency fluctuations between the United
States dollar and certain foreign currency. If the value of the United States
dollar increases in relation to the foreign currency, the Company's potential
revenues from exhibition and merchandising activities outside of the United
States will be adversely affected. Although the Company's financial arrangements
with its foreign vendors and exhibition organizers have been based upon foreign
currencies, the Company has sought and will continue to seek to base its
financial commitments and understandings upon the United States Dollar in its
material business transactions so as to minimize the adverse potential effect of
currency fluctuations.
The issuance of additional common stock for funding has the potential for
substantial dilution.
As noted above, the Company will need additional equity funding to
provide the needed capital to achieve our objectives. At the current market
prices, such equity issuance would cause a substantially larger number of shares
to be outstanding and would dilute the ownership interest of existing
shareholders.
Stock price volatility.
The market price of shares of the Company's common stock has been
volatile, ranging in closing price between $0.57 and $2.48 during the last
twelve months with a June 1, 2005 closing price of $1.92. The price of the
Company's common stock may continue to fluctuate in response to a number of
factors, such as:
o the amount of cash resources and the Company's ability to obtain
additional funding;
o announcements of business developments or future exhibition projects;
o entering into or terminating strategic business relationships;
o changes in government regulations;
o changes in the Company's revenue or expense levels;
o reports by security analysts; and
o status of the investment markets.
Any of these events may cause the price of the Company's shares to
fall, which may adversely affect its business and financing opportunities. In
addition, the stock market in general and the market prices for other media
companies have experienced volatility that often has been unrelated to the
operating performance or financial condition of such companies. Any broad market
or industry fluctuations may adversely affect the trading price of the Company's
stock, regardless of operating performance or prospects.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets at February 29, 2004
and February 28, 2005 F-2
Consolidated Statements of Operations
for the years ended February 28(29), 2003, 2004 and 2005 F-3
Consolidated Statements of Stockholders' Equity
for the years ended February 28(29), 2003, 2004 and 2005 F-4
Consolidated Statements of Cash Flows for the years ended
February 28(29), 2003, 2004 and 2005 F-5
Notes to Consolidated Financial Statements F-7
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
reports f8iled pursuant to the Securities Act of 1934, as amended (the "Exchange
Act") is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's (the "SEC") rules and
forms, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
As of the end of the period covered by this annual report, an
evaluation was performed under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in alerting them in a timely
manner to material information relating to the Company required to be included
in periodic filings with the SEC. There have been no significant changes in the
Company's internal controls over financial reporting (as such term is defined in
Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act during the most recent
fiscal quarter that have materially affected or are reasonably likely to
materially affect, the Company's internal controls over financial reporting.
PART III
ITEM 10. THROUGH 14.
All information required by Items 10 through 14, with the exception of
information on Executive Officers which appears in this report under Item 1
under the caption "Executive Officers" is incorporated by reference to Premier
Exhibitions' Proxy Statement for the 2005 Annual Meeting of Shareholders.
20
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this Report on Form 10-K:
(a) Financial Statements. The following financial statements of the Company are
included in this Annual Report:
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets at February 29, 2004
and February 28, 2005 F-2
Consolidated Statements of Operations
for the years ended February 28(29), 2003, 2004 and 2005 F-3
Consolidated Statements of Stockholders' Equity
for the years ended February 28(29), 2003, 2004 and 2005 F-4
Consolidated Statements of Cash Flows for the years ended
February 28(29), 2003, 2004 and 2005 F-5
Notes to Consolidated Financial Statements F-7
(b) Reports on Form 8-K during the fiscal year ended February 28, 2005
Date of event: February 9, 2005
Item(s) reported: 2.02, 7.01, 9.01
Date of event: October 14, 2004
Item(s) reported: 9.01
Date of event: October 14, 2004
Item(s) reported: 8.01, 9.01
Date of event: May 6, 2004
Item(s) reported: 5
Date of event: April 20, 2004
Item(s) reported: 5
Date of event: April 20, 2004
Item(s) reported: 5
(c) Exhibits.
3.1 Articles of Incorporation, as amended.
4.1 First Amendment to By-Laws of the Registrant.
4.2 Second Amendment to By-Laws of the Registrant.
21
9.1 Voting Trust Agreement among Titanic Ventures Limited Partnership, George Tulloch, Allan H. Carlin, Arnie Geller, G. Michael
Harris, Kurt Hothorn, Cheryl Hothorn, Westgate Entertainment Corp., Anne A. Hill, Diane Carlin, Shirley A. Hill, James A.
Hill, and D. Michael Harris.
10.1.1 Lease Agreement between the Company and 17 Battery Place North Associates.
10.1.2 Lease Agreement between the Company and Tower Place
10.2 Agreement dated April 15, 1996 between the Company and CRE-CO Finanz
GmbH.
10.13 1998 Charter Agreement with IFREMER.
10.14 1998 Charter Agreement with Oceaneering International, Inc.
10.20 Promissory Note dated January 5, 1999 executed by George Tulloch in favor of the registrant.
10.21 Pledge Agreement dated January 5, 1999 between George Tulloch and the registrant.
10.22.1 Exhibition Tour Agreement dated March 31, 1999 between the Company and
Magicworks Entertainment Inc. is incorporated by reference to the
Company's report on Form 10-Q for the fiscal quarter ended May 31,
1999.
10.22.2 Agreement dated April 18, 2000 by and among Whitestar Marine Recovery, Ltd., Argosy International, Ltd. Graham Jessop and
the Company.
10.22.3 Agreement dated April 18, 2000 by and among the Company, Argosy International, Inc. and Graham Jessop.
10.22.4 Agreement dated May 7, 2001 by and among the Company, Argosy International, Inc. and Graham Jessop.
10.23 Lease dated March 27, 2000 for offices in Atlanta, Georgia.
10.23.1 Employment Agreement dated April 25, 2000 between the Company and Gerald
Couture.
10.23.2 Stock Option Agreement dated April 25, 2000 between the Company and
Gerald Couture.
10.23.3 Employment Agreement dated June 29, 2000 between the Company and Arnie
Geller is incorporated by reference to the Company's report on Form
10-Q for the fiscal quarter ended August 31, 2000.
10.23.4 Stock Option Agreement dated June 29, 2000 between the Company and
Arnie Geller is incorporated by reference to the Company's report on
Form 10-Q for the fiscal quarter ended August 31, 2000.
10.23.5 Employment Agreement dated June 29, 2000 between the Company and G.
Michael Harris is incorporated by reference to the Company's report on
Form 10-Q for the fiscal quarter ended August 31, 2000.
10.23.6 Stock Option Agreement dated June 29, 2000 between the Company and G.
Michael Harris is incorporated by reference to the Company's report on
Form 10-Q for the fiscal quarter ended August 31, 2000.
10.23.7 Employment Agreement dated May 6, 2001 between the Company and Dik
Barton.
