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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 29, 1996
[ ] 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
RMS TITANIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Florida 59-2753162
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17 Battery Place, New York, New York 10004
Address of principal executive offices
Issuer's telephone number, including area code: (212) 558-6300
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 X No
--- ---
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.[ ].
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, as of June 10, 1996, was: $5,255,098.
The number of shares outstanding of each of the registrant's classes of
common stock, as of June 7, 1996, were:
NUMBER OF SHARES
TITLE OF EACH CLASS OUTSTANDING
------------------- ----------------
Common Stock, par value $.0001
per share 16,137,119
DOCUMENTS INCORPORATED BY REFERENCE: None
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Item 1. BUSINESS
BACKGROUND
On May 4, 1993, RMS Titanic, Inc., formerly known as First Response
Medical, Inc., acquired all of the assets and assumed all of the liabilities of
Titanic Ventures Limited Partnership ("TVLP"), a Connecticut limited partnership
(the "Acquisition"). References to the "Company" in this Report relate to TVLP
prior to the acquisition and the combined entities of TVLP and RMS Titanic, Inc.
after the Acquisition.
Pursuant to a judgment entered in the Federal District Court for the
Eastern District of Virginia on June 7, 1994, the Company was declared
salvor-in-possession of the vessel RMS Titanic (the "Titanic"), the sole and
exclusive owner of any items recovered from the Titanic and, so long as the
Company is salvor-in-possession, the sole and exclusive owner of items recovered
from the Titanic in the future (the "Order"). By order dated May 10, 1996, the
Federal District Court for the Eastern District of Virginia denied a motion
instituted by a third-party seeking rescission of the rights granted to the
Company by the Order. Subsequently, the third party filed a notice of appeal.
See "Salvage Rights" below.
The Company was formed in 1987 for the purpose of exploring the wreck
and surrounding oceanic areas of the Titanic, which sank in 1912 and lies more
than 12,500 feet below the surface of the Atlantic Ocean approximately 400 miles
off the coast of Newfoundland; obtaining oceanic material and scientific data
available therefrom in various forms, including still and moving photography and
artifacts from the wreck site; and utilizing such data and artifacts for
historical verification, scientific education and public awareness and in
revenue-producing activities such as touring exhibitions, television programs
and the sales of still photography. In August 1987, the Company contracted with
the Institute of France for the Research and Exploration of the Sea ("IFREMER")
to conduct an expedition and dive to the wreck of the Titanic. Utilizing
state-of-the-art technology of IFREMER, which is the French Government's, and
the world's largest, oceanographic institute, approximately sixty (60) days of
research and recovery operations were performed at the Titanic wreck site
through the use of a manned submersible NAUTILE. Approximately 1800 objects were
recovered during the course of thirty-two (32) dives on such 1987 expedition.
The recovered objects were conserved and preserved by Electricite de France
("EDF"), the French government-owned utility. In addition to the recovered
objects, the Company's 1987 expedition also produced approximately 140 hours of
videotape footage and an estimated 7,000 still photographs from the wreck site.
In June 1993, the Company successfully completed its second expedition
to the Titanic wreck site, recovering approximately 800 artifacts and producing
approximately 105 hours of videotape footage during the course of fifteen (15)
dives. The 1993 expedition was also conducted pursuant to a charter agreement
with IFREMER. In July 1994, the Company recovered over 1,000 objects and
produced approximately 125 hours of videotape footage during its third
expedition to the Titanic wreck site, which was again conducted pursuant to a
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charter agreement with IFREMER. The objects recovered in the 1993 and 1994
expeditions were transported to a privately-owned conservation laboratory in
France for restoration and/or preservation processes in preparation for
exhibition.
The Company commenced its first major exhibition of Titanic artifacts
in October 1994 at the National Maritime Museum of Greenwich, London, England
(the "National Maritime Museum"). As a result of its success, such exhibition
was extended from its scheduled conclusion date of April 2, 1995 to October 1,
1995. See "Prelude Exhibition" below.
PLAN OF OPERATIONS
The Titanic has captivated the thoughts and imagination of millions of
people throughout the world for the decades since 1912, when it struck an
iceberg and sank in the North Atlantic, causing the loss of more than 1500 of
the 2207 lives on board. The depth of the abiding international interest in the
Titanic over the more than eighty years since its sinking is reflected by a
prodigious volume of works that have been published about all facets of its
story, the production of feature length movies about its tragic voyage, and the
broadcast of television programs about its 1985 discovery approximately two and
one-half miles below the surface of the ocean. As the only entity that has
recovered and conserved items from the Titanic, the Company is in the unique
position to present, in a previously untold manner, a visible and tangible
perception of the Titanic by the exhibition of these artifacts to the general
public. Management of the Company intends to present such exhibitions throughout
the world, and to thereafter establish a permanent museum for the display of the
Titanic artifacts, in an enlightening and dignified manner that embodies respect
for those who lost their lives and embraces the advances in science that have
permitted the memory of the Titanic to be physically presented to current and
future generations. The principal sources of revenues of the Company are
expected to be ticket sales for admission to exhibitions, merchandising revenues
and sponsorship revenues.
The long-term intent of the Company's research and recovery program is
to keep the artifacts recovered from the Titanic together as a "collection" and
make them available for exhibition to the public. Pursuant to its charter
agreements with IFREMER, the Company has agreed that the "collection" of
artifacts would not be sold by the Company to any individual or private
collector. However, if it became necessary to protect the interests of the
Company, all of the artifacts as a "collection" could be sold to an entity that
would make them available for exhibition to the public, subject to the
restrictions of the Company's agreement with IFREMER. Such agreement defines
"artifact" as any object that was either a part of the Titanic or a possession
of a person on board. Coins, coal, currency, diamonds (non-jewelry), precious
metals, and gem stones are not considered artifacts for purposes of the IFREMER
agreements.
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PRELUDE EXHIBITION
On October 4, 1994, the Company and the National Maritime Museum opened
The Wreck of the Titanic exhibition at the National Maritime Museum. This
exhibition, which was presented as a prelude to the Company's planned worldwide
exhibition tour to be presented in association with the National Maritime
Museum, was scheduled to conclude on April 2, 1995. In March 1995, such prelude
exhibition was extended to October 1, 1995. A record-breaking number of people
visited the National Maritime Museum during the Prelude Exhibition, with
approximately 720,000 people having been admitted to the Museum during its term
of presentation.
The Wreck of the Titanic exhibition featured the first major
presentation of artifacts recovered from the debris field surrounding the
Titanic wreck site. Approximately 150 artifacts were exhibited in an area
approximating 5,000 square feet. This exhibition, which covered several themes,
including the history of the Titanic, searching for and discovering the wreck,
the 1987, 1993 and 1994 recovery expeditions, artifact conservation and
preservation, and the contemplated world tour, also included a 4-meter model of
the bow section of the wreck, a one-third scale model of the Nautile (the
high-technology manned submersible used to explore the wreck site and recover
artifacts), and previously unseen footage of the wreck site. The principal
obligations of the Company with respect to the Prelude Exhibition were to make
the Titanic artifacts available for the term of such exhibit; provide
photographs, video footage and other information relating to the recovery of the
Titanic artifacts; provide models and plans of the worldwide exhibition for
display in the Prelude Exhibition; and to consult with the National Maritime
Museum with respect to the design and content of the Prelude Exhibition. The
National Maritime Museum was responsible for the design, fabrication and
operation of the Prelude Exhibition.
Pursuant to the Prelude Exhibition agreement, the Company and the
National Maritime Museum equally shared all revenues from ticket sales through
April 2, 1995, net of value added tax, refunds and commissions ("Net Revenue"),
after recoupment by the National Maritime Museum of its costs and adjustments,
up to a maximum of (pound)600,000, incurred in connection with the design and
construction of the exhibition. Pursuant to the agreement, extending the prelude
exhibition from April 2, 1995 through October 1, 1995, the Company received
twenty (20%) percent of the Net Revenue.The Company's share of the Net Revenues
derived from the Prelude Exhibition amounted to $650,071 during the twelve month
period of its presentation.
Merchandising activities with the National Maritime Museum and
Winterland Productions (UK) Limited ("Winterland") were undertaken in connection
with The Wreck of the Titanic exhibition, pursuant to which all merchandise was
designed, manufactured and/or acquired by Winterland, and profits from
merchandising activities were shared equally between the Company, the National
Maritime Museum and Winterland. The Company's share of profits from such
merchandising activities amounted to $174,305 during the Prelude Exhibition.
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THE WORLDWIDE TOUR
Subject to the availability of funding, the Company intends to commence
a worldwide tour of the artifacts in late 1997 by constructing an exhibit on a
specially outfitted oceangoing barge which will travel though waterways from
venue-to-venue (the "Waterborne Exhibition"). Preliminary designs of such
Waterborne Exhibition include the display of Titanic artifacts and presentation
of the story of the Titanic from its inception through today in a 45,000 square
foot, two and one-half tier exhibit area. Management of the Company has
determined that implementation of this unique Waterborne Exhibition concept will
be a more cost-efficient and effective means of presenting a worldwide exhibit
to the largest potential audience as compared to the alternatives of either
negotiating for and designing exhibit areas in each venue, or incurring the
charges of breaking-down, transporting and setting-up a "portable" exhibit from
venue-to-venue. In addition to providing access to major markets throughout the
world, the utilization of a Waterborne Exhibition will enable the Company to
present the worldwide tour to secondary markets which would otherwise be
inaccessible because of the costs associated with presenting an exhibit to these
smaller markets through other means. It is presently anticipated that the tour
will be presented for an estimated ten (10) years in approximately thirty (30)
major markets and approximately ten (10) to twenty (20) secondary markets
throughout the world. The routing of the tour to such markets, and the period of
presentation of the exhibit in each market, has not yet been determined. It is
expected that admission ticket prices will vary from market-to-market and will
be structured to be competitive to other exhibitions or entertainment events
within such markets.
Management of the Company intends to contract the design and
fabrication of the Waterborne Exhibition to independent third parties, and
believes that such arrangements will be available on terms that are acceptable
to the Company. Management further believes that an oceangoing barge suitable
for the Waterborne Exhibition can be constructed on satisfactory terms from
numerous sources of supply.
On February 16, 1994, the Company and the National Maritime Museum
entered into a licensing agreement pursuant to which the Company has the rights,
subject to certain approvals, to use the name and logo of the National Maritime
Museum in connection with the Waterborne Exhibition for a period of up to six
years commencing on the opening date to the public of the worldwide tour. Such
licensing agreement provides that the Waterborne Exhibition shall be maintained,
presented and operated at levels of National Maritime Museum standards. The
Company agreed to pay certain fees up to a maximum of (pounds sterling) 325,000
(which is equivalent to approximately $525,000 U.S. based upon current currency
conversion rates), payable in installments commencing ten days after the opening
date to the public of the Waterborne Exhibition, and on each successive
anniversary thereof, during the term of the license. The agreement also provides
for the payment to the National Maritime Museum of a royalty of five (5%) of the
retail sales price of merchandise bearing the name and logo of such Museum. As a
result of the worldwide tour not having commenced by the end of December 1995,
the National Maritime Museum has the right to terminate such licensing
agreement. In view of the expectation that the worldwide tour will commence,
subject to the availability of funding, in late 1997, the Company and the
National Maritime Museum have commenced negotiations for an extension of the
licensing agreement. The terms and conditions of such extension, if executed,
may be materially different from those contained in
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the licensing agreement.
The Company's ability to design, fabricate and present the Waterborne
Exhibition will be dependent upon the Company obtaining additional financing
from outside sources or from revenues. No assurances can be given as to when or
the terms upon which such financing will be available. The Company could
experience difficulties or delays in obtaining financing for the Waterborne
Exhibition, and if financing is obtained on terms acceptable to the Company,
could also experience difficulties or delays in the construction of the
Waterborne Exhibition. The construction of the planned Waterborne Exhibition is
subject to all of the delays and uncertainties associated with construction
projects generally. Additionally, the Company has not made arrangements for the
presentation of the Waterborne Exhibition in specific ports and will need to
obtain permits and approvals from local governmental authorities. While
management of the Company believes that such arrangements will be available on
terms and conditions acceptable to the Company, and that the Company will
satisfy requirements for such permits and approvals, difficulties and delays
could be encountered in securing prospective sites and/or the requisite permits
and approvals, which, in turn, could delay or otherwise adversely impact the
Company's revenue producing activities.
European Exhibition Plans
Pending the presentation of the Waterborne Exhibition in Europe, the
Company intends to exhibit Titanic artifacts in presentations that will be
similar to the size of the National Maritime Museum Prelude Exhibition.
The Company has entered into an agreement with Cre - Co Finanz GmbH
("CRE"), a company organized under the laws of Germany, for the presentation of
an exhibition in 1997 in Weimar, Germany and Hamburg, Germany, or in such other
city in Europe to which the Company consents, which consent shall not be
unreasonably withheld (the "European Exhibition Agreement"). CRE has reserved
the right to substitute the city of Berlin, Germany in place of Weimar or
Hamburg. CRE is responsible for payment of all expenses incurred in connection
with establishing and presenting this exhibition. The principal obligations of
the Company with respect to this exhibition will be to make 150 to 200 Titanic
Artifacts available for exhibit; provide photographs, video footage and other
information relating to the recovery of the Titanic artifacts; and to consult
with CRE with respect to the design and content of the exhibition. CRE will be
primarily responsible for the design, fabrication and operation of the
exhibition.