22
10.23.8 Employment Agreement dated February 2, 2002 between the Company and
Arnie Geller.(*3)
10.23.9 Employment Agreement dated February 2, 2002 between the Company and
Gerald Couture.(*3)
10.24 The Company's 2000 Stock Option Plan and form of stock option.(*1)
10.30 Amendment to Exhibition Tour Agreement, dated September 18, 2000, between the Company and SFX Family Entertainment Inc.
10.31 Second Amendment to Exhibition Tour Agreement, dated May 7, 2001 between the Company and SFX Family Entertainment Inc.
10.32 Third Amendment to Exhibition Tour Agreement, dated March 7, 2002 between the Company and SFX Family Entertainment Inc.
10.33 Fourth Amendment to Exhibition Tour Agreement, dated May 1, 2002 between the Company and Clear Channel Entertainment
Exhibits, Inc.
10.34 Form of lease dated October 16, 2001 for offices and warehouse in Atlanta, Georgia..(*3)
10.35 Agreement dated April 2, 2002, between the Company, Argosy International Ltd, Danepath Ltd and Graham Jessop. (*3.1)
10.36 Stock Pledge Agreement dated April 2, 2002, between the Company and Argosy International, Ltd. (*3.1)
10.37 Deed of Covenant from Danepath Ltd. to the Company. (*3.1)
10.38 Letter Modification Agreement dated April 4, 2002, between the Company, Argosy International Ltd., Danepath Ltd. and
Graham Jessop. (*3.1)
10.39 United States Court of Appeals R.M.S. Titanic, Inc. v. The Wrecked and Abandoned Vessel. Opinion No. 01-2227 (*3.2)
10.40 Motion for Stay of Mandate as filed on April 22, 2002. (*3.2)
10.41 Letter Modification Agreement dated June 1, 2002, between the Company, Argosy International Ltd, Danepath Ltd and Graham
Jessop. (*3)
10.42 Form of Settlement Agreement between Argosy International Ltd and the
Company is incorporated by reference to the Company's report on Form
10-Q for the fiscal quarter ended November 30, 2002.
10.43 Form of Stock Pledge Agreement between Argosy International Ltd and the
Company is incorporated by reference to the Company's report on Form
10-Q for the fiscal quarter ended November 30, 2002. .(*3.3)
10.44 Form of Settlement Agreement and Mutual General Release of all Claims Known and Unknown.(*3.3)
10.45 Form of Stipulation and [Proposed] Order for Dismissal of Action and Retention of Jurisdiction. (*3.3)
10.46 Form of Judgment pursuant to Stipulation for Entry of Judgment in the Event of Default. (*3.3)
23
10.47 Form of Stipulation for Entry of Judgment in the Event of Default. (*3.3)
10.48 Fifth Amendment to Exhibition Tour Agreement, dated August 15, 2003
between the Company and Clear Channel Entertainment Exhibits, Inc is
incorporated by reference to the Company's report on Form 10-Q for the
fiscal quarter ended August 31, 2003
10.49 Lease amendment dated August 8, 2003 for offices in Atlanta, Georgia.(*5)
10.50 Amendment to Employment Agreement dated April 10, 2004 between the Company and Arnie Geller.(*5)
10.51 Amendment to Employment Agreement dated April 10, 2004 between the Company and Gerald Couture.(*5)
10.52 Sixth Amendment to Exhibition Tour Agreement, dated May 26, 2004 between the Company and Clear Channel
Entertainment Exhibits, Inc.(*5)
10.53 The Company's 2004 Stock Option Plan and form of stock option.(*5)
10.54 Employment Agreement dated August 4, 2003 between the Company and Tom Zaller. (*5)
99 Code of Ethics(*6)
(*1) Incorporated hereby by reference to Form 10-K for year ended February 29, 2000
(*2) Incorporated hereby by reference to Form 10-K for year ended February 28, 2001
(*3) Incorporated hereby by reference to Form 10-K for year ended February 28, 2002
(*3.1) Incorporated hereby by reference to Form 8-K filing of April 17, 2002.
(*3.2) Incorporated hereby by reference to Form 8-K filing of April 30, 2002.
(*3.3) Incorporated hereby by reference to Form 8-K filing of July 16, 2002.
(*4) Incorporated hereby by reference to Form 10-K for year ended February 28, 2003
(*5) Incorporated hereby by reference to Form 10-K for year ended February 29, 2004
(*6) Filed herewith
Additional Exhibits:
21 Subsidiaries of the Company
31(a) Certificate of Company's Chief Executive Officer required
by Section 302 of the Sarbanes-Oxely Act of 2002
31(b) Certificate of Company's Chief Financial Officer required
by Section 302 of the Sarbanes-Oxely Act of 2002
31(a) Certificate of Company's Chief Executive Officer and Chief
Financial Officer required by Section 906 of the
Sarbanes-Oxely Act of 2002
24
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PREMIER EXHIBITIONS, INC.
June 14, 2004 By: /s/ Arnie Geller
---------------------------------
Arnie Geller, President and Chief
Executive Officer
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 as of the date indicated:
/s/ Arnie Geller June 14, 2005
- -----------------------------
Arnie Geller, President,
Chief Executive Officer, Director
/s/ Gerald Couture June 14, 2005
- -----------------------------
Gerald Couture, Vice President, Chief
Financial Officer, Secretary,
Director
/s/ Nick Cretan June 14, 2005
- -----------------------------
Nick Cretan, Director
/s/ Doug Banker June 14, 2005
- -----------------------------
Doug Banker, Director
25
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm F-1
Consolidated Financial Statements:
Consolidated Balance Sheets at February 29, 2004 and February 28, 2005 F-2
Consolidated Statements of Operations for the
Years Ended February 28, 2003, February 29, 2004 and February 28, 2005 F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
February 28, 2003, February 29, 2004 and February 28, 2005 F-4
Consolidated Statements of Cash Flows for the Years Ended
February 28, 2003, February 29, 2004 and February 28, 2005 F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Premier Exhibitions, Inc.
We have audited the accompanying consolidated balance sheets of Premier
Exhibitions, Inc. and Subsidiaries as of February 28, 2005 and February 29,
2004, and the related statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended February 28, 2005. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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
financial statement presentation. 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 Premier Exhibitions,
Inc. and Subsidiaries as of February 28, 2005 and February 29, 2004 and the
results of their operations and their cash flows for each of the three years in
the period ended February 28, 2005, in conformity with U.S. generally accepted
accounting principles.
Kempisty & Company
Certified Public Accountants, P. C.
New York, New York
June 14, 2005
F-1
PREMIER EXHBIITIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------------
February 29, February 28,
- ------------------------------------------------------------------------------------------------------------------------------------
2004 2005
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 547,000 $ 1,258,000
Accounts receivable 353,000 1,057,000
Prepaid and refundable taxes 221,000 222,000
Prepaid expenses and other current assets 141,000 1,405,000
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 1,262,000 3,942,000
Artifacts owned, at cost (Note 2) 4,479,000 4,476,000
Salvor's lien 1,000 1,000
Salvor-in-Possession Rights - 879,000
Property and Equipment, net of accumulated depreciation
of $1,754,000 and $1,976,000, respectively (Note 3) 747,000 738,000
Other Assets 764,000 728,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 7,253,000 $ 10,764,000
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities (Note 4) $ 1,249,000 $ 1,660,000
Deferred revenue -- 1,000,000
Note Payable - stockholder -- 425,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,249,000 3,085,000
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 8 & 9)
Stockholders' Equity: (Note 6)
Common stock - $.0001 par value; authorized 30,000,000 shares,
issued and outstanding 19,125,047 and 22,299,937 shares, respectively 2,000 2,000
Additional paid-in capital 17,192,000 20,316,000
Accumulated deficit (11,190,000) (12,665,000)
Accumulated other comprehensive income - 26,000
Stockholders' equity 6,004,000 7,679,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 7,253,000 $ 10,764,000
====================================================================================================================================
See Notes to Financial Statements
F-2
PREMIER EXHBIITIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
February 28, February 29, February 28,
Year ended 2003 2004 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue:
Exhibitions and related merchandise sales $ 2,646,000 $ 2,677,000 $ 6,320,000
Merchandise and other 121,000 119,000 507,000
Sale of coal 94,000 68,000 30,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenue 2,861,000 2,864,000 6,857,000
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
General and administrative 2,809,000 3,402,000 4,397,000
Depreciation and amortization 293,000 253,000 378,000
Exhibition costs - - 2,891,000
Cost of merchandise sold 140,000 110,000 257,000
Cost of coal sold 35,000 21,000 9,000
Write down of note receivable 296,000 - -
Expenses for settlement of litigation 413,000 175,000 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,986,000 3,961,000 7,932,000
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (Loss) from operations (1,125,000) (1,097,000) (1,075,000)
Other income and expenses:
Interest Income 298,000 9,000 2,000
Interest Expense - - (46,000)
Loss on Sale of Fixed Assets - - (356,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (Loss) before provision for income taxes (7,260,000) (827,000) (1,475,000)
Provision for income taxes - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (827,000) $ (1,088,000) $ (1,475,000)
====================================================================================================================================
Other comprehensive operations:
Foreign currency translation - - 26,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) from comprehensive operations $ (827,000) $ (1,088,000) $ (1,449,000)
====================================================================================================================================
Basic and diluted Loss
Per common share $ (0.04) $ (0.06) $ (0.07)
====================================================================================================================================
Weighted-average number of common shares outstanding 18,615,294 18,960,047 20,818,898
====================================================================================================================================
See Notes to Financial Statements
F-3
PREMIER EXHBIITIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Other
Number Amount Paid-in Comprehensive Accumulated Stockholders'
of Shares Capital Income(Loss) Deficit Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as of
February 28, 2002 18,550,047 $2,000 $16,615,000 $(31,000) $(9,244,000) $7,342,000
Reclass of foreign currency translation 31,000 (31,000) -
Issuance of common stock for services 125,000 - 35,000 - - 35,000
Net loss - - - (827,000) (827,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as of February 28, 2003 18,675,047 $2,000 $16,650,000 - $(10,102,000) $6,550,000
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for services 450,000 - 108,000 - - 108,000
Issuance of compensatory stock options 434,000 434,000
Net loss - - - (1,088,000) (1,088,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as of February 29, 2004 19,125,047 $2,000 $17,192,000 - $(11,190,000) $6,004,000
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for services 150,000 - 77,000 77,000
Issuance of common stock in exchange
for options 900,000 1,569,000 - - 1,569,000
Issuance of common stock for services 655,000 - 200,000 - - 200,000
Issuance of common stock
in equity raise 1,469,892 1,278,000 1,278,000
Net loss (1,475,000) (1,475,000)
Foreign currency translation gain 26,000 26,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as of February 28, 2005 22,299,939 $2,000 $20,316,000 26,000 $(12,665,000) $7,679,000
See Notes to Financial Statements
F-4
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
====================================================================================================================================
February 28, February 29, February 28,
Year ended 2003 2004 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (827,000) $ (1,088,000) $ (1,475,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 293,000 253,000 378,000
Issuance of common stock for services 35,000 108,000 277,000
Reduction in cost of artifacts - - 3,000
Loss on disposal of fixed assets - - 356,000
Issuance of stock for interest expense - - 6,000
Issuance of stock in exchange of option - - 1,569,000
Issuance of compensatory stock options - 434,000 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (88,000) (225,000) (704,000)
(Increase) decrease in prepaid and refundable taxes 1,750,000 290,000 (1,000)
Decrease (increase) in prepaid expenses and other current assets 983,000 166,000 (1,264,000)
Decrease (increase) in other assets 28,000 (715,000) 39,000
Increase (decrease) in deferred revenue (53,000) (735,000) 1,000,000
Increase (decrease) in accounts payable and accrued liabilities 405,000 135,000 411,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total adjustments 3,353,000 (289,000) 2,070,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 2,526,000 (1,377,000) 595,000
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of fixed assets - - 230,000
Purchases of property and equipment (727,000) (21,000) (964,000)
Investment in salvor-in-possession rights - - (879,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (727,000) (21,000) (1,613,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows provided from financing activities:
Proceeds from note payable 500,000
Payment on note payable (75,000)
Proceeds from the sale of common stock 1,278,000
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities (727,000) (21,000) 1,703,000
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash - - 26,000
Net increase (decrease) in cash and cash equivalents 1,799,000 (1,398,000) 711,000
Cash and cash equivalents at beginning of year 146,000 1,945,000 547,000
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,945,000 $ 547,000 $ 1,258,000
====================================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ - 0 - $ - 0 - $ - 0 -
Cash paid during the year for interest $ - 0 - $ - 0 - $ 40,000
====================================================================================================================================
See Notes to Financial Statements
F-5
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
- ------------------------------------------------------------------------------------------------------------------------------------
February 28, February 29, February 28,
Year ended 2003 2004 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of non-cash financing and
investing activities:
Issuance of compensatory stock options $ -0- $ 434,000 $ -0-
Issuance of common stock in exchange for options $ -0- $ -0- $1,569,000
==============================================================================================================================
Common stock issued for assets $ -0- $ -0- $ -0-
==============================================================================================================================
See Notes to Financial Statements
F-6
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Premier Exhibitions, Inc. initially conducted business as Titanic Ventures
Limited Partnership ("TVLP"). In 1993, the Company acquired all of TVLP's
assets and assumed all of TVLP's liabilities. The transaction was accounted
for as a "reverse acquisition" with TVLP deemed to be the acquiring entity.
Premier Exhibitions, Inc. and TVLP are referred to as the "Company" as the
context dictates.