Pursuant to the European Exhibition Agreement, the Company will receive
two-thirds (2/3) and CRE will receive one-third (1/3) of the profits from this
exhibition (the "Profits), which are defined as net revenues (including ticket,
sponsorship, merchandising and ancillary revenues, if any, derived from the
exhibition) less "project expenses" (which includes all costs and expenses of
every kind and description in establishing, operating and marketing the
exhibition up to a maximum of $800,000). Simultaneously with the execution of
this agreement, the Company was paid the sum of $350,000, less a 25% refundable
withholding tax,
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as an advance against its share of Profits (the "Advance"). In consideration of
the payment of the Advance, the Company has granted CRE a security interest in
paper currency recovered from the Titanic wreck site. Such security interest
will terminate upon delivery of the Artifacts to CRE on or before May 1, 1997.
The granting of such security interest is subject to the terms and conditions of
a Pledge Agreement and Bailment Agreement. The Company has no obligation to
repay the Advance unless the Artifacts are not delivered to CRE on a timely
basis.
The Company has also granted CRE options to extend the European
Exhibition Agreement for three (3) additional terms of one year (the "Option
Year(s)"), each expiring on December 31, 1998, 1999 and 2000, respectively. The
exercise of each option is subject to the terms and conditions of the European
Exhibition Agreement, except that the amount of the Advance for each Option year
is $250,000 and there is no provision for granting a security interest in any
assets of the Company as collateral for the repayment thereof. Each option is
exercisable by CRE not later than December 31st of the then current term of the
European Exhibition Agreement. No option is exercisable unless all preceding
options have been exercised. It is expected that the venues for the presentation
of the European exhibit during the Option Years will be Paris, France during the
first Option Year; Barcelona, Spain or Amsterdam, Holland during the second
Option Year; and Hanover, Germany during the third Option Year. During the term
of the European Exhibition Agreement (inclusive of Option Year(s), if any) the
Company has agreed that no entity other than CRE will be granted rights to
exhibit Titanic artifacts in Europe or to obtain sponsors for the exhibition of
the artifacts in Europe.
MEMPHIS EXHIBITION PLANS
The Company and the City of Memphis, Tennessee ("Memphis"), through its
cultural affairs division, have entered into a preliminary agreement for the
exhibition of approximately 300 artifacts for the period from March 1, 1997
through September 30, 1997 in consideration of the payment of a minimum of
$750,000, payable as follows: $150,000 within fifteen (15) days of execution of
a final agreement; $300,000 on March 1, 1997; and $300,000 on August 1, 1997. In
addition, the preliminary agreement provides that the Company will be entitled
to retain the first $750,000 of sponsorship revenues that the Company solicits
for the Memphis exhibition. The first $750,000 of sponsorship revenues solicited
by Memphis will be applied to target revenues of $4,850,000. Sponsorship
revenues in excess of $750,000 solicited by the Company or Memphis, gross ticket
revenues and gross gift shop revenues exceeding $4,850,000 in the aggregate will
be divided between the parties on the following basis: two-thirds (2/3) thereof
shall be paid to the Company and one-third (1/3) thereof shall be paid to
Memphis. All expenses relating to the design, construction, marketing, promotion
and operation of the exhibition will be the responsibility of Memphis. The
design of the exhibition and the selection of merchandise for a gift shop will
be subject to the approval of the Company, which shall not be unreasonably
withheld. Management of the Company believes that a definitive agreement will be
executed no later than August 1, 1996. There is no assurance, however, that such
a definitive agreement will be executed within such time frame or thereafter.
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THE PERMANENT MUSEUM
Upon conclusion of the Waterborne Exhibition, the Company intends to
establish a permanent museum for the artifacts at a facility in a major United
States or European market where tourism is well-established. The selection of
the site of such museum will be made by management based primarily upon the
recommendations of the International Advisory Committee (see "International
Advisory Committee" below), the size of the potential market and the costs of
establishing and operating an appropriate facility.
MERCHANDISING
After successful conclusion of test marketing efforts during the fourth
quarter of the Company's fiscal year ended February 29, 1996, the Company is
actively pursuing the direct marketing of coal recovered from the Titanic wreck
site, principally through print advertisements, and has established arrangements
with an independent merchandising company which is responsible for procurement
and manufacture of the coal product, expenses of marketing and the fulfillment
of orders ("Merchandising Expenses"). The Company and the merchandising company
equally divide the revenue from such activities, after deduction of the
Merchandising Expenses ("Net Merchandising Revenues"). The Company's share of
the Net Merchandising Revenues as of February 29, 1996 amounted to $30,705.
The Company intends to market merchandise related to the Titanic within
retail stores to be established at each of its planned exhibition venues,
including the Waterborne Exhibition. See "Prelude Exhibition" for a discussion
of merchandising activities at The Wreck of the Titanic exhibition presented at
the National Maritime Museum. It is expected that a wide variety of products
will be available for purchase at the retail stores at prices ranging from $1.50
to $2,500.00. Product selection will be based principally on consumer appeal and
data obtained from the merchandising activities at the National Maritime Museum
Prelude Exhibition. The Company does not intend to engage in any activities
related to the purchase and/or manufacture of merchandise to be sold at the
retail stores. Such activities will be contracted by the Company to one or more
independent merchandising companies, with which the Company will share a
percentage of all merchandise sales.
Although the Company has had preliminary discussions with potential
merchandising companies regarding the establishment and operation of
merchandising stores at its exhibitions, no contractual arrangements have been
made to date, other that the establishment of a relationship with Winterland in
connection with the merchandising activities at the National Maritime Museum
prelude exhibition. Management of the Company believes that several companies
are qualified to undertake the responsibilities attendant to the Company's
contemplated merchandising activities on terms that will be acceptable to the
Company.
SPONSORSHIP
Management believes that the broad spectrum of public interest in the
story of the Titanic, and its appeal to a diverse demographic base encompassing
all ages, from young school children to the elderly, will be of substantial
interest to potential sponsors for all prospective
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phases of the Company's business activities, including its planned exhibitions
and future expeditions to the wreck site of the Titanic. The Company intends to
establish a sponsorship program consisting of international, national and/or
regional corporate entities that desire to promote their products or services
through the Company's activities. Such efforts will be instituted by the Company
through independent marketing organizations which have specialized in and have
extensive experience in organizing and implementing sponsorship programs.
Management of the Company believes that such efforts will be successfully
concluded as the Company commences its exhibition activities. Marketing
organizations which are successful in soliciting sponsors for the Company will
be paid a commission equal to a negotiated percentage of fees paid to the
Company by such sponsors.
In March 1996, the Company entered into a promotion agreement with
Guiness Import Company ("GIC"), pursuant to which GIC agreed to be an official
sponsor of the Company's expedition to the Titanic wreck site scheduled to take
place in August 1996 and to conduct a consumer promotion whereby a select number
of consumers will be given the opportunity to view portions of the Expedition on
closed circuit TV from a vessel in the vicinity of the Expedition to be
chartered by GIC (the "Promotion Agreement"). The Company has agreed to devote
one (1) dive to the recovery of 1912 Bass Ale during a three (3) day period
during which GIC will join the expedition to the wreck site. GIC has agreed to
pay a sponsorship fee of $150,000, $50,000 of which was received by the Company
simultaneously with the execution of the Promotion Agreement, $50,000 of which
is due and payable upon the Company giving GIC notice of execution of a charter
agreement with IFREMER, and the balance of which is due and payable upon
successful completion of the dive relating to the promotion.
EXPEDITIONS TO THE TITANIC
As a consequence of the depth of the Titanic approximately two and
one-half miles below the surface of the ocean in the North Atlantic, the Company
is dependent upon chartering vessels outfitted with highly advanced deep sea
technology in order to conduct expeditions to the Titanic. With respect to its
1987, 1993 and 1994 expeditions, the Company 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 are undertaken through the manned
submersible NAUTILE. Small, hard-to-reach areas necessary for visual
reconnaissance efforts are accessed by a small robot, known as ROBIN, controlled
by crewmen on board the NAUTILE. The dive team has the capability of retrieving
heavy objects, such as a lifeboat davit weighing approximately 4,000 lbs., to
fragile objects weighing but a few ounces. Because of the immense pressure of
approximately 6,000 pounds per square inch at the wreck site, it is impossible
for the dive team to reach such depths and explore the wreck site through any
means other than a submersible. The NAUTILE and ROBIN are each equipped with
video cameras that record all recovery and exploration efforts. In connection
with its 1987, 1993 and 1994 expeditions to the wreck site, the Company engaged
experts from various fields, including maritime scientists and other
professional experts, to assist in the Company's exploration and recovery
efforts. Management of the Company intends to engage experts from such fields
for
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its future expeditions to the Titanic.
The Company's ability to conduct expeditions to the Titanic is subject
to the availability of necessary research and recovery vessels and equipment for
chartering by the Company during the months between June and September, which is
the "weather window" for such activities in the North Atlantic. Research and
recovery efforts with a manned submersible are presently limited to the
availability of the NAUTILE pursuant to charter arrangements with IFREMER. To
the best of the knowledge of management of the Company, no other submersible
with the capability of reaching the depth of the Titanic is commercially
available to or acceptable by the Company for chartering. While management of
the Company believes that the utilization of a manned submersible is the
preferred means for conducting its research and recovery efforts, the Company
could conduct sufficient operations through the use of unmanned,
surface-controlled, remote operated vehicles, an adequate number of which, in
management's opinion, would be available for chartering by the Company on
acceptable terms from numerous sources of supply.
The Company has entered into an agreement to charter research and
recovery vessels and equipment from IFREMER for thirty-four days spanning July
and August 1996. The principal objectives of this expedition will be the
recovery of a section of the hull of the Titanic that has been located in the
debris field, and the illumination of the entire bow section of the wreck
utilizing high-powered lights. To date, only small sections of the wreck have
been illuminated with low-powered lights, and an image of the entire bow section
has not yet been recorded. Additionally, portions of such expedition may be
devoted to the production of a two-hour television documentary to be financed
and produced by third-parties. Negotiations with respect to such television
documentary are ongoing, and no assurances can be given that an agreement will
be consummated.
In conjunction with the merchandising company with which the Company is
marketing coal recovered from the Titanic wreck site, the Company is marketing
passenger cruises that will arrive at the wreck site at the time the efforts to
raise the hull section and to illuminate the bow section of the wreck are
undertaken. Two cruise ships, one departing from and returning to Boston,
Massachusetts, and the other departing from and returning to New York City, New
York, have been chartered by the merchandising company for this expedition, with
cabin prices ranging from $1,800 to $6,950. A majority of the approximate total
of 2,200 cabins on the cruise ships have been reserved to date, with marketing
efforts for the balance of available cabins continuing. The recovered hull
section will be transported from the wreck site to Boston and then New York for
private receptions to be attended by the cruise passengers and others who
purchase admission.
All costs and expenses associated with the cruises, the illumination of
the wreck site, and the receptions are being paid by the merchandising company.
The Company and the merchandising company will equally divide the net profits as
defined from the cruise and reception.
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RESTORATION AND CONSERVATION
Upon recovery from the wreck site, artifacts are in varying states of
deterioration and fragility. Having been submerged in the depths of the ocean
for more than eighty (80) years, objects have been subject to the corrosive
effects of chlorides present in the sea water. The restoration of many of the
metal, leather and paper artifacts requires the application of sophisticated
electrolysis and other electrochemical techniques. Various artifacts recovered
from the 1987 expedition were restored and conserved by the laboratories of
Electricite de France, the French government-owned utility. Artifacts recovered
from the 1993 and 1994 expeditions are presently undergoing conservation
processes at LP3, a privately-owned conservation laboratory in Semur-en-Auxois,
France.
On May 20, 1994, the Company and the RMS Foundation/Queen Mary (the
"Queen Mary") entered into an agreement to present a 30,000 square foot
laboratory exhibition at the Queen Mary Seaport Complex in Long Beach,
California until February 1, 1998, subject to extension for up to an additional
five years under certain conditions. Such agreement provides that the Queen Mary
was to advance funding for the Company's 1994 expedition to the wreck site of
the Titanic, as well as for the construction and establishment of a
state-of-the-art conservation laboratory and for the design and construction of
an accompanying exhibit. Queen Mary has not paid such charter expenses nor
undertaken the construction or fabrication of such laboratory or exhibit because
of its lack of adequate financial resources. The Company cannot forecast when,
if ever, reimbursement of such expenses will be made to the Company, or when, if
ever, construction or fabrication of such laboratory or exhibit will commence.
SALVAGE RIGHTS
Pursuant to a judgment entered in the Federal District Court for the
Eastern District of Virginia on June 7, 1994, the Company was declared
salvor-in-possession of the wreck and wreck site of the Titanic, the true, sole
and exclusive owner of any items recovered from the Titanic and, so long as the
Company is salvor-in-possession, the sole and exclusive owner of all items
recovered from the Titanic in the future. The Court's judgment includes, without
limitation, the contents, cargo, hull, machinery, engine, tackle, apparel and
appurtenances of the Titanic, and provides that all potential claimants are
barred and precluded from filing claims so long as the Company is
salvor-in-possession. No other entity has the right to salvage the Titanic while
the Company is salvor-in-possession. In order to maintain salvor-in-possession
status, the Company, among other things, will need to maintain a reasonable
presence at the wreck through periodic expeditions and will need to continue
efforts at salvage and preservation of artifacts during the period between
salvage expeditions.