In June 2000, the Company established a wholly owned United Kingdom
subsidiary, Danepath Ltd., for the purpose of purchasing the research
vessel, RRS Challenger, a 178 foot- 1050 ton ship that was to be utilized
in the expedition to the RMS TITANIC (the "TITANIC") wreck site during that
summer. This vessel was acquired on June 30, 2000 from the Natural
Environment Research Council, a British governmental agency. The name of
the vessel was changed to the SV EXPLORER. On April 2, 2002, the Company
sold its Danepath subsidiary to Argosy International Ltd., an affiliated
party. In January 2003, in settlement of an outstanding obligation from
Argosy, the Company acquired the vessel, the SV EXPLORER, and related
marine equipment in a wholly owned United Kingdom subsidiary of the
Company, Seatron Limited.
In May 2001, the Company acquired the ownership rights to the shipwreck the
RMS CARPATHIA (the "CARPATHIA"). The CARPATHIA was the vessel that rescued
the survivors from the TITANIC. The value that was assigned to this asset
($1,374,000) is the un-amortized value of other intangible assets purchased
by the Company in April 2000 from this same entity ($555,000), plus the
fair market value of 1,104,545 newly issued shares of common stock
($819,000).
On March 6, 2002, in a separate agreement, the Company sold to Argosy
International, for minimal consideration, its 100% ownership interest in
White Star Marine Recovery, Ltd. That sale terminated its obligation under
an agreement with Argosy International for the consulting services of
Graham Jessop. At the time of this sale, White Star Marine Recovery had no
assets other than this consulting contract.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All inter-company accounts
and transactions have been eliminated.
The Company was formed in 1987 for the purposes of exploring the wreck and
surrounding oceanic area of the vessel the TITANIC; obtaining oceanic
material and scientific data available there-from in various forms,
including still and moving photography and artifacts ("Artifacts") from the
wreck site; and utilizing such data and Artifacts in revenue-producing
activities such as touring exhibitions, television programs and the sale of
still photography. The Company also earns revenue from the sale of coal and
TITANIC -related products.
The Company was declared salvor-in-possession of the TITANIC pursuant to a
judgment entered in the Federal District Court for the Eastern District of
Virginia. On April 12, 2002, the United States Court of Appeals for the
Fourth Circuit (the "Fourth Circuit") affirmed two orders of the United
States District Court for the Eastern District of Virginia, Norfolk
Division. R.M.S. Titanic, Inc. v. The Wrecked and Abandoned Vessel ...,
2002 U.S. App. LEXIS 6799 (4th Cir. 2002). Dated September 26, 2001 and
October 19, 2001, these orders restricted the sale of Artifacts recovered
by the Company from the RMS TITANIC wreck site. In rendering its opinion,
the Fourth Circuit reviewed and declared ambiguous the June 7, 1994 order
F-7
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
of the District Court that had awarded ownership to the Company of all
items then salvaged from the wreck of the TITANIC as well as all items to
be salvaged in the future by the Company so long as the Company remained
salvor-in-possession of the TITANIC. Having found the June 7, 1994 order
ambiguous, the Fourth Circuit reinterpreted the order to convey only
possession, not title, pending determination of a salvage award.
As a consequence of the Fourth Circuit's decision, the Company reviewed the
carrying cost of Artifacts recovered from TITANIC expeditions to determine
impairment of values. Up until the ruling by the Fourth Circuit, the
Company was carrying the value of the artifacts that it recovered from the
TITANIC wreck site at the respective costs of the expeditions as the
Company believed it was the owner of all Artifacts recovered. The Company
had relied on ownership being granted by the United States District Court
in the June 7, 1994 Order. As a consequence of this review and in
compliance with the requirements of Statement of Financial Accounting
Standards ("SFAS") 142- Impairment of Long-Lived Assets and SFAS 121- The
Valuation of Non-Goodwill Intangibles, it was determined that an impairment
of realizable values had occurred because of the Fourth Circuit's ruling
that removed ownership of certain artifacts from the Company that were
under the jurisdiction of the United States District Court. The District
Court has jurisdiction of all Artifacts that have been recovered from the
TITANIC wreck site except for those 1800 Artifacts recovered in the 1987
expedition. These 1987 Artifacts were previously granted to the Company by
the government of France in 1993. Furthermore, the Salvor's Lien that the
Fourth Circuit Court acknowledged the Company was entitled to under its
Salvor-in-Possession status could not be quantified other than for a de
minimus amount because of the uncertainty of the wide latitude given a
United States Federal Maritime Court to apply the Blackwall factors for a
salvor's award and the adjustment to such an award, if any, for revenues
the Company may have derived from the Artifacts . Therefore an impairment
charge of an amount equal to the costs of recovery for all expeditions
after 1987, net of tax benefit, was established less a re-classification of
$1,000, a de minimus amount, for the value of a Salvor's Lien.
Since August 1987, the Company has completed six expeditions to the wreck
site of the TITANIC and has recovered approximately 6,000 Artifacts
including a large section of the TITANIC's hull along with coal from the
wreck site.
Costs associated with the care, management and preservation of recovered
Artifacts are expensed as incurred. A majority of the Artifacts not in
exhibition are located within the United States.
To ascertain that the aggregate net realizable value ("NRV") of the
Artifacts exceeds the direct costs of recovery of such Artifacts, the
Company evaluates various evidential matters. Such evidential matters
includes documented sales and offerings of TITANIC-related memorabilia,
insurance coverage obtained in connection with the potential theft, damage
or destruction of all or part of the Artifacts and other evidential matter
regarding the public interest in the TITANIC.
At each balance sheet date, the Company evaluates the period of
amortization of intangible assets. The factors used in evaluating the
period of amortization include: (i) current operating results, (ii)
projected future operating results, and (ii) other material factors that
affect the continuity of the business.
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturities of three months or less to be
cash equivalents.
F-8
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company maintains cash in bank accounts that, at times, may exceed
federally insured limits. The Company has not experienced any losses on
these accounts.
Revenue from the licensing of the production and exploitation of audio and
visual recordings by third parties, related to the Company's expeditions,
is recognized at the time that the expedition and dive takes place.
Revenue from the licensing of still photographs and video is recognized at
the time the rights are granted to the licensee.
Revenue from the granting of sponsorship rights related to the Company's
expeditions and dives is recognized at the completion of the expedition.
Revenue sharing from the sale of TITANIC-related products by third parties
is recognized when the item is sold.
Revenue from license agreements is recognized pro-rata over the life of the
agreements. Amounts received in excess of amounts earned are shown as
deferred revenue.
The Company sells coal recovered from the TITANIC wreck site. Revenue from
sales of such coal is recognized at the date of shipment to customers.
Recovery costs attributable to the coal are charged to operations as
revenue from coal sales are recognized.
Income tax expense includes income taxes currently payable and deferred
taxes arising from temporary differences between financial reporting and
income tax bases of assets and liabilities. They are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Depreciation of property and equipment is provided for by the straight-line
method over the estimated lives of the related assets.
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but
does not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has elected to
account for its stock-based compensation plans using the intrinsic value
method prescribed by Accounting Procedures Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and to present pro forma
earnings (loss) and per share information as though it had adopted SFAS No.
123. Under the provisions of APB Opinion No. 25, compensation cost for
stock options is measured as the excess, if any, of the quoted market price
of the Company's common stock at the date of the grant over the amount an
employee must pay to acquire the stock.
Basic earnings per common share ("EPS") is computed as net earnings divided
by the weighted-average number of common shares outstanding for the period.
Diluted EPS, representing the potential dilution that would occur from
common shares issuable through stock-based compensation, including stock
options, restricted stock awards, warrants and other, is not presented for
the years ended February 28, 2003, February 29, 2004 and February 29, 2005
since there was no dilutive effect of potential common shares or the
dilutive effect is not material.
F-9
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements.
Actual results could differ from those estimates.
Impairment of Long-Lived Assets. In the event that facts and circumstances
indicate that the carrying value of long lived assets, including associated
intangibles may be impaired, an evaluation of recoverability is performed
by comparing the estimated future undiscounted cash flows associated with
the asset to the assets carrying amount to determine if a write down to
market value or discounted cash flows is required.
Recent Accounting Pronouncements
--------------------------------
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets" (SFAS 153) which amends Accounting Principles Board Opinion No. 29,
"Accounting for Nonmonetary Transactions (APB 29). SFAS 153 amends APB 29
to eliminate the fair-value exception for nonmonetary exchanges of similar
productive assets and replace it with a general exception for nonmonetary
exchanges that do not have commercial substance. It is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after
June 15, 2005. This statement is not anticipated to have a material impact
on the Company's financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment"
(SFAS 123(R), which establishes accounting standards for all transactions
in which an entity exchanges its equity instruments for goods and services.
SFAS 123(R) revises SFAS No. 123, "Accounting for Stock-Based
Compensation", supersedes Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and amends Financial Accounting
Standard No. 95, "Statement of Cash Flows", SFAS No. 123(R) generally
requires the Company to measure the cost of employee services received in
exchange for an award of equity instruments based on the fair value of the
award on the date of the grant. The standard requires the fair value on the
grant date to be estimated using either an option-pricing model which is
consistent with the terms of the award or a market observed price, if such
a price exists. The resulting cost must be recognized over the period
during which an employee is required to provide service in exchange for the
award, which is usually the vesting period. SFAS 123(R) must be adopted no
later than periods beginning after June 15, 2005 and the Company expects to
adopt SFAS 123(R) on the effective date. The Company expects the adoption
of SFAS 123(R) will not have a material impact on its net income and
earnings per share.
F-10
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. ARTIFACTS:
Artifacts recovered in the 1987 TITANIC expedition are carried at the lower
of cost of recovery or NRV. The ownership of these Artifacts was granted to
the Company by the Government of France. The costs of recovery are the
direct costs of chartering of vessels and related crews and equipment
required to complete the dive operations for that expedition. Coal
recovered in two expeditions is the only item available for sale.
Periodically, as sales of coal occur, ten percent of the sale value is
deducted from the carrying costs of Artifacts recovered. During 2005, 2004
and 2003, $6,000, $6,000, and $11,000, respectively, were deducted from the
Artifacts cost.
Artifacts, at cost, consists of the following:
February 29, February 28,
2004 2005
---------------------------------------------------------------------------
Artifacts recovered, TITANIC $ 3,105,000 $ 3,102,000
Artifacts, CARPATHIA 1,374,000 1,374,000
---------------------------------------------------------------------------
$ 4,479,000 $ 4,476,000
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
- ------------------------------------------------------------------------------------------------------------------------------------
February 29, February 28, Estimated
2004 2005 Useful Life
Exhibitry equipment $1,378,000 $2,323,000 5 years
Marine equipment 750,000 - 10 years
Office equipment 208,000 227,000 5 years
Furniture and fixtures 164,000 164,000 5 years
- ------------------------------------------------------------------------------------------------------------------------------------
2,501,000 2,714,000
Less accumulated depreciation 1,754,000 1,976,000
- ------------------------------------------------------------------------------------------------------------------------------------
$ 747,000 $ 738,000
====================================================================================================================================
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
February 29, February 28,
2004 2005
----------------------------------------------------------------------------------------
Amounts payable for professional and consulting fees $ 419,000 $ 1,231,000
Settlement accrual 248,000 107,000
Other miscellaneous liabilities 582,000 322,000
- ------------------------------------------------------------------------------------------------------------------------------------
$1,249,000 $1,660,000
====================================================================================================================================
F-11
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. INCOME TAXES
The provision for income taxes consists of the following components:
February 28, February 29, February 28,
Year ended 2003 2004 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Current:
Federal $(264,000) $(300,000) $(450,000)
State and local (50,000) (90,000) (120,000)
- ------------------------------------------------------------------------------------------------------------------------------------
(314,000) (390,000) (670,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Federal 264,000 300,000 450,000
State and local 50,000 90,000 120,000
- ------------------------------------------------------------------------------------------------------------------------------------
314,000 390,000 670,000
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $- 0 - $ - 0 - $ -0-
- ------------------------------------------------------------------------------------------------------------------------------------
The total provision for income taxes differs from that amount which would
be computed by applying the U.S. federal income tax rate to income before
provision for income taxes. The reasons for these differences are as
follows:
February 28, February 29, February 28,
Year ended 2003 2004 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Statutory federal income tax rate (34.0)% (34.0)% (34.0)%
Effect of federal graduated tax
rates benefit (4.0) -- --
Net Operating Loss Carry-forward 38.0 34.0 34.0
Other, net - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Effective income tax rate - 0 - % - 0 - % -0- %
====================================================================================================================================
The net deferred income tax asset consists of the following:
February 29, February 28,
2004 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Net Operating loss carry-forward $2,180,000 $2,800,000
Deferred tax asset - expenses not currently
deductible $ -- --
Valuation allowance for doubtful tax assets (2,180,000) (2,800,000)
Net deferred tax $-0- $-0-
The net operating loss carry-forwards of approximately $7,000,000 expire in
varying amounts from 2019 to 2025. A valuation allowance of 100% of the
deferred income tax asset has been provided at February 28, 2005 because of
the uncertainties as to the amount of taxable income that will be generated
in the future years as a result of the determination by the Federal Court
of Appeals that the Company does not own the Titanic artifacts.
F-12
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. STOCKHOLDERS' EQUITY:
Prior to the acquisition of TVLP's assets, the Company initiated an
exchange agreement with the holders of certain Class B warrants in which
the holders would receive shares of the Company's common stock in exchange
for certain Class B warrants. Through February 28, 2003, the Company had
received 20,700 Class B warrants to be exchanged for 20,700 shares of
common stock of the Company, of which 16,500 shares still remain to be
issued. There were 5,556 warrants outstanding as of February 28, 2005.