On February 17, 1996, a third-party instituted a motion in the Federal
District Court for the Eastern District of Virginia seeking rescission of the
June 7, 1994 order awarding to the Company salvor-in-possession status. By order
dated May 10, 1996 entered after trial, such motion was denied. The court also
modified its May 10, 1994 order to the extent of requiring the Company to file
more frequent periodic reports as to the status of its activities.
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Management of the Company believes that all requirements to maintain
its salvor-in- possession status have been satisfied and will be satisfied in
the foreseeable future. Should the Company not maintain its salvor-in-possession
status, other entities could conduct salvage operations and recover items from
the Titanic wreck site. Management believes, however, that salvage operations by
other entities, if successful, would not have a material adverse affect upon the
Company's plan of exhibition activities. However, the loss of
salvor-in-possession status could have a materially adverse affect upon the
Company's ability to generate revenues from ancillary activities, such as
television productions related to, or passenger cruises accompanying, research
and recovery expeditions.
INTERNATIONAL ADVISORY COMMITTEE
In March 1994, the Company and the National Maritime Museum initiated
the formation of an International Advisory Committee with the purpose to
"safeguard the future of the Titanic wreck site and objects raised from it and
to ensure that they are conserved to the highest standards to be saved for
future generations in a Titanic Memorial Museum." The members of the
International Advisory Committee, in addition to the Company and the National
Maritime Museum of Greenwich, London, England, are as follows: Musee de la
Marine, Paris, France; IFREMER; The Maritime Association, New York, New York;
Titanic International Society, Freehold, New Jersey; Charles A. Haas (author and
historian); National Maritime Museum, Stockholm, Sweden; National Maritime
Museum of Norway, Oslo, Norway; John P. Eaton (author and historian); and the
British Titanic Historical Society, Lancashire, England. Annual meetings of the
Committee were held in London, England in October 1994 and 1995. It is expected
that meetings of the Committee will be held on an annual basis.
MARKETING
The Company intends to market and promote its business activities
through advertising and public relations programs in each market where its
exhibition will be presented. With respect to the planned world tour, the
Company intends to engage the services of advertising and public relations
agencies on a country-by-country basis. Management intends to advertise the
Waterborne Exhibition through all forms of media, including print, radio and
television. In addition, the Company intends to retain a public relations firm
to address and coordinate the publicity needs of the Company on a national
basis.
The Company also intends to establish special promotional programs for
school-age children and educational institutions, and plans to develop and
distribute teaching materials to aid in the historical and scientific studies
currently used in school curriculum regarding the Titanic.
COMPETITION
The entertainment and exhibition industries are intensely competitive.
There can be no assurances that the Company will be able to compete effectively.
Many of the entities with
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which the Company will be competing have substantially greater resources than
the Company. Management intends to compete with other entities based upon the
mass appeal of its planned exhibits to consumers of entertainment, museum,
scientific and educational offerings and the quality and value of the
entertainment experience, emphasizing the unique and distinctive perspective of
the Titanic that the Company will incorporate into its exhibits as Titanic's
salvor- in-possession and as the only entity that has the rights to objects
recovered from the Titanic.
The success of the Company's merchandising efforts will depend largely
upon the consumer appeal of its merchandise and the success of its exhibitions.
Management of the Company believes that its merchandise will compete primarily
on the basis of its unique character and quality.
EMPLOYEES
As of June 7, 1996, the Company had three (3) employees, one of whom is
its President. The Company is not a party to any collective bargaining
agreement.
The Company's future business and operating results depend in
significant part upon the continued contributions of George Tulloch, the
Company's Chief Executive Officer. The Company does not maintain a key person
life insurance policy on Mr. Tulloch. The Company's future business and
operating results also depend in significant part upon its ability to attract
and retain qualified additional management, marketing and support personnel for
its operations. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting or retaining such
personnel. The loss of Mr. Tulloch or the Company's inability to attract and
retain skilled employees, as needed, could materially and adversely affect the
Company's business, financial condition and results of operations.
The Company's strategy for presenting exhibitions of Titanic artifacts
is dependent upon either hiring personnel who are experienced and possess
expertise in operating and marketing exhibitions or engaging third-parties with
such qualifications. To date, arrangements for the hiring of such additional
staff or engaging such third-parties have not been made, except with respect to
the planned exhibitions in Europe and Memphis in 1997. Management of the Company
believes that acceptable arrangements with such personnel or third-parties can
be made within time frames required to implement the Company's exhibition
strategies. However, no assurances can be made that such personnel or
third-parties will be available on satisfactory terms or when needed by the
Company. Delays or difficulties in engaging personnel or third parties for the
operation and marketing of exhibitions, including without limitation the
Waterborne Exhibition, could have a materially adverse affect upon the Company's
operations.
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ENVIRONMENTAL MATTERS
The Company will be subject to environmental laws and regulation by
federal, state and local authorities in connection with its planned exhibition
activities. The Company does not anticipate that the costs to comply with such
laws and regulations will have any material effect on the Company's capital
expenditures, earnings or competitive position.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices are located in New York, New
York and consist of premises of approximately 3,500 square feet which are leased
pursuant to a lease expiring in September 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is a named defendant in a lawsuit commenced in the Supreme
Court of the State of New York, County of New York on or about September 22,
1994 (Glenville Properties Incorporated v. RMS Titanic, Inc. et al., 94/127087).
The plaintiff therein alleges Lone Star has assigned to it Lone Star's rights
under a promissory note executed by the Company in favor of Lone Star in May,
1993 (the "Note"), certain security interests granted to Lone Star in connection
therewith, and other contractual rights related thereto. The complaint alleges,
inter alia, that the Company breached its obligations owed under the Note and
its obligations under the agreement granting a security interest to Lone Star,
misrepresented the value of the property which is the subject of such security
interest, and interfered with rights under the agreements relating to the grant
of such security interest. The relief sought is an award of compensatory damages
approximating $360,000, punitive damages of a minimum of $1,080,000, and
declaratory and injunctive relief. The Company has denied the material
allegations of the Complaint and has asserted counterclaims for a judgment
declaring the promissory note paid and additional counterclaims and third-party
claims seeking an award of compensatory and punitive damages. Pursuant to an
order entered on January 25, 1996, this action has been referred to Alternative
Dispute Resolution processes for mediation. Such mediation proceedings were
ongoing as of June 3, 1996. Management of the Company believes it has a
meritorious defense to the claims against it and intends to defend its position
vigorously in the event that mediation efforts are unsuccessful.
On February 20, 1996, a third-party filed a motion pursuant to Rule
60(b) of the Federal Rules of Civil Procedure in the United States District
Court for the Eastern District of Virginia motion for an order rescinding the
June 7, 1994 award to the Company of salvor-in-possession status with respect to
the Titanic (R.M.S. Titanic, Inc. v. The Wrecked and Abandoned Vessel believed
to be the RMS TITANIC, in rem, No. 2:93cv902). By order entered May 10, 1996,
such motion was denied and the Court modified its June 7, 1994 awarding
salvor-in-possession status to the Company to the extent of requiring the
Company to file more frequent periodic reports as to the status of its
activities. The third-party has filed a notice of appeal from such May 10, 1996
order, and the Company has filed a cross-appeal
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with respect to the Court having granted standing to such third-party.
Management of the Company intends to vigorously defend against such appeal and
to vigorously prosecute its cross-appeal.
The Company was a named defendant in a lawsuit commenced in the
District Court of Harris County, Texas on or about October 10, 1994 (Lone Star
Casino Corporation et al. v. Financial Group of Kuwait, K.S.C.C. et al., No.
94-046398). This action was voluntarily discontinued by the plaintiffs
subsequent to February 29, 1996 without the payment of any consideration by the
Company or any other remaining defendant. The plaintiff had previously released
the Financial Group of Kuwait, K.S.C.C. ("FGK") in connection with the
settlement of other litigation. The complaint had alleged, inter alia, that the
Company participated in a conspiracy with the FGK and other defendants to
publish false and defamatory statements about Lone Star and other plaintiffs,
and that the Company participated in a conspiracy with FGK and the other
defendants to engage in abuse of process and malicious prosecution of an action
against the plaintiffs. The relief sought was a money judgment in an unspecified
amount for compensatory and punitive damages. The Company had denied the
material allegations of the Complaint.
ITEM 4. SUBMISSION OF MATTERS OF VOTE OF SECURITY HOLDERS
During its fiscal year ended February 29, 1996, no matters were
submitted to a vote of the Company's security holders.
ITEM 5. PRICE RANGE OF SECURITIES
(a) MARKET INFORMATION. The Company's Common Stock is traded on the
over-the-counter market on a limited and sporadic basis. 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 the National Quotation
Bureau, Inc. Such quotations represent inter-dealer quotations, without
adjustment for retail markets, markdowns or commissions, and do not necessarily
represent actual transactions.
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FISCAL PERIOD
COMMON STOCK
------------
HIGH LOW
BID BID
--- ---
1996
- ----
1st Quarter 1.25 .6875
2nd Quarter 1.0625 .4375
3rd Quarter 1.0625 .375
4th Quarter .4375 .25
1995
- ----
1st Quarter 1 9/16 1/2
2nd Quarter 1 1/2 5/16
3rd Quarter 1 5/8
4th Quarter 29/32 1/4
- --------------------
(a) HOLDERS. The approximate number of holders of record of the
Company's Common Stock as of June 10, 1996 was 802.
(c) DIVIDENDS. The Company has not paid or declared any dividends upon
its Common Stock since its inception, and intends to re-invest earnings, if any,
in the Company to accelerate its growth. Accordingly, the Company does not
contemplate or anticipate paying any dividends upon its Common Stock in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL INFORMATION
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 which
have been audited by Goldstein Golub Kessler & Company, P.C., independent
certified public accountants, as indicated in their reports. Their report on the
financial statements as of February 29, 1996 and February 28, 1995 and for each
of the three years in the period ended February 29, 1996 is included elsewhere
in this Form 10-K. Their reports on the statement of financial position as of
February 28, 1994 and the financial statements for the years ended February 28,
1993 and February 29, 1992, and for the two years in the period ended February
28, 1993, are not included herein.
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YEAR ENDED FEBRUARY 28(29), 1992 1993 1994 1995 1996
Statement of Operations Data:
Revenue $200,821 $14,907 -- $204,366 $724,541
Net Loss $425,607 $682,625 $5,484,856 $1,531,036 $149,632
Net loss per share (1) $.05 $.07 $.47 $.11 $.01
Weighted average number of
common shares outstanding 9,333,333 9,333,333 11,727,275 13,620,390 15,834,644
FEBRUARY 28(29), 1992 1993 1994 1995 1996
Balance Sheet Data:
Total assets $3,228,472 $3,232,416 $5,133,186 $6,164,641 $6,060,456
Long Term Obligations -- $2,019,832 $ 293,100 $ 300,000 --
Total Liabilities $3,211,068 $3,897,637 $1,973,468 $3,433,666 $2,194,624
Owners' Equity $ 17,404 $ (665,221) $3,159,718 $2,730,975 $3,865,832
The Company has declared no cash dividends.
(1) Earnings per share is based upon the weighted average number of
common shares outstanding for the periods presented after giving
retroactive effect to the shares issued in connection with the
Acquisition described in Note 2 of Notes to Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR 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 29, 1996 AS COMPARED
TO YEAR ENDED FEBRUARY 28, 1995
During its fiscal year ended February 29, 1996 (the "1996 fiscal
year"), the Company's exhibition revenues increased approximately 434% and its
merchandising revenues increased approximately 44% from its Prelude Exhibition
at the National Maritime Museum (see "Item 1 - Business - Prelude Exhibition")
as compared to its revenues from such sources during its fiscal year ended
February 28, 1995 (the "1995 fiscal year"). Such increase was principally
attributable to the presentation of the Prelude Exhibition for seven (7) months
during the 1996 fiscal year as compared to five (5) months during the 1995
fiscal year, and the seasonal effects of customarily higher attendance at the
National Maritime Museum during the months of April through September. The
Company received $30,705 from the sale of coal recovered from the Titanic wreck
site during its 1996 fiscal year as compared to zero revenue during its 1995
fiscal year. The Company's general and administrative expenses decreased
approximately 52% during the 1996 fiscal year as compared to the 1995 fiscal
year, principally as a result of decreases in conservation and executive
compensation expenses. Interest expense decreased approximately 74% during the
1996 fiscal year as compared to the 1995 fiscal year, primarily as a result of
the reduction of notes payable. Financing fees attributable to notes payable
decreased approximately 88% during the 1996 fiscal year as compared to the 1995
fiscal year. During the 1996 fiscal year, the Company incurred an expense of
$35,000 related to the settlement of litigation.
YEAR ENDED FEBRUARY 28, 1995 AS COMPARED
TO YEAR ENDED FEBRUARY 28, 1994
For the period from December 1990 through May 4, 1993, FRM had no
operations. On May 4, 1993, FRM acquired the assets and assumed the liabilities
of TVLP and for accounting purposes TVLP was treated as the acquiring entity.
Accordingly, the results of operations for the nine months ended November 30,
1993 include the results of TVLP from March 1, 1993 to May 3, 1993 and the
results of the Company from May 4, 1993 to November 30, 1993.
The Company successfully completed its third expedition and dive to the
wreck of the Titanic in July 1994, recovering approximately 1000 artifacts and
approximately 125 hours of videotape footage. The costs of recovery of the
artifacts, consisting of the direct costs of
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chartering of vessels and related crews and equipment required to conduct the
expedition and complete the dive operations, was approximately $1.0 million.
During the 1995 fiscal year, the Company received exhibition revenue of
$102,578 and merchandising revenue of $63,853 from its prelude exhibition at
the National Maritime Museum (see "Item 1 - Business - Prelude Exhibition"),
licensing revenue of $35,000 derived from television documentaries and
miscellaneous revenue of $2,935, as compared to zero revenue during its fiscal
year ended February 28, 1994 (the "1994 fiscal year"). The Company's general
and administrative expenses increased approximately 3% during the 1995 fiscal
year as compared to the 1994 fiscal year, principally as a result of the net
effect of a decrease in professional fees and increases in conservation and
executive compensation expenses. Interest expense decreased approximately 70%
during the 1995 fiscal year as compared to the 1994 fiscal years, primarily as
a result of the reduction of notes payable. Financing fees attributable to
notes payable decreased approximately 84% during the 1995 fiscal year as
compared to the 1994 fiscal year. During the 1994 fiscal year, the Company
acquired a Management Agreement option by issuing 2,266,666 shares of its
Common Stock which resulted in a nonrecurring, non-cash charge to operations of
$3.4 million.
Effective January 31, 1995, the Company accepted the termination of the
employment agreement of its President. Pursuant to such termination agreement,
such officer waived his rights to all compensation, including stock options,
except for a salary of $250,000 per annum retroactive to May 4, 1993, all of
which, as of February 28, 1995, had been accrued. At February 28, 1995, the
Company recorded a contribution to capital and a reduction in accounts payable
and accrued expenses of $387,691 to reflect the retroactive adjustment of the
former President's compensation under his employment agreement. Additionally,
effective January 31, 1995, the Company accepted the termination of the
employment agreement of its Executive Director of Corporate Public Relations.
Pursuant to such termination agreement, such executive waived his right to
stock options issued under his employment agreement. On May 8, 1995, such
executive was elected President and Chief Financial Officer of the Company and
will serve at a salary to be determined by the compensation committee of the
Board of Directors.
LIQUIDITY AND CAPITAL RESOURCES
The Company received net proceeds of $921,956 from the sale of
unregistered Common Stock during its 1996 fiscal year. Such proceeds were
principally applied to payments on account of accrued liabilities and for
working capital purposes. Additionally, the Company, in May 1995, accepted
conversion of an outstanding note payable in the original principal sum of
$300,000, plus accrued interest and related fees, into 604,310 shares of the
Company's unregistered Common Stock.
Notes payable as of February 29, 1996 included the sum of approximately
$126,000 (excluding accrued interest of approximately $25,000) owed to Lone Star
Casino Corporation ("Lone Star") pursuant to a promissory note executed in May
1993. The Company, on March 10, 1994, paid to Lone Star Casino Corporation
$154,271.62, representing, according to Lone
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Star's computations, the outstanding principal plus accrued interest on such
note. Such payment was returned by Lone Star to the Company on the alleged
grounds that the Company owes additional other obligations to Lone Star and to
third parties, separate and distinct from the obligations to pay the note.
Management of the Company does not believe that Lone Star had a valid basis for
returning such $154,271.62 payment. This matter is the subject of litigation
discussed in Item 3 of this Report. The Company's commitments during its 1997
fiscal year also include lease payments for principal offices in the base amount
of $61,000 per annum, and compensation to its executive officers. Material
contingencies include the outcome of pending lawsuits.
In connection with its 1994 expedition to the wreck site of the RMS
Titanic, the Company entered into an agreement with IFREMER to charter equipment
and crew necessary to conduct research and recovery efforts. Pursuant to the
terms of such charter agreement, the Company has paid IFREMER the sum of
$300,000 and was obligated to pay an additional $700,000 in two installments of
$350,000 each payable on September 30 and December 1, 1994. The installment due
to IFREMER on September 30, 1994 was paid during the first quarter of the
Company's 1996 fiscal year, payment of the final $350,000 installment was
extended to October 1, 1995. During the 1996 fiscal year, the Company paid
$70,000 on account of such obligation, with the $280,000 balance thereof having
been paid subsequent to February 29, 1996. The source of such $280,000 payment
was an advance against the Company's share of profits from Titanic coal sales
and sales of cabins of the cruise ships which will accompany the Company on its
1996 research and recovery expedition (see Item 1 - Business). The Company
cannot forecast when, if ever, reimbursement of such charter expenses will be
made to the Company by RMS Foundation, Inc. (an unrelated entity) which had
undertaken to provide such funding under its agreement for the exhibition
planned at the Queen Mary Seaport Complex in Long Beach, California, or when, if
ever, construction and fabrication of such exhibit will commence.
Subsequent to February 29, 1996, the Company entered into an agreement
with IFREMER to charter equipment and crew necessary to conduct a research and
recovery expedition to the wreck site of the Titanic in the Summer, 1996.
Pursuant to the terms of such charter agreement, the Company is obligated to pay
IFREMER 2,000,000 French francs (approximately $400,000 U.S. Dollars) on or
before June 20, 1996; 2,1000,000 French francs (approximately $420,000 U.S.
Dollars) on or before July 15, 1996; and the sum of $980,000, payable as
follows: (a) remittance of fifty (50%) of the wholesale price of any products
sold by the Company involving the 1996 expedition, up to a maximum of $480,000;
and (b) up to a maximum of $500,000 payable from the following sources: (i) $.50
per visitor to any exhibition organized by the Company; (ii) a lump sum of
$250,000 for the proposed Memphis exhibition, payable prior to March 1, 1997;
and (iii) one-third of the Company's revenues from any exhibition of artifacts
organized by a third party. The agreement further provides that in the event the
payments from these sources do not amount to $980,000 within three (3) years
after September 1, 1996, any remaining balance shall be paid from the Company's
exhibition revenues, as defined above. All objects recovered during the 1996
expedition will be the subject of a lien granted to IFREMER until the Company
pays all sums due and owing to IFREMER for the 1996 expedition. The Company is
currently negotiating an agreement for a television production related to the
Company's 1996 expedition, pursuant to which the Company's obligations to make
the June and July 1996 payments to IFREMER would be paid in whole, or
substantially, as part of the television production budget. No assurances can be
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given that such negotiations will be successfully consummated on such terms or
any other terms that would be acceptable to the Company. In the event that, or
the extent that, the June and July, 1996 payments to IFREMER are not paid as
part of a television production budget, the merchandising company with which the
Company is marketing cruises to the expedition site in August 1996 has agreed to
pay such obligations due to IFREMER as an advance against the Company's share of
profits from the cruises.
Apart from the Company's obligations to IFREMER in connection with its
1996 research and recovery expedition, the Company's near term operating needs
will be financed principally from the advance distribution of profits paid to
the Company under its agreement for the exhibition of Titanic artifacts in
Europe in 1997, the sponsorship fees paid by GIC in connection with the 1996
research and recovery expedition, revenues derived from marketing of cruises in
conjunction with the Company's research and recovery expedition to the Titanic
wreck site, and revenues from its sale of coal. The Company also expects to
obtain additional revenues in the near term through execution of a definitive
agreement for exhibition of Titanic artifacts in Memphis, Tennessee from March
1, 1997 through September 30, 1997. The Company expects its conservation
expenses to increase in its fiscal year commencing March 1, 1996 as a result of
the need to prepare artifacts for exhibition in Europe and Memphis.
Additionally, the commencement of the touring of the Company's Waterborne
Exhibition would further increase the Company's requirements for conserved
artifacts, and its conservation expenses would increase further as a result
thereof. In the event that revenues are not adequate to satisfy the Company's
future operating needs, inclusive of payment of outstanding liabilities,
additional debt and/or equity financing will be required.
Furthermore, in order for the Company to design, construct and embark
on the planned worldwide touring exhibition, additional debt and/or equity
financing will be required. Management of the Company is actively pursuing such
financing. While management believes that such financing will be available, no
assurances can be given that the Company will be successful in its efforts to
obtain additional financing, or that such financing will be available on a
satisfactory timetable. If such funding, or alternatives are not obtained, there
could be a curtailment of the Company's long-term business activities and
material delays in the implementation of its business plans.
With respect to its long-term exhibition plans, the Company has the
alternative of arranging other income producing exhibitions similar to the
prelude exhibition at the National Maritime Museum, and the planned 1997
exhibitions in Europe and Memphis, without the need for substantial additional
capital. The Company is also presently exploring the possibility of establishing
a short-term exhibition in New York City for the exhibit of the section of the
hull of the Titanic and other artifacts that may be recovered during is 1996
exhibition. Such an exhibition, if established, would commence no earlier than
the middle of September 1996 and end no later than February 1997. The Company's
ability to establish such an exhibition will be dependent upon obtaining capital
from external sources, through a co-venture with a third party or otherwise. No
assurances can be made that such financing will be available on terms that are
acceptable to the Company, or, if available, that the Company will be successful
in securing a suitable venue in New York City or elsewhere for such an
exhibition.
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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. For the year ended February 29, 1996, there
were no significant fluctuations in the exchange rates. Although the Company's
financial arrangements with the National Maritime Museum and other entities have
been based in whole or in part 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 Company has been seeking and intends to continue to seek debt
financing to fund as much of the Waterborne Exhibition as may be available on
terms satisfactory to the Company. In connection with any such debt financing
that may be obtained, no assurances of which can be given, the Company expects,
among other things, to be required to pledge its assets to a lender, to be
restricted in its ability to incur additional obligations, and/or to abide by
certain financial covenants.
To the extent that the Company has transactions outside of the United
States, the Company could be affected by nationalizations or unstable
governments or legal systems or intergovernmental disputes. These economic and
political uncertainties may affect the Company's results of operations,
especially to the extent that these matters affect the Company's exhibition
plans in Europe.
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.
ITEM 8. FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report F-1
Balance Sheet at February 28(29), 1995 and 1996 F-2
Statement of Operations for the years ended February 28, 1994 and 1995 and
February 29, 1996 and for the period from August 5, 1987 (inception)
to February 29, 1996 F-3
Statement of Owners' Equity for the years ended
February 28, 1994 and 1995 and February 29, 1996, and for the period
from August 5, 1987 (inception) to February 29, 1996 F-4
Statement of Cash Flows for the years ended February 28, 1994 and 1995 and
February 29, 1996, and for the
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Page
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period from August 5, 1987 (inception) to February 29, 1996 F-6
Notes to Financial Statements F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. MANAGEMENT
OFFICERS AND DIRECTORS
The directors, executive officers and significant employees of the
Company are:
NAME AGE POSITION
- ---- --- --------
George H. Tulloch 51 President and Director
William S. Gasparrini 68 Chairman of the Board
of Directors
Nicholas Vitti 43 Chief Financial Officer and
Director
John G. Duffy 47 Director
Robert A. Slavitt 67 Director
Directors hold office until the next annual shareholders' meeting or
until their successors have been duly elected and qualified. Executive officers
are appointed by and serve at the pleasure of the Board of Directors.
George H. Tulloch has been President of the Company since May 1995 and
was its Executive Director of Corporate Public Relations and Chairman of the
Board of Directors of the Company since May 4, 1993. Mr. Tulloch also served as
the Company's Chief Financial Officer in May and June, 1995. After the RMS
Titanic's discovery in 1985, he successfully negotiated a recovery contract with
the ship's co-discoverer, IFREMER, France's National Oceanographic Institute. In
1987, he organized Titanic Ventures Limited Partnership, a Connecticut limited
partnership, as the financial structure for this effort and is the President of
its general partner, Oceanic Research and Exploration Ltd., a Delaware
corporation. Mr. Tulloch's background includes having founded Competition &
Sports Cars, Ltd. in Greenwich, Connecticut in 1969, building its sales volume
into the largest BMW agency in the United States.
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William S. Gasparrini has been a Director of the Company since June
1994, and has served as its Chairman of the Board and a member of the
Compensation Committee of the Board of Directors since May 1995. He has been a
limited partner of Titanic Ventures Limited Partnership since its inception.
From 1966 to the present, Mr. Gasparrini has served as the President of Post
Road Iron Works, Inc., a family owned business in Greenwich, Connecticut which
was founded in 1927. He has been an executive officer of the National Ornamental
& Miscellaneous Metal Association, has been a member of its Board of Directors
since 1973 and of its Board of Trustees since 1976, having been elected Trustee
Emeritus in 1987. In addition to having served as an officer and director of the
Greenwich, Connecticut YMCA and of the Greenwich, Connecticut Chamber of
Commerce, Mr. Gasparrini has received, among other honors, a Proclamation
Certificate from Westchester County, New York Board of Legislators for
"Providing Visionary Leadership" in 1987 and was voted "Volunteer of the Year"
by The Historical Society of Greenwich, Connecticut. Mr. Gasparrini is also the
owner of substantial real estate investments in Greenwich, Connecticut.
John G. Duffy has been a Director and has been a member of the
Compensation Committee of its Board of Directors since May 1995. Mr. Duffy has
been employed by the New York investment banking firm of Keefe, Bruyette & Woods
since 1978, and has served as its Director of Corporate Finance and as a member
of its Board of Directors since 1990.