During the year ended February 28, 2003, the Company issued 125,000 shares
of common stock as payment for conservation services having a value of
$35,000.
During the year ended February 29, 2004, the Company issued 450,000 shares
of common stock as payment for services and compensation having a value of
$108,000.
During the year ended February 28, 2005, the Company issued 150,000 shares
of common stock as payment for services and 625,000 shares as payment for
compensation.
During the year ended February 28, 2005, the Company sold 1,469,927 shares
of common stock and warrants to purchase 441,003 shares of common stock for
aggregate consideration of $1,514,000. The net proceeds of the private
placement were $1,278,000 after fees, expenses and other costs. In
connection with the private placement, the Company issued warrants to
purchase 293,985 shares of common stock to its placement agent. All of the
warrants issued in the private placement are exercisable over a five-year
term at an exercise price of $1.50 per share.
7. STOCK OPTIONS:
Transactions relating to stock options are as follows:
Weighted-
Number of Average
Shares and Exercise
Options Price
Exercisable per Share
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 2002 4,000,000 $1.22
Canceled 250,000 $0.88
Granted -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 2003 3,750,000 $1.24
Canceled 250,000 4.00
Granted 950,000 0.31
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at February 29, 2004 4,450,000 $0.89
Canceled and expired 2,800,000 1.90
Granted 700,000 $1.64
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 2005 2,350,000 $0.36
====================================================================================================================================
In April 2000, the Company adopted an incentive stock option plan (the
"2000 Plan") under which options to purchase 3,000,000 shares of common
stock may be granted to certain key employees, directors or consultants.
The exercise price was based on the fair market value of such shares as
determined by the board of directors at the date of the grant of such
options. In December 2003, the Company adopted a second incentive stock
option plan (the "2004 Plan") under which options to purchase 3,000,000
shares of common stock may be granted to certain key employees, directors
or consultants. The exercise price is be based on the fair market value of
such shares as determined by the board of directors at the date of the
grant of such options.
F-13
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In May 2001, the Company granted an option to purchase 250,000 shares of
the Company's common stock at $0.88 per share to its Vice President and
Director of Operations. This option has a 5-year maturity from the date of
grant. This option was canceled by its term ninety days after the
employee's resignation during the fiscal year ended February 28, 2003.
In February 2002, the Company granted an option to purchase 600,000 shares
of the Company's common stock at $0.40 per share to its Vice President and
Chief Financial Officer. This option has a 10-year maturity from the date
of grant.
In February 2002, the Company granted an option to purchase 500,000 shares
of the Company's common stock at $0.40 per share to its President and Chief
Executive Officer. This option has a 10-year maturity from the date of
grant.
In February 2002, the Company reset the option strike price for 300,000
outstanding options owned by its directors to $0.40. A charge to
compensation was not necessary.
In December 2003, the Company established a 2004 Stock Incentive Plan that
included 3,000,000 shares of common stock. In addition, the Company granted
options to employees and directors on 940,000 shares of the Company's
common stock at $0.32 per share. These options have a 10-year maturity from
the date of grant.
During August 2004, two officers of the Company, its President and Vice
President of Finance as requested by the Company's investment banker,
exchanged options that they held for common stock at a ratio of two options
for the issuance of one share of common stock. The purpose of this
transaction was to make available more common shares to be sold in the SB-2
Registration. The Company's President exchanged 1.2 million options for
600,000 shares of common stock to vest over a two year period. The
Company's Vice President of Finance exchanged 600,000 options for 300,000
shares of common stock to be vested over at two year period.
As of February 28, 2005, options to purchase 1,660,000 shares of common
stock have been granted under the 2000 Plan and 690,000 shares of common
stock under the 2004 Plan. The following table summarizes the information
about all stock options outstanding at February 28, 2005:
F-14
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Options Outstanding and Exercisable
Weighted-
Average Weighted-
Remaining Average
Range of Number Contractual Exercise
Exercise Price Outstanding Life (Years) Price
- ------------------------------------------------------------------------------------------------------------------------------------
$0.28 250,000 8.5 $0.28
$0.32 690,000 8.75 $0.32
$0.40 1,410,000 6.72 $0.40
- ------------------------------------------------------------------------------------------------------------------------------------
$0.40 - $5.00 2,350,000 $0.36
====================================================================================================================================
The Company elected , in accordance with the provisions of SFAS No. 123, to
apply the current accounting rules under APB Opinion No. 25 and related
interpretations in accounting for stock options and, accordingly, has
presented the disclosure-only information as required by SFAS No. 123. If
the Company had elected to recognize compensation cost based on the fair
value of the options granted at the grant date as prescribed by SFAS No.
123, the Company's net income and income per common share for the years
ended February 28, 2003, February 29, 2004, and February 28, 2005 would
approximate the pro forma amounts shown in the table below:
February 28, February 29, February 28,
Year ended 2003 2004 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Reported net income (loss) $ (827,000) $ (1,088,000) $ (1,479,000)
====================================================================================================================================
Pro forma net income (loss) $ (827,000) $ (1,088,000) $ (1,479,000)
====================================================================================================================================
Reported net income (loss)
per common share $ (0.04) $ (0.06) $ (0.07)
Pro forma net income (loss)
per common share $ (0.04) $ (0.06) $ (0.07)
====================================================================================================================================
The fair value of options granted (which is
amortized to expense over the option vesting
period in determining the proforma impact) is
estimated on the date of grant using the
Black-Scholes option-pricing model with the
following weighted-average assumptions:
F-16
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
February 28, February 29, February 28,
Year ended 2003 2004 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Expected life of options 8.07 years 7.07 years 6.07 years
====================================================================================================================================
Risk-free interest rate 4.75% 4.75% 4.75%
====================================================================================================================================
Expected volatility of RMS
Titanic, Inc. 100.0% 100.0% 100.0%
====================================================================================================================================
Expected dividend yield on
RMS Titanic, Inc. $ - 0 - $ - 0 - $ - 0 -
====================================================================================================================================
The weighted-average fair value of options granted during the years is as follows:
February 28, February 29, February 28,
Year ended 2003 2004 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Fair value of each option granted $ -- $ -- $ --
Total number of options granted -- 940,000 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total fair value of all
options granted $ -- $ -- $ --
====================================================================================================================================
In accordance with SFAS No. 123, the
weighted-average fair value of stock options
granted is based on a theoretical statistical
model using the preceding Black-Scholes
assumptions. In actuality, because the Company's
stock options do not trade on a secondary
exchange, employees can receive no value or derive
any benefit from holding stock options under these
arrangements without an increase in the market
price of the Company. Such an increase in stock
price would benefit all stockholders
commensurately.