Nicholas Vitti has been a Director of the Company and a member of the
Compensation Committee of its Board of Directors since May 1995, and has served
as its Chief Financial Officer since June 1995. Since 1986, Mr. Vitti has served
as the Chief Financial Officer of D'Addario Industries, Inc., a privately owned
company located in Bridgeport, Connecticut principally engaged in real estate
development and construction activities. He served as the Chief Financial
Officer of Thorn EMI, which owns Capitol Records, from 1981 to 1986, and was
employed from 1974 to 1986 in various capacities by Peat Marwick Mitchell &
Company, presently known as KMPG Peat Marwick, including as a Senior Manager.
Mr. Vitti is a certified public accountant licensed by the State of Connecticut.
Robert A. Slavitt has been a director of the Company since July 1995,
and is a senior partner in the law firm of Slavitt Connery & Vardamis of
Norwalk, Connecticut. He is a former President of the Norwalk-Wilton Connecticut
Bar Association; a director and former Vice President of the Alumni Association
of New York University School of Law; a member of the Dean's Task Force of New
York University School of Law; and a member of the Connecticut Bar Association
Eminent Domain Law Revision Committee.
24
25
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation paid or
accrued to the executive officers of the Company for the fiscal years ended
February 28, 1994 and 1995 and February 29, 1996:
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Common
Name Other Shares
and Year Annual Subject to
Principal Ended February Compen- Options
Position 28th(29th) Salary sation Granted
- -------- -------------- ------ ------ ------------
Arnie Geller(1) 1996 $41,667 -0- -0-
Former President
and Former Chief 1995 $250,000 -0- -0-
Financial Officer
1994 $208,233 -0- -0-
George Tulloch(1)
President and Former Chief
Financial Officer; Former
Executive Director of
Corporate Public 1996 $120,000 -0- -0-
Relations
1995 $120,000 -0- -0-
1994 $100,000 -0- -0-
Nicholas Vitti(2) 1996 -0- -0- -0-
- ---------------
(1) The foregoing amounts reflected for Mr. Geller are adjusted to give
retroactive effect to the termination of his employment agreement, effective
January 31, 1995, as a result of which an aggregate of $387,691 of accrued
compensation was waived by Mr. Geller for 1995 and 1994 and stock options
granted thereunder were cancelled. See Note 7 to the financial statements
presented in Item 8 of this Report. The foregoing compensation accrued for Mr.
Geller is based upon an annual salary of $250,000 commencing May 4, 1993 and
ceasing on April 21, 1995, the date of his resignation as President of the
Company, no portion of which has been paid to date. Mr. Geller has agreed that
his accrued compensation would be paid at the discretion of the Board of
Directors when the Company has sufficient income to pay its creditors. The
foregoing compensation accrued for Mr. Tulloch is based upon an annual salary
25
26
of $120,000. On May 8, 1995, Mr. Tulloch was named President of the Company and
will serve at an adjusted salary to be determined by the compensation committee
of the Board of Directors consisting of Messrs. Gasparrini, Duffy and Vitti. Mr.
Tulloch's employment agreement, including stock options granted thereunder, was
terminated effective January 31, 1995.
(2) Mr. Vitti has served as the Company's Chief Financial Officer since June
1995.
STOCK OPTIONS
No stock options were granted to the executive officers of the Company
during the fiscal year ended February 29, 1996.
OPTION EXERCISES AND HOLDINGS
None of the executive officers of the Company exercised any stock
options during the fiscal year ended February 29, 1996. Upon termination of the
employment agreements of Messrs. Geller and Tulloch effective January 31, 1995,
options that were granted to each of them to purchase 500,000 shares of Common
Stock were cancelled. See Note 7 to the financial statements presented in Item 8
of this Report.
COMPENSATION OF DIRECTORS
The Company does not have any arrangements for compensating directors
for services rendered as a director. No compensation has been paid to any
individual for services rendered as a director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information at June 12, 1996
with respect to (i) those persons known by the Company to be the owners of more
than 5% of the Company's Common Stock, (ii) the ownership of the Company's
Common Stock by each director, and (iii) the ownership of the Company's Common
Stock by all executive officers and directors of the Company as a Group. Except
as otherwise indicated, each of the stockholders named below has sole voting and
investment power with respect to the Shares of Common Stock beneficially owned
by him:
26
27
NATURE OF AMOUNT OF
NAME AND ADDRESS OWNERSHIP BENEFICIAL OWNERSHIP PERCENTAGE OF CLASS
- ---------------- --------- -------------------- -------------------
Titanic Ventures Limited Partnership
204 Old Post Road Principal
Southport, Connecticut 06490 Shareholder 7,066,667(1) 43.8%
William S. Gasparrini Principal
c/o RMS Titanic, Inc. Shareholder,
17 Battery Place Chairman of the
New York, New York 10004 Board 2,044,630(2) 12.7%
Arnie Geller Principal
200 Rector Place Shareholder
New York, New York 10280 1,700,000 10.5%
George Tulloch Principal
c/o RMS Titanic, Inc. Shareholder,
17 Battery Place Officer,
New York, New York 10004 Director 81,309(3) 0.5%
John G. Duffy
c/o RMS Titanic, Inc.
17 Battery Place
New York, New York 10004 Director 37,716 0.1%
Robert A. Slavitt
c/o RMS Titanic, Inc.
17 Battery Place
New York, New York 10004 Director 20,047(4) 0.1%
Nicholas Vitti
c/o RMS Titanic, Inc.
17 Battery Place
New York, New York 10004 Officer, 12,500 0.0%
Director
All Officers and Directors
as a group of five (5)
persons 9,262,869(5) 57.4%
- ---------------
(1) George Tulloch is the President and sole shareholder of Oceanic Research
and Exploration Limited, a Delaware corporation which serves as the General
Partner of Titanic Ventures Limited Partnership ("TVLP"); William Gasparrini is
a limited partner of TVLP. The General Partner of TVLP has the right to vote the
shares of the Company without the consent of the Limited Partners of TVLP, and
may dispose of the shares of the Company upon the consent of the Limited
Partners of TVLP. In an action commenced by John A. Joslyn and G. Michael Harris
against George H. Tulloch and Oceanic Research & Exploration Limited in the
Court of Chancery of the State of Delaware, in and for New Castle County (Civil
Action No. 14891) on March 27, 1996, a status quo order was entered which, among
other things, temporarily restrains George Tulloch and Oceanic Research &
Exploration Limited, a Delaware corporation ("Oceanic") from voting, as general
partner of Titanic Ventures Limited Partnership ("TVLP"), any of the shares of
the registrant owned by TVLP. TVLP is the owner of 7,066,667 shares of the
registrant, which represents approximately 44% of the outstanding Common Stock
of the registrant. Mr. Joslyn and Mr. Harris claim to have a combined
27
28
majority voting control over Oceanic by virtue of their alleged ownership of
38.5% and 23% respectively, or an aggregate of 61.5%, of the outstanding voting
shares of Oceanic. Mr. Joslyn and Mr. Harris have adopted shareholder
resolutions purportedly removing George Tulloch as President and as a director
of Oceanic, and electing themselves as the only directors of Oceanic. The above
legal proceedings instituted by Mr. Joslyn and Mr. Harris seek a judgment
declaring their purported shareholders action valid and related relief. Mr.
Tulloch and Oceanic have denied the claims of Mr. Joslyn and Mr. Harris,
rejected their purported shareholder actions, and have asserted that such claims
do not have any merit, setting forth, among other defenses, that Mr. Tulloch is
the only shareholder of record of Oceanic, and is therefore the only person
vested with voting power over the outstanding shares of Oceanic; and that Mr.
Harris has rights only to a beneficial, non-voting interest in Oceanic, with
respect to which Mr. Tulloch is the voting trustee. By order entered on May 7,
1996, such Delaware proceedings were stayed pending the institution of
proceedings in the U.S. District Court for the District of Connecticut for
determination of certain issues relating to a judgment entered in such District
Court. To date, no such Connecticut action has been instituted. The status quo
order entered in the Delaware proceedings will remain in place pending further
order of the Delaware court.
Mr. Tulloch has agreed to distribute to the limited partners of TVLP,
within sixty (60) days of the removal of such status quo order, eighty (80%)
percent of each limited partner's interest in the shares of the Company owned by
TVLP, subject to the execution of proxies by the limited partners granting to
the general partner voting power over such shares until May 31, 1997. Such
proxies would terminate upon the public market sale of such shares.
(2) Does not include any shares that may be issued to Mr. Gasparrini
upon distribution of the shares of Common Stock registered in the name of TVLP,
of which Mr. Gasparrini is a limited partner.
(3) Does not include any shares that may be issued upon distribution of
the shares of Common Stock registered in the name of TVLP, of which Mr. Tulloch
is the President and sole shareholder of the General Partner.
(4) Does not include any shares that may be issued upon distribution of
the shares of Common Stock registered in the name of TVLP to which Mr. Slavitt
will have a beneficial interest.
(5) Includes shares beneficially owned by TVLP. See footnote (1) above.
The foregoing table does not include options granted to individuals who
are not executive officers or directors of the Company to purchase 580,000
shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1994, the Company entered into an agreement with William S.
Gasparrini, one
28
29
of its directors, pursuant to which the Company obtained a loan of $300,000
which was to be repaid on April 6, 1995. All or a portion of the principal of
such loan was convertible, at the option of Mr. Gasparrini into 420,000 shares
of unregistered common stock. Such loan was evidenced by a promissory note
bearing interest at the rate of 1% per month, and all or any portion of accrued
interest thereon was convertible at the option of Mr. Gasparrini on the same
terms and at the same conversion rate as the principal of the loan. The Company
had the right to prepay the loan at any time upon notice of 30 days to Mr.
Gasparrini. As additional consideration for the loan, the Company issued to Mr.
Gasparrini 60,000 shares of its unregistered common stock. The Company further
granted to Mr. Gasparrini a security interest in coins recovered from the wreck
site of the Titanic, which security interest shall be subordinate to and subject
to the terms and conditions of existing security interests in such coins. The
Company did not repay such loan on the April 6, 1995 maturity date. On May 8,
1995, the Company accepted Mr. Gasparrini's offer to convert such loan, plus the
accrued interest thereon of $28,500 and legal fees incurred by him related to
such conversion of $22,000, into 604,310 unregistered shares of the Company's
Common Stock at a conversion rate of $.58 per share.
During its fiscal year ended February 29, 1996, the Company accepted
subscriptions for the purchase of shares of its unregistered Common Stock at a
price of $.58 per shares from the following: William S. Gasparrini - 862,069
shares; John G. Duffy - 37,716 shares; Thomas B. Michaud, 25,862 shares; and
Thompson Living Trust, which is controlled by Jon K. Thompson - 431,034 shares.
Messrs. Gasparrini, Duffy, Michaud and Thompson served as directors of the
Company during the year ended February 29, 1996.
The Company accepted, effective January 31, 1995, the termination of
the Employment Agreement of Arnie Geller, who served as Chief Executive Officer
and Chief Financial Officer of the Company until May 1995. Pursuant to the
agreement to terminate Mr. Geller's employment agreement, Mr. Geller waived his
rights to all compensation under his Employment Agreement except for a salary of
$250,000 per annum, all of which has been accrued and is unpaid through the date
of this report. Additionally, such officer agreed to the rescission of the grant
to him, pursuant to the Employment Agreement, of an option to purchase 500,000
shares of unregistered Common Stock. It was further agreed that such officer's
accrued compensation would be paid at the discretion of the Board of Directors
of the Company when the Company has sufficient income to pay its creditors.
The Company also accepted the agreement of George Tulloch, who served
as the Company's Executive Director of Corporate Public Relations, to terminate,
as of January 31, 1995, his Employment Agreement. Pursuant thereto, the grant to
Mr. Tulloch of an option to purchase 500,000 unregistered shares of the
Company's Common Stock was rescinded. In May 1995, Mr. Tulloch was named
President of the Company and will serve at an adjusted salary to be determined
by the Compensation Committee of the Board of Directors consisting of Messrs.
Gasparrini, Duffy, and Vitti.
With respect to the fiscal year ended February 29, 1996, to the best of
the knowledge
29
30
of the Company, Mr. Vitti was delinquent in filing a report on Form 3.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & 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:
Independent Auditor's Report F-1
Balance Sheet at February 28(29), 1995 and 1996 F-2
Statement of Operations for the years ended
February 28(29), 1994, 1995 and 1995 and for
the period from August 5, 1987 (inception)
to February 29, 1996 F-3
Statement of Owners Equity for the years ended
February 28(29), 1994, 1995, and 1996 and for the period
from August 5, 1987 (inception) to February 29, 1996 F-4
Statement of Cash Flows for the years ended
February 28(29), 1994, 1995 and 1996, and for the
period from August 5, 1987 (inception) to February 29, 1996 F-6
Notes to Financial Statements F-8
(b) Financial Statement Schedules. None.
(c) Exhibits.
ITEM NO.
4.1 First Amendment to By-Laws of the Registrant(1)
10.1 Security Agreement entered into as of May 3, 1993 between
First Response Medical, Inc. and Pullman & Comley(2)
10.2 Pledge Agreement entered into as of May 4, 1993 between First
Response Medical, Inc., Titanic Ventures Limited Partnership
and Pullman & Comley(2)
30
31
10.3 Promissory Note in the principal sum of $500,000 executed by
First Response Medical, Inc. in favor of Lone Star Casino
Corporation.(2)
10.4 Pledge Agreement made and entered into as of May 4, 1993
between First Response Medical, Inc. and Lone Star Casino
Corporation.(2)
10.5 Bailment and Agency Agreement entered into as of May 4, 1993
between First Response Medical, Inc., Lone Star Casino
Corporation, Pullman & Comley and Allan H. Carlin.(2)
10.6 Employment Agreement between Arnie Geller and the Company
dated as of May 4, 1993.(3)
10.7 Employment Agreement between George Tulloch and the Company
dated as of May 4, 1993.(3)
10.8 Agreement with Pullman & Comley and the Company dated as of
December 24, 1993.(4)
10.9 Lease Agreement between the Company and 17 Battery Place North
Associates.(5)
10.10 Promissory Note in the principal amount of $300,000 dated July
6, 1994 executed by Company in favor of William S.
Gasparrini.(6)
10.11 Pledge Agreement dated July 6, 1994 between Company and
William S. Gasparrini.(6)
10.12 Escrow Agreement dated July 6, 1994 between Company, William
S. Gasparrini and Allan H. Carlin.(6)
10.13 1994 Charter Agreement between IFREMER and the Company.(6)
10.14 Assignment Agreement dated December 10, 1994 between the
Company and Pullman & Comley.(7)
(1) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended May 31, 1995.
(2) Filed as an exhibit to Registrant's Current Report on Form 8-K dated May 4,
1993.
(3) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended August 31, 1994.
(4) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1994.
31
32
(5) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year
ended February 28, 1994.
(6) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended August 31, 1995.
(7) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1994.
(d) Reports on Form 8-K. No current reports on Form 8-K during the last
quarter of the year ended February 29, 1996 were filed by the Company.
32
33
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.
RMS TITANIC, INC.
June 12, 1996 By: /s/ George H. Tulloch
----------------------------------------
George H. Tulloch, President and
Principal Executive Officer
June 12, 1996 By: /s/ Nicholas Vitti
----------------------------------------
Nicholas Vitti, Principal Accounting
Officer
33
34
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 on the date
indicated:
/s/ William S. Gasparrini June 12, 1996
- ----------------------------------------------
William S. Gasparrini, Director
/s/ George H. Tulloch June 12, 1996
- ----------------------------------------------
George H. Tulloch, Director
June , 1996
- ----------------------------------------------
John G. Duffy, Director
/s/ Nicholas Vitti June 12, 1996
- ----------------------------------------------
Nicholas Vitti, Director
/s/ Robert A. Slavitt June 12, 1996
- ----------------------------------------------
Robert A. Slavitt, Director
34
35
EXHIBIT INDEX
ITEM NO.
4.1 First Amendment to By-Laws of the Registrant.(1)
10.1 Security Agreement entered into as of May 3, 1993 between
First Response Medical, Inc. and Pullman & Comley.(2)
10.2 Pledge Agreement entered into as of May 4, 1993 between First
Response Medical, Inc., Titanic Ventures Limited Partnership
and Pullman & Comley.(2)
10.3 Promissory Note in the principal sum of $500,000 executed by
First Response Medical, Inc. in favor of Lone Star Casino
Corporation.(2)
10.4 Pledge Agreement made and entered into as of May 4, 1993
between First Response Medical, Inc. and Lone Star Casino
Corporation.(2)
10.5 Bailment and Agency Agreement entered into as of May 4, 1993
between First Response Medical, Inc., Lone Star Casino
Corporation, Pullman & Comley and Allan H. Carlin.(2)
10.6 Employment Agreement between Arnie Geller and the Company
dated as of May 4, 1993.(3)
10.7 Employment Agreement between George Tulloch and the Company
dated as of May 4, 1993.(3)
10.8 Agreement with Pullman & Comley and the Company dated as of
December 24, 1993.(4)
10.9 Lease Agreement between the Company and 17 Battery Place North
Associates.(5)
10.10 Promissory Note in the principal amount of $300,000 dated July
6, 1994 executed by Company in favor of William S.
Gasparrini.(6)
10.11 Pledge Agreement dated July 6, 1994 between Company and
William S. Gasparrini.(6)
10.12 Escrow Agreement dated July 6, 1994 between Company, William
S. Gasparrini and Allan H. Carlin.(6)
10.13 1994 Charter Agreement between IFREMER and the Company.(6)
36
10.14 Assignment Agreement dated DDecember 10, 1994 between the
Company and Pullman & Comley.(7)
- ----------------
(1) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended May 31, 1995.
(2) Filed as an exhibit to Registrant's Current Report on Form 8-K dated May 4,
1993.
(3) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended August 31, 1994.
(4) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1994.
(5) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year
ended February 28, 1994.
(6) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended August 31, 1995.
(7) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1994.
37
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
================================================================================
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS:
Balance Sheet at February 28, 1995 and February 29, 1996 F-2
Statement of Operations for the Years Ended February 28 (29), 1994,
1995 and 1996 and for the Period from August 5, 1987 (Inception) to
February 29, 1996 F-3
Statement of Owners' Equity for the Years Ended February 28 (29), 1994,
1995 and 1996 and for the Period from August 5, 1987 (Inception) to
February 29, 1996 F-4 - F-5
Statement of Cash Flows for the Years Ended February 28 (29), 1994,
1995 and 1996 and for the Period from August 5, 1987 (Inception) to
February 29, 1996 F-6 - F-7
Notes to Financial Statements F-8 - F-22
38
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
RMS Titanic, Inc.
We have audited the accompanying balance sheets of RMS Titanic, Inc. (a
development stage company) as of February 28, 1995 and February 29, 1996, and
the related statements of operations, owners' equity, and cash flows for each of
the three years in the period ended February 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RMS Titanic, Inc. as of
February 28, 1995 and February 29, 1996, and the results of its operations and
its cash flows for each of the three years in the period ended February 29,
1996, in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
May 28, 1996
F-1
39
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
======================================================================================================================
FEBRUARY 28, FEBRUARY 29,
1995 1996
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 531 $ 43,803
Accounts receivable (Note 10) 131,412 19,510
Other current assets 30,199 10,000
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 162,142 73,313
Artifacts Recovered, at cost (Notes 1 and 3) 5,925,350 5,922,350
Deferred Income Tax Asset, net of valuation allowance of
$1,600,000 and $1,640,000 respectively (Notes 1 and 4) - -
Property and Equipment, net of accumulated depreciation
of $28,977 and $41,333, respectively 38,538 26,182
Other 38,611 38,611
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 6,164,641 $ 6,060,456
======================================================================================================================
LIABILITIES AND OWNERS' EQUITY
Current Liabilities:
Notes payable (Note 3) $ 618,215 $ 126,050
Accounts payable and accrued liabilities (Notes 8 and 9) 2,470,451 2,023,574
Loans payable to partners (Note 5) 45,000 45,000
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,133,666 2,194,624
Notes Payable, less current portion (Note 3) 300,000 -
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,433,666 2,194,624
- ----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 3, 6 and 7) - -
Owners' Equity (Notes 2 and 5):
Common stock - $.0001 par value; authorized 30,000,000 shares,
issued and outstanding 13,908,709 and 16,137,128 shares, respectively 1,392 1,614
Additional paid-in capital 12,585,696 13,869,963
Deficit accumulated during the development stage (9,856,113) (10,005,745)
- ----------------------------------------------------------------------------------------------------------------------
OWNERS' EQUITY 2,730,975 3,865,832
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND OWNERS' EQUITY $ 6,164,641 $ 6,060,456
======================================================================================================================
See Notes to Financial Statements
F-2
40
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
==================================================================================================================================
PERIOD FROM
AUGUST 5, 1987
(INCEPTION) TO
YEAR ENDED FEBRUARY 28(29), FEBRUARY 29,
1994 1995 1996 1996*
- ----------------------------------------------------------------------------------------------------------------------------------
Revenue (Notes 1, 10 and 11):
Licensing fees -- -- -- $ 575,000
Exhibitions -- $ 102,578 $ 547,493 865,799
Merchandise and other -- 101,788 146,343 248,131
Sale of coal -- -- 30,705 30,705
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue -- 204,366 724,541 1,719,635
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
General and administrative (Notes 1, 7 and 9) $ 1,566,035 1,610,308 806,324 6,422,125
Depreciation and amortization 10,787 18,190 12,356 106,766
Interest (Note 3) 181,022 53,571 13,826 915,875
Financing fees (Note 3) 327,012 53,333 6,667 387,012
Acquisition of Management Agreement Option
(Notes 2 and 5) 3,400,000 -- -- 3,400,000
Settlement expense (Note 6) -- -- 35,000 221,715
Provision for uncollectible advances to affiliates -- -- -- 271,887
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 5,484,856 1,735,402 874,173 11,725,380
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss $ (5,484,856) $ (1,531,036) $ (149,632) $(10,005,745)
===================================================================================================================================
Net loss per common share (Note 1) $ (.47) $ (.11) $ (.01) --
===================================================================================================================================
Weighted average number of common shares
outstanding (Note 1) 11,727,275 13,620,390 15,834,644 --
===================================================================================================================================
* Not covered by auditor's report
See Notes to Financial Statements
F-3
41
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OWNERS' EQUITY
==================================================================================================================================
PERIOD FROM AUGUST 5, 1987 (INCEPTION) TO FEBRUARY 29, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
TITANIC VENTURES DEFICIT
LIMITED ACCUMULATED
PARTNERSHIP ADDITIONAL DURING THE
("TVLP") CAPITAL COMMON STOCK PAID-IN DEVELOPMENT OWNERS'
CONTRIBUTIONS SHARES AMOUNT CAPITAL STAGE EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
For the period from August 5, 1987
(inception) to February 29, 1988:
TVLP partners' capital contributions:
Cash $ 1,725,000 - - - - $ 1,725,000
Costs paid by partners of TVLP 450,000 - - - - 450,000
Net loss - - - - $ (284,732) (284,732)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at February 29, 1988* 2,175,000 - - - (284,732) 1,890,268
Net loss for the year ended February 28, 1989* - - - - (304,903) (304,903)
Net loss for the year ended February 28, 1990* - - - - (673,709) (673,709)
Net loss for the year ended February 28, 1991* - - - - (468,645) (468,645)
Net loss for the year ended February 29, 1992* - - - - (425,607) (425,607)
Net loss for the year ended February 28, 1993 - - - - (682,625) (682,625)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1993 2,175,000 - - - (2,840,221) (665,221)
Exchange of shares of RMS Titanic, Inc.
for assets and liabilities of TVLP
(Notes 1 and 2) (2,175,000) 7,066,667 $707 $2,174,293 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' deficiency as of
February 28, 1993 restated giving
effect to the acquisition (Note 2) - 7,066,667 707 2,174,293 (2,840,221) (665,221)
(continued)
* Not covered by auditor's report
See Notes to Financial Statements
F-4
42
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OWNERS' EQUITY
==================================================================================================================================
PERIOD FROM AUGUST 5, 1987 (INCEPTION) TO FEBRUARY 29, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
TITANIC VENTURES DEFICIT
LIMITED ACCUMULATED
PARTNERSHIP ADDITIONAL DURING THE
("TVLP") CAPITAL COMMON STOCK PAID-IN DEVELOPMENT OWNERS'
CONTRIBUTIONS SHARES AMOUNT CAPITAL STAGE EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity of RMS Titanic, Inc.
attributable to former stockholders - 973,373 $ 97 $ 410,959 $ (451,165) $ (40,109)
Elimination of RMS Titanic, Inc.