F-17
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. LITIGATION:
The United States Department of State and the National Oceanic and
Atmospheric Administration of the United States Department of Commerce
("NOAA") are working together to implement an International Treaty (the
"Agreement") with entities in Britain France and Canada that could diminish
or otherwise impact the Company's salvor-in-possession rights to the
TITANIC which had been awarded by the District Court. The Company has
raised numerous objections to the United States Department of State
regarding the actions of the United States to participate in efforts to
reach an agreement governing salvage activities of the TITANIC. The
Agreement, as drafted, does not recognize the existing rights of the
Company in the TITANIC, that have been re-affirmed in the District Court
and affirmed by the Fourth Circuit, and provides that the Agreement becomes
effective when any two of the party states sign it. During November 2003,
the Britain signed the Treaty. United States Department of Justice has
represented that the United States believed it had complied with the RMS
TITANIC Memorial Act in the development of the international guidelines to
implement the Agreement, but would solicit comments from the public at
large regarding the draft international guidelines and the NOAA will
consider the comments, and then publish the final international guidelines.
On April 3, 2000 the Company filed a motion for declaratory judgment asking
that the District Court declare unconstitutional and inappropriate the
efforts of the United States to reach an international agreement with the
other parties and that it be precluded from seeking to implement the
Agreement. On September 15, 2000, the Court ruled that the Company's motion
was not ripe for consideration at the present time, and that the Company
may renew its motion when and if an Agreement is agreed to and signed by
the parties, final guidelines are drafted, and Congress passes implementing
legislation. The Company expects that whatever the outcome of this matter,
there will be no impact on artifacts that have already been recovered, but
the Company does not know what effect, if any, this Agreement will have on
future Company operations.
F-18
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On January 16, 2001, the Securities and Exchange Commission (the
"Commission") authorized its staff to conduct a formal order of
investigation. The Commission has requested various documents relating to,
among other things, the change in control of the Company that occurred
during November 1999; any solicitations that may have been made without a
written proxy statement or a filing; the purchase of the Company's common
stock by certain shareholders; the accuracy of the Company's financial
statements; information about the Company's accounting procedures and
controls; documents about its subsidiaries; and other information about
consulting agreements, communications with certain individuals, employment
of its officers, and other Company matters. The Company is cooperating with
the investigation and has produced documents requested by the Commission.
The Company is unable to predict the eventual outcome of this matter.
On May 3, 2001, the Company was served with a lawsuit in Superior Court in
the State of California which later was removed to the United States
District Court for the Central District of California by Westgate
Entertainment Corporation, a California corporation, and its wholly owned
subsidiary, Weyland & Chase Engineering, NV, a Netherlands Antilles
corporation. The complaint claims that on January 18, 2000, the plaintiffs
entered into oral five year, "pay or play" contracts of $200,000 per year
for Westgate Entertainment and $100,000 per year for Weyland & Chase.
Westgate Entertainment further claimed the Company agreed to pay or provide
other additional considerations. The Central District Court entered an
order denying the Company's motion for summary judgment. Thereafter, in
March of 2002, the Central District Court denied the Company's right to
appeal its interlocutory order denying the Company's motion for summary
judgment. In July 2002, the matter was settled whereby the Company agreed
to pay $388,000 over a thirty-month period and the parties further
exchanged releases and agreed to certain restrictive covenants, among other
considerations.
On April 12, 2002, the United States Court of Appeals for the Fourth
Circuit (the "Fourth Circuit") affirmed two orders of the United States
District Court for the Eastern District of Virginia, Norfolk Division.
R.M.S. Titanic, Inc. v. The Wrecked and Abandoned Vessel , 2002 U.S. App.
LEXIS 6799 (4th Cir. 2002). Dated September 26, 2001 and October 19, 2001,
these orders restricted the sale of artifacts recovered by the Company from
the TITANIC wreck site. In rendering its opinion, the Fourth Circuit
reviewed and declared ambiguous the June 7, 1994 Order of the District
Court that had awarded ownership to the Company of all items then salvaged
from the wreck of the Titanic as well as all items to be salvaged in the
future by the Company so long as the Company remained salvor-in-possession
of the TITANIC. Having found the June 7, 1994 Order ambiguous, the Fourth
Circuit reinterpreted the order to convey only possession, not title,
pending determination of a salvage award. This opinion conflicts with
previous rulings that were rendered by both the Fourth Circuit, R.M.S.
Titanic, Inc. v. Haver, et al, 171 F.3d 943 (4th Cir. 1999) and the
District Court, all of which the Company had relied upon in the conduct of
its business. Furthermore, based on a June 7, 1994 Order of the District
Court, the Company believed it was the exclusive owner of the Artifacts.
The Company petitioned the United States Supreme Court to hear its appeal
of the April 12, 2002 decision of the Fourth Circuit. However, that
petition was denied on October 7, 2002.
On April 25, 2002, the Company was served with notice of litigation
initiated by Lawrence D'Addario, et al v. Arnie Geller, G. Michael Harris,
Joe Marsh, Gerald Couture, Nick Cretan, Doug Banker and the Company in the
United States District Court for the Eastern District of Virginia, Norfolk
Division. The suit alleges fraud, self-dealing, mismanagement, diversion
and waste of corporate assets by the individuals in their capacity as
directors and/or officers of the Company and for Joe Marsh, as a principal
shareholder of the Company. On April 23, 2004, the United States District
Judge for the Eastern District of Virginia Rebecca B. Smith dismissed the
lawsuit filed by Lawrence D'Addario against the Company and Arnie Geller
and Gerald Couture, two officers and directors of the company.
Specifically, the Court approved and adopted in full the findings and
recommendations set forth in the Magistrate Judge's reports and
recommendations of March 5, 2004 whereby summary judgment as to Counts I,
II and III of the D'Addario Complaint was granted in favor of Messrs.
Geller and Couture. Summary judgment was also granted in favor of
defendants Mr. Joseph Marsh, a principal shareholder and Mr. G. Michael
Harris, a former officer and director. By Order, dated December 19, 2003,
the Court had previously dismissed Count IV of the Complaint as moot. The
Court's final order is subject to a possible appeal to the Fourth Circuit
Court of Appeals.
F-19
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company is involved in various claims and other legal actions arising
in the ordinary course of business. Management is of the opinion that the
ultimate outcome of these matters would not have a material adverse impact
on the financial position of the Company or the results of its operations.
9. COMMITMENTS AND CONTINGENCIES:
During the year ended February 28, 2002, the Company entered into
agreements for the services of two individuals for an annual aggregate
amount of $600,750. Each individual, at his option, may elect to receive
his compensation in shares of the Company's common stock. For this purpose,
the common stock will be valued at 50% of its closing bid price as of the
date of the election. However, for financial statement purposes the Company
will charge the full value of the common stock issued to compensation
expense.
On February 2, 2002, the Company executed an employment agreement with its
President and Chief Executive Officer. The employment agreement is for a
five-year term and provides for annual base salaries of $330,750 per year,
with annual 5% increases. On April 10, 2004, this employment agreement was
extended on the same terms and conditions with a new termination date of
February 2, 2009.