accumulated deficit at time of acquisition - - - (451,165) 451,165 -
Issuance of common stock (Note 5):
Cash - net of issuance costs - 956,500 96 2,757,085 - 2,757,181
Other than cash - 3,940,969 395 6,592,328 - 6,592,723
Conversion of Class B warrants - 1,700 - - - -
Net loss for the year ended February 28, 1994 - - - - (5,484,856) (5,484,856)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1994 - 12,939,209 1,295 11,483,500 (8,325,077) 3,159,718
Contributed capital arising from termination
of employment agreement (Note 7) - - - 387,691 - 387,691
Issuance of common stock (Note 5):
Cash - net of issuance costs - 908,500 91 654,511 - 654,602
Other than cash (Note 3) - 60,000 6 59,994 - 60,000
Conversion of Class B warrants - 1,000 - - - -
Net loss for the year ended February 28, 1995 - - - - (1,531,036) (1,531,036)
- --------------------------------------------------------------------------------------------------------------------------------
Balance as of February 28, 1995 - 13,908,709 1,392 12,585,696 (9,856,113) 2,730,975
Issuance of common stock:
Cash (Note 5) - 1,589,576 159 921,797 - 921,956
Other than cash (Notes 3 and 6) - 638,343 63 362,470 - 362,533
Conversion of Class B warrants - 500 - - - -
Net loss for the year ended February 29, 1996 - - - - (149,632) (149,632)
- --------------------------------------------------------------------------------------------------------------------------------
Balance as of February 29, 1996 $ - 16,137,128 $1,614 $13,869,963 $(10,005,745) $ 3,865,832
================================================================================================================================
See Notes to Financial Statements
F-5
43
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
=========================================================================================================================
PERIOD FROM
AUGUST 5, 1987
(INCEPTION) TO
YEAR ENDED FEBRUARY 28(29), FEBRUARY 29,
1994 1995 1996 1996*
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(5,484,856) $(1,531,036) $(149,632) $(10,005,745)
- -------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 10,787 18,190 12,356 106,766
Noncash financing costs 327,012 53,333 6,667 387,012
Acquisition of Management Agreement Option
for noncash consideration 3,400,000 - - 3,400,000
Write-off of advances to affiliates - - - 271,887
Noncash interest expense 178,522 66,544 4,500 886,202
Expenses paid by TVLP partners and TVLP affiliate
on behalf of TVLP - - - 427,564
Reduction in artifacts recovered - - 3,000 3,000
Changes in operating assets and liabilities, net of
effect from acquisition:
Decrease (increase) in accounts receivable - (131,412) 111,902 (19,510)
Decrease (increase) in other current assets (21,130) (2,402) 13,532 (10,000)
Increase in advances to TVLP affiliates - - (271,887)
Increase in other (1,110) (27,501) - (38,611)
Increase in organization costs (fully amortized) - - - (60,483)
(Decrease) increase in note payable, accounts
payable and accrued liabilities 566,111 1,631,345 (388,844) 3,361,969
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 4,460,192 1,608,097 (236,887) 8,443,909
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (1,024,664) 77,061 (386,519) (1,561,836)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Artifact recovery costs, including related deposits (1,702,950) (700,000) - (3,852,975)
Purchases of property and equipment (66,414) (1,101) - (72,465)
- -------------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (1,769,364) (701,101) - (3,925,440)
- -------------------------------------------------------------------------------------------------------------------------
(continued)
See Notes to Financial Statements
F-6
* Not covered by auditor's report
44
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
================================================================================
PERIOD FROM
AUGUST 5, 1987
(INCEPTION) TO
YEAR ENDED FEBRUARY 28(29), FEBRUARY 29,
1994 1995 1996 1996*
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Loans from TVLP partners -- -- -- $ 432,705
Proceeds from notes payable $ 650,000 -- -- 650,000
Proceeds from issuance of common stock and capital
contributions 3,842,435 $ 720,055 $ 921,956 7,209,446
Stock issuance costs (1,085,254) (65,453) -- (1,150,707)
Repayment of advances from TVLP partner -- -- -- (475,000)
Repayment of notes payable (493,200) (150,000) (492,165) (1,135,365)
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,913,981 504,602 429,791 5,531,079
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 119,953 (119,438) 43,272 43,803
Cash at beginning of period 16 119,969 531 - 0 -
- ---------------------------------------------------------------------------------------------------------------
Cash at end of period $ 119,969 $ 531 $ 43,803 $ 43,803
===============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 2,500 $ 24,015 $ 9,326 $ 35,841
===============================================================================================================
See Notes 2, 3, 5, 6 and 7 for information regarding noncash investing and
financing activities.
* Not covered by auditor's report
See Notes to Financial Statements
F-7
45
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. DESCRIPTION OF RMS Titanic, Inc. initially conducted business as
BUSINESS AND SUMMARY Titanic Ventures Limited Partnership ("TVLP").
OF SIGNIFICANT RMS Titanic, Inc. and TVLP are referred to as the
ACCOUNTING POLICIES: "Company" as the context dictates.
TVLP was formed on August 5, 1987 for the purposes
of exploring the wreck and surrounding oceanic
area of the vessel the RMS Titanic (the
"Titanic"); obtaining oceanic material and
scientific data available therefrom in various
forms, including still and moving photography and
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. In addition,
the Company earns revenue from the sale of coal
and Titanic-related products (see Notes 10 and
11).
The Company commenced operations in August 1987
with an expedition and dive to the wreck of the
Titanic from which the Company recovered over
1,800 objects, including coins (the "Coins"),
currency and other items. The Company has not
commenced its planned principal revenue-producing
operation, which is an extensive worldwide touring
exhibition of the artifacts (see Note 10).
Accordingly, the Company is considered to be in
the development stage for financial reporting
purposes. The Company completed a second
expedition and dive to the Titanic in June 1993,
during which approximately 800 artifacts were
recovered and videotape of such expedition was
produced. In July 1994, a third expedition and
dive to the Titanic was completed by the Company,
during which over 1,000 artifacts and other items
(coal used on the Titanic) were recovered and
videotape of such expedition was produced (see
Note 8). All the items recovered as described
above are collectively referred to as the
"Artifacts."
Pursuant to a judgment entered in the Federal
District Court for the Eastern District of
Virginia (the "Court") on June 7, 1994, the
Company was declared salvor-in-possession of the
Titanic, the sole and exclusive owner of any items
recovered from the Titanic and, so long as the
Company is salvor-in-possession, the sole and
exclusive owner of items recovered from the
Titanic in the future (see Note 6).
On May 4, 1993, in a transaction accounted for as
a "reverse acquisition," TVLP sold all of its
assets, subject to the assumption of all
liabilities, to First Response Medical, Inc.
("FRM"), a public company that changed its name to
RMS Titanic, Inc. (see Note 2) (the
"Acquisition"). The historical financial
statements of TVLP prior to May 4, 1993 have been
substituted for the historical financial
statements of FRM.
Artifacts recovered from the Titanic are carried
at the lower of cost of recovery or net realizable
value ("NRV"). The costs of recovery are the
direct costs of chartering of vessels and related
crews and equipment required to complete the dive
operations. Costs associated with the care,
management and preservation of recovered artifacts
are expensed as incurred.
To ascertain that the aggregate NRV of the
Artifacts exceeds the direct costs of recovery of
such Artifacts, the Company evaluates various
evidential matter. Such evidential matter includes
documented sales and offerings of Titanic-related
F-8
46
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
memorabilia by auction houses and private dealers,
an appraisal of certain artifacts, 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.
The artifacts recovered from the first dive were
conserved and preserved by Electricite de France
("EDF") the French government-owned utility,
pursuant to a contractual agreement. EDF agreed to
perform the conservation and preservation on the
first 200 artifacts at no charge for publicity
purposes. The Company has not recorded the value
of the services provided by EDF in the financial
statements since such value cannot be reasonably
estimated. Prior to March 1, 1994, the Company was
charged approximately $125,000 for conservation
and preservation performed on artifacts in excess
of the first 200 recovered.
Under an agreement with IFREMER, the Institute of
France for the Research and Exploration of the
Sea, which was the general contractor for the
salvage operations, the Company is restricted from
selling certain artifacts except to an entity that
will make them available for exhibition to the
public, as defined.
Revenue from the licensing of still photographs
was recognized at the time the rights were granted
to the licensee.
Revenue from exhibitions is recorded in the period
that the exhibition takes place. The amount
recorded represents the Company's share of the net
revenue, as defined, from the exhibition.
Revenue from the sale of Titanic-related products
is recognized when the item is sold (see Note 10).
Coal recovered from the Titanic is being offered
for sale by the Company. Revenue from sales of
such coal is recognized at the date of shipment to
customers. Recovery costs attributable to the coal
have been charged to operations as revenue from
coal sales have been recognized. Such costs
aggregating approximately $3,000 have been
included in general and administrative expenses in
the accompanying statement of operations.
The Company provides for income taxes in
accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for
Income Taxes." Under this statement, deferred
income tax assets and liabilities are determined
based on differences between financial reporting
and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that
will be in effect when the differences are
expected to reverse.
The Company intends to elect to continue to
measure compensation cost using APB Opinion No. 25
as is permitted by the Statement of Financial
Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," and is
effective for financial statements with fiscal
years beginning after December 15, 1995.
F-9
47
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Company intends to adopt Statement of
Financial Accounting Standards No. 121 ("SFAS
121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," which is effective for financial
statements with fiscal years beginning after
December 15, 1995. Management believes the
adoption of SFAS 121 will not be significant to
the financial statements.
TVLP was a partnership and, accordingly, no
provision or credit is made in the historical
financial statements of TVLP since the partnership
was not responsible for payment of income taxes.
All items of income and loss retained their
characteristics and passed through directly to the
individual partners.
Earnings per share are based upon the weighted
average number of common shares outstanding for
the periods presented, after giving retroactive
effect to the shares issued in connection with the
Acquisition. Options and warrants to purchase
common stock have been excluded from the
computation of weighted average shares outstanding
since their inclusion would have an antidilutive
effect.
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.
2. REVERSE ACQUISITION On May 4, 1993, TVLP sold all rights, title and
AND ACQUISITION OF interest in its assets to FRM subject to FRM
MANAGEMENT AGREEMENT assuming all of its liabilities. TVLP was issued
OPTION: 7,066,667 unregistered shares of common stock of
FRM as consideration for the sale. FRM also issued
400,000 shares of unregistered common stock to
unrelated parties as a finders' fee in connection
with the transaction. These shares, when added to
the shares described below, represented
approximately 90% of the total issued and
outstanding common shares of FRM after the
acquisition. Since TVLP owned a controlling
interest in FRM, the transaction was accounted for
as a "reverse acquisition" with TVLP deemed to be
the acquiring entity. FRM changed its name to RMS
Titanic, Inc. and, as stated above, the historical
financial statements of TVLP prior to May 4, 1993
have been substituted for the historical financial
statements of FRM.
On May 2, 1993, TVLP agreed to enter into a
10-year Management Agreement Option with an
individual (the "Manager"), whereby the Manager
would provide business and artistic guidance to
TVLP in order to further develop TVLP as a
profit-making entity. The Manager would be
entitled to receive 20% of the gross earnings, as
defined, of TVLP. The Management Agreement Option
would become effective at the option of the
Manager.
Upon the sale of TVLP's assets subject to the
assumption of all liabilities discussed above, the
Manager exchanged the Management Agreement Option
for 2,266,666 shares of FRM unregistered common
stock. For financial reporting purposes, a fair
value of approximately $1.50 per share was
assigned to these shares (see Note 5).
Accordingly, $3,400,000 was charged to operations
in the first quarter of the year ended February
28, 1994.
The Manager was formerly an officer and director
of the Company.
F10
48
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
The ownership of the general partner of TVLP is
being challenged in an action which commenced on
March 27, 1996. Such action is being defended
vigorously by the shareholder of the general
partner of TVLP
3. NOTES PAYABLE: Notes payable consist of the following:
February 28, February 29,
1995 1996
----------------------------------------------------------------------------------------
Note payable - law firm $492,165 -
Note payable - Lone Star Casino Corporation 126,050 $126,050
Note payable - director 300,000 -
----------------------------------------------------------------------------------------
918,215 126,050
Less current portion 618,215 126,050
----------------------------------------------------------------------------------------
NOTES PAYABLE, LESS CURRENT PORTION $300,000 $ - 0 -
========================================================================================
The Company had a promissory note payable to a law
firm for approximately $1,216,000 for services
provided to the Company during the period from
August 1987 through December 1991. On December 24,
1993, the Company and such law firm entered into
an agreement pursuant to which, among other
things, the Company, in full satisfaction of all
obligations under such promissory note, agreed to
pay $750,000 ($100,000 of which was paid
simultaneously with the execution of such
agreement; $150,000 of which was paid on June 30,
1994; and $500,000 of which was payable in monthly
installments of $50,000 commencing in October
1994) and 150,000 shares of its unregistered
common stock which were delivered to such law
firm. The note was collateralized by a lien on the
Coins. The Company did not make the required
payments and in December 1994, the Company entered
into a new agreement with the law firm whereby the
Company assigned to the law firm the Company's
share of the net revenue from the Prelude
Exhibition, at the National Maritime Museum of
Great Britain, which opened October 10, 1994 (see
Note 10), as defined, until such time that the
$500,000 outstanding balance plus accrued interest
at the rate of 10% per annum commencing on
November 10, 1994 is paid in full. During the year
ended February 29, 1996, the law firm has been
paid a net amount of $501,491 in full satisfaction
of the note, including accrued interest, from net
revenue earned from the Prelude Exhibition.
On May 4, 1993 and May 12, 1993, the Company
received $500,000 and $150,000, respectively, from
Lone Star Casino Corporation ("Lone Star"), as
evidenced by promissory notes (the "Notes")
bearing interest at the rate of 1% per month and
payable on August 4, 1993 and August 12, 1993,
respectively, subject to the Company's option to
extend the due date of the Notes to November 4,
1993 and November 12, 1993, respectively. At the
option of the holder of the Notes, the principal
amounts outstanding could be converted into
200,000 and 60,000 shares of the Company's common
stock, respectively. As additional consideration
for such loans, the Company issued 150,000 shares
of its common stock to Lone Star and agreed to
issue up to an additional 130,000 shares of its
common stock in the event that the Company
exercised its option to extend the due dates of
the Notes. The Company exercised its option to
extend payment of the then
F-11
49
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
outstanding balance due on the $500,000 note to
November 4, 1993. An aggregate of 218,008 shares
of common stock (150,000 shares on May 4, 1993 and
68,008 shares on August 4, 1993) was issued as
additional consideration for the Notes and related
extensions and were assigned an aggregate value of
$327,012 or $1.50 per share. Such amount has been
charged to operations as financing fees during the
year ended February 28, 1994. The Company granted
a first lien on the Coins with respect to the
obligations under the Notes. An individual who,
until the closing of the Acquisition, was the
President, a director and a principal stockholder
of FRM, and another individual who served as a
director of FRM until the Acquisition are
affiliated with Lone Star. As of February 28,
1994, the $150,000 note was repaid in full. The
Company paid $243,200 on account of the $500,000
note, and an additional $130,750 was converted
into 52,300 shares of unregistered common stock of
the Company, resulting in an outstanding unpaid
principal balance of $126,050, payment of which
was overdue but with respect to which the Company
has attempted to repay without success as the
repayment has been refused. It is not practicable
to estimate the fair value of the outstanding
principal balance of $126,050 since it is the
subject of litigation (see Note 6).