On February 2, 2002, the Company executed an employment agreement with its
Vice President and Chief Financial Officer. The employment agreement is for
a four-year term and provides for annual base salaries of $270,000 per
year, with annual 5% increases. On April 10, 2004, this employment
agreement was extended on the same terms and conditions with a new
termination date of February 2, 2008.
The Company has non-cancelable operating leases for office space. The
leases are subject to escalation for the Company's pro rata share of
increases in real estate taxes and operating costs. During the fiscal year
ended February 28, 2005, the Company entered into another non-cancelable
operating lease for warehouse space through December 31, 2007.
F-20
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Future minimum lease payments for leases in effect as of February 28, 2005
and entered into subsequent to that date are as follows:
Year ending February 28(29),
2006 $197,000
2007 202,000
2008 192,000
2009 124,000
- --------------------------------------------------------------------------------
$715,000
================================================================================
Rent expense charged to operations amounted to
$205,000, $132,000 and $207,000 for the years
ended February 28, 2003, February 29, 2004, and
February 28, 2005, respectively.
10. OTHER RELATED PARTY TRANSACTIONS:
Included in accounts payable and accrued liabilities at February 29, 2004
and February 28, 2005 is $25,000 due to certain partners of TVLP.
11. EXHIBITIONS:
During the two-year period ended February 29, 2004 and thru April 25, 2004,
the Company has presented, through licensing arrangements exhibitions of
TITANIC's Artifacts and other TITANIC memorabilia.
In March 1999, the Company entered into an agreement with Magicworks
Entertainment, Inc., a direct subsidiary of PACE Entertainment, Inc. and an
indirect subsidiary of SFX Entertainment, Inc. (collectively "SFX"), in
which the Company granted SFX an exclusive worldwide license to exhibit the
Company's TITANIC artifacts for a minimum payment of $8,500,000, annually.
This license agreement had an initial term of one year, commencing
September 15, 1999, with SFX having the option to extend the term for up to
four additional one-year periods. All obligations of Magicworks
Entertainment, Inc. under this license agreement were guaranteed by SFX
Entertainment, Inc. The original agreement was amended on September 18,
2000 by the Company and SFX Family Entertainment, Inc., successor to
Magicworks Entertainment, Inc. Another amendment extended the agreement to
January 3, 2003. The first amendment required a minimum annual payment of
$2,000,000 that was received during fiscal year ended February 28, 2002.
Pursuant to the license agreement, as amended, the Company was to receive
twenty percent of the ticket, merchandise, and sponsorship and ancillary
revenues over $10,000,000. Each amendment required a guaranteed minimum
annual payment of $2,000,000. For the amendment periods ended November 31,
2001 and January 3, 2003, the Company received payments of $616,000 and
$683,242, respectively, over the guaranteed minimum annual payments
pursuant to the revenue sharing provisions of the agreement. On August 15,
2003, a Fifth Amendment to the license agreement was executed whereby the
term was extended to April 25, 2004. In this amendment, the exhibitry owned
by Clear Channel Exhibitions, Inc. ("CCE") was sold to the Company for
$600,000 with $300,000 forthcoming from overage payments during the final
extended term and the balance to be paid by the Company in $150,000
installments due annually over the next two years. On May 26, 2004, a Sixth
Amendment to this same license agreement was executed which provided that
the two installment payments of $150,000 were changed whereby CCE was
granted a security interest in the exhibitry being acquired by the Company
and the necessity of a letter of credit was waived for a new payment
schedule that included all overage payments due from CCE and payments of
$50,000 every six months until the remaining obligation is paid in full.
The last three amendments were executed with CCE, formerly known as SFX
Family Entertainment, Inc.
F-21
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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12. 401(k) PLAN:
Effective March 2004, the Company adopted the RMS Titanic, Inc. 401(k) and
Profit Sharing Plan under section 401(k) of the Internal Revenue Code of 1986,
as amended. Under the Plan, all employees eligible to participate may elect to
contirbute up to the lesser of 12% of their salary or the maximum allowed under
the Code. All employees who are at least age 21 and have completed 1,000 hours
of service are eligible. The Company may elect to make contributions to the Plan
at the discretion of the Board of Directors. During 2004, the Company made no
contributions to the plan. The Plan name has been changed to Premier Exhbitions
401(k) and Profit Sharing Plan.
13. SUBSEQUENT EVENT:
On April 13, 2005, the Company entered into a term sheet for a joint
venture to co-produce four exhibitions for four domestic markets with a
major entertainment producer. This undertaking will be finalized in a
definitive agreement to be executed with thirty days but funding of
$2,425,000 has been made to the Company by the joint venturer. These new
exhibitions will provide the Company with minimum exhibition guarantees and
revenue participation and include provisions for repayment of the advance
funding. The Company provided a general security interest over its assets
as part of this undertaking.
On April 13, 2005, the Company received $500,000 for the purchase of
300,000 shares of the Company's common stock from the joint venturing party
as consideration in the co-production undertaking. These common shares
issued in this transaction at a $1.667 per share price are unregistered
securities under the Securities Acts, as amended.
On March 7, 2005, the Company, through a newly formed wholly owned
subsidiary, Premier Acquisitions, Inc. (PAI), a Nevada corporation, entered
into a letter of intent, to acquire all the membership interests in
Exhibitions International LLC ("EI"), a Nevada LLC. EI held certain
exclusive licensing rights to certain anatomical specimens and exhibitry
that would significantly broaden the Company's offerings in its human
anatomy educational exhibition business. The membership of EI included Mr.
Joe Marsh, an individual who owns a greater than 10% interest in Premier
Exhibitions, Inc.. Mr. Marsh's interest in EI was 17%.
The acquisition of EI was principally funded in two tranches, first on
April 25th and then on May 2nd, 2005 and was completed as follows: (1)
payment of $1.5 million by PAI for 100% of the membership interests of EI;
(2) the payment of a certain debt obligation of EI in the amount of
$300,000 paid by PAI; (3) the issuance of 200,000 shares of the Company
stock, then valued at $1.54 per share; and (4) the issuance of warrants to
acquire Company common stock with a three year term, each of which is for
100,000 shares with their respective strike prices of $1.25, 1.50 and 1.75.
On May 2, 2005, the Company completed the cash payments for acquisition of
Exhibitions International, a Nevada LLC, and was consequently obligated to
issue the following securities as further consideration: (1) 200,000 shares
of the Company stock, valued at $1.54 per share; and (2) 300,000 warrants
to acquire Company common stock with a three year term, each of which is
for 100,000 shares with their respective strike prices of $1.25, 1.50 and
1.75. Mr. Joe Marsh an owner of more than 10% of the Company's outstanding
common stock is a recipient of 68,000 shares of this common stock issuance.
Mr. Marsh is not receiving any warrants that are to be issued.