On July 6, 1994, the Company received $300,000
from a director of the Company, as evidenced by a
promissory note bearing interest at the rate of
10% per annum and payable on April 6, 1995. An
aggregate of 60,000 shares of common stock was
issued as additional consideration for the note
and was assigned an aggregate value of $60,000 or
$1.00 per share. At the option of the holder of
the promissory note, the principal amount
outstanding plus accrued interest (aggregating
approximately $328,500) was converted into 604,310
shares of the Company's common stock on April 21,
1995. During the years ended February 28(29), 1995
and 1996, $53,333 and $6,667, respectively, were
charged to operations as financing fees (see Note
5).
4. INCOME TAXES: The deferred income tax asset consists of the
following:
February 28, February 29,
1995 1996
----------------------------------------------------------------------------------------
Loss carryforwards $1,170,000 $1,140,000
Expenses not currently deductible 430,000 500,000
----------------------------------------------------------------------------------------
Gross deferred tax asset 1,600,000 1,640,000
Valuation allowance 1,600,000 1,640,000
----------------------------------------------------------------------------------------
NET DEFERRED TAX ASSET $ - 0 - $ - 0 -
========================================================================================
At February 29, 1996, the Company has net
operating loss carryforwards for financial
reporting and income tax purposes of approximately
$4,100,000 and $2,800,000, respectively, expiring
through 2010. A valuation allowance of 100% of the
deferred income tax asset has been provided due to
uncertainty of future realization of this tax
benefit.
The Company's February 28, 1994 federal income tax
return has been selected for examination by the
Internal Revenue Service.
F-12
50
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
5. OWNERS' EQUITY: Prior to the Acquisition, FRM initiated an
exchange agreement with the holders of certain
Class B warrants in which the holders would
receive shares of common stock of FRM in exchange
for certain Class B warrants. As of February 29,
1996, the Company had received 20,700 Class B
warrants to be exchanged for 20,700 shares of
common stock of the Company, of which 17,500
shares still remain to be issued. There are 5,566
warrants outstanding as of February 29, 1996.
The following unregistered shares of common stock
were issued for cash consideration:
Common Stock Additional Price
Year Ended ------------------ Paid-in Per
February 28, 1994 Date Shares Amount Capital Total* Share
- --------------------------------------------------------------------------------------------------------------------
Private placements
pursuant to Regulation
S of the Securities Act
of 1933 6/15/93 589,490 $59 $1,700,134 $1,700,193 $2.88
Private placements
pursuant to Regulation
S of the Securities Act
of 1933 7/15/93 225,000 23 756,965 756,988 $3.36
Private placements
pursuant to Regulation
S of the Securities Act
of 1933 12/25/93 71,005 7 149,993 150,000 $2.11
Director of the
Company 12/25/93 71,005 7 149,993 150,000 $2.11
- --------------------------------------------------------------------------------------------------------------------
956,500 $96 $2,757,085 $2,757,181
====================================================================================================================
F-13
51
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Common Stock Additional Price
Year Ended ------------------ Paid-in Per
February 28, 1995 Date Shares Amount Capital Total* Share
---------------------------------------------------------------------------------------------
Private placements
pursuant to Regulation
S of the Securities Act
of 1933 3/01/94 270,000 $ 27 $206,523 $206,550 $ .7650
Private placements
pursuant to Regulation
S of the Securities Act
of 1933 3/15/94 10,000 1 7,649 7,650 $ .7650
Private placements
pursuant to Regulation
S of the Securities Act
of 1933 5/31/94 112,500 11 113,895 113,906 $1.0125
Private placements
pursuant to Regulation
S of the Securities Act
of 1933 6/08/94 116,000 12 117,429 117,441 $1.0125
Private placements
pursuant to Regulation
S of the Securities Act
of 1933 8/15/94 200,000 20 96,535 96,555 $ .4828
Private placements
pursuant to Regulation
S of the Securities Act
of 1933 9/01/94 200,000 20 112,480 112,500 $ .5625
---------------------------------------------------------------------------------------------
908,500 $ 91 $654,511 $654,602
=============================================================================================
Common Stock Additional Price
Year Ended ------------------ Paid-in Per
February 29, 1995 Date Shares Amount Capital Total Share
------------------------------------------------------------------------------------------
Private placements 3/23/95 296,473 $ 30 $171,926 $171,956 $ 0.58
Private placements 4/21/95 1,293,103 129 749,871 750,000 $ 0.58
------------------------------------------------------------------------------------------
1,589,576 $159 $921,797 $921,956
==========================================================================================
The table for the year ended February 29, 1996 includes 1,356,681 shares of the
Company's common stock issued to certain individuals who served on the board of
directors during the year ended February 29, 1996.
* The total column represents amounts the Company realized after deducting
commissions on private placements pursuant to Regulation S of the Securities
Act of 1933 aggregating $1,085,254 and $65,453 for the years ended February
28, 1994 and 1995, respectively.
F-14
52
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
In addition to the common shares issued as part of the Acquisition, the
following unregistered shares of common stock were issued for consideration
other than cash:
Common Stock Additional Price
Year Ended --------------------- Paid-in Per
February 28, 1994 Date Shares Amount Capital Total Share
- --------------------------------------------------------------------------------------------------
Acquisition of
Management Agree-
ment Option (a) 3/01/93 2,266,666 $227 $3,399,773 $3,400,000 $1.50
Finders' fees in
connection with
the Acquisition (b) 5/04/93 400,000 40 (40) -- $ .0001
Financing fees (c) 5/04/93 150,000 15 224,985 225,000 $1.50
Commission on sale
of common stock (d) 7/15/93 45,000 5 (5) -- $ .0001
Exchange of notes
payable to TVLP
partners (e) 7/31/93 349,024 35 1,005,145 1,005,180 $2.88
Exchange of notes
payable to TVLP
partners (e) 7/31/93 75,000 8 149,992 150,000 $2.00
Exchange of notes
payable to TVLP
partners (e) 7/31/93 122,465 12 612,313 612,325 $5.00
Financing fees (f) 8/04/93 68,008 7 102,005 102,012 $1.50
Partial settlements
of certain accounts
payable (g) 8/09/93 6,344 1 13,765 13,766 $2.17
Partial settlements
of certain accounts
payable (g) 8/09/93 11,642 1 33,528 33,529 $2.88
Partial conversion of
notes payable (h) 8/23/93 52,300 5 130,745 130,750 $2.50
Exchange of notes
payable to a TVLP
partner (i) 8/31/93 195,604 19 252,310 252,329 $1.29
Partial settlement of
notes payable (j) 12/24/93 150,000 15 569,985 570,000 $3.80
Partial settlements of
certain accounts
payable (k) 2/02/94 48,916 5 97,827 97,832 $2.00
- -------------------------------------------------------------------------------------------------
3,940,969 $395 $6,592,328 $6,592,723
=================================================================================================
Year Ended
February 28, 1995:
Financing fees (l) 9/26/94 60,000 $ 6 $ 59,994 $ 60,000 $1.00
=================================================================================================
F-15
53
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Common Stock Additional Price
Year Ended ---------------- Paid-in Per
February 29, 1996 Date Shares Amount Capital Total Share
- ------------------------------------------------------------------------------------------
Conversion of note
payable - Director of
the Company (m) 4/21/95 604,310 $60 $328,440 $328,500 $0.5436
Settlement of
lawsuit (n) 6/23/95 34,033 3 34,030 34,033 $1.0000
- ------------------------------------------------------------------------------------------
638,343 $63 $362,470 $362,533
==========================================================================================
(a) These shares were issued in exchange for the Management Agreement Option
(see Note 2) and have been valued at $1.50 per share which represents
approximately 50% of the price the Company sold shares of common stock in
connection with private placements pursuant to Regulation S of the Securities
Act of 1933 ($2.88) since such shares would be restricted securities within
the meaning of Rule 144 for at least two years.
(b) These shares were issued in connection with the Acquisition (see Note 2) and
have been recorded at par value with a corresponding reduction in additional
paid-in capital. The value of the shares was determined by reference to the
net tangible assets of FRM acquired in the Acquisition (a deficiency of
$40,109).
(c) These shares were issued in connection with the Notes and related extensions
(see Note 3) and were valued on a basis consistent with the Management
Agreement Option discussed above.
(d) These shares were issued as a commission on the sale of common stock and
were recorded at par value, with a corresponding reduction in additional
paid-in capital.
(e) Certain partners of TVLP (including stockholders of TVLP's corporate general
partner) have, from time to time, loaned funds to TVLP or satisfied
obligations with creditors on behalf of TVLP. During the years ended February
28 (29), 1988, 1989 and 1990, artifact recovery costs of $1,772,375 were paid
by TVLP partners, of which $1,322,375 was recorded as loans payable to TVLP
partners and $450,000 as capital contributions.
During the year ended February 28, 1994, these individuals converted notes
payable and accrued interest owed to them into shares of common stock.
The valuation of the shares issued in connection with these transactions was
based upon the $2.88 per share realized by the Company in connection with the
Regulation S sales of common stock noted above.
(f) These shares were issued in connection with the Notes and related extensions
(see Note 3) and were valued on a basis consistent with the Management
Agreement Option discussed above.
F-16
54
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
(g) These shares were issued upon the partial
settlements of accounts payable and were
valued based upon negotiated settlements with
unrelated third parties.
(h) These shares were issued upon the partial
conversion of a note payable to Lone Star and
were valued based upon negotiations with Lone
Star (see Note 3).
(i) These shares were issued in connection with
the conversion of certain notes payable and
accrued interest owed to a partner of TVLP (a
director of the Company at the time of the
transaction) and were valued based upon a
negotiated settlement. The value of the shares
was less than the market value of the
Company's publicly traded shares on the date
of the transaction since such shares are
restricted securities for at least two years.
(j) These shares were issued upon the partial
settlement of a note payable and were valued
based upon a negotiated settlement with a law
firm (see Note 3).
(k) These shares were issued upon the partial
settlements of accounts payable and were
valued based upon negotiated settlements with
unrelated third parties.
(l) During the year ended February 28, 1995, the
Company issued 60,000 shares of unregistered
common stock to a director of the Company as
additional consideration for a convertible
subordinated note (see Note 3). These shares
were valued based upon the market value of the
Company's publicly traded shares on the date
of the transaction.
(m) These shares were issued to a director of the
Company in connection with the conversion of a
note payable plus accrued interest and related
fees (see Note 3). These shares were valued at
less than the market value of the Company's
publicly traded shares on the date of
conversion since such shares are restricted
securities for at least two years.
(n) These shares were issued to the Financial
Group of Kuwait, K.S.C.C.(see Note 6) and were
valued based upon a negotiated settlement of
certain litigation.
Transactions relating to stock options are as
follows:
Number Price
of Shares Per Share
--------------------------------------------------------------------------------
Balance at February 28, 1993 - 0 - -
Granted 1,000,000 $1.25
--------------------------------------------------------------------------------
Balance at February 28, 1994 1,000,000 $1.25
Granted 580,000 $1.25 - $2.88
Canceled (see Note 7) (1,000,000) $1.25
--------------------------------------------------------------------------------
BALANCE AT FEBRUARY 28(29), 1995
AND 1996 580,000 $1.25 - $2.88
=================================================================================
F-17
55
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
During the year ended February 29, 1996, there
were no options granted, exercised, canceled or
expired.
At February 29, 1996, 580,000 options were
exercisable at prices ranging from $1.25 to $2.88
per share.
6. LITIGATION: During the year ended February 29, 1996, a lawsuit
in which the Company was a named defendant that
was commenced in the United States District Court
for the Southern District of New York on or about
August 5, 1994 (Financial Group of Kuwait,
K.S.C.C. ("FGK") v. RMS Titanic, Inc. et al., 94
Civ. 5719) was settled. Pursuant to the terms of
the settlement, the Company agreed to issue to FGK
34,033 shares of its common stock, other
defendants agreed to transfer to FGK an aggregate
of 87,774 shares of the Company's common stock,
and the Company agreed to remove stop transfer
instructions on 52,300 shares of its common stock
registered in the name of FGK. Pursuant to an
agreement among the settling defendants, the
Company agreed to bear the responsibility for
payment of up to $.25 per share with respect to
64,427 shares. The parties to such lawsuit
reciprocally released each other from all claims
relating to such lawsuit. The Company recorded a
charge to operations of $35,000 during the year
ended February 29, 1996 which represents the fair
value of the shares issued to FGK.
The Company was a named defendant in a lawsuit
entitled Lone Star Casino Corp., et al. v.
Financial Group of Kuwait, et al. (including
certain officers of the Company), Docket No.
94-046398 pending in the District Court of Harris
County in and for the 151st Judicial District of
the State of Texas. Subsequent to February 29,
1996, this action was voluntarily withdrawn
without payment of consideration by the Company.
The Company is a named defendant in a lawsuit
commenced in the Supreme Court of the State of New
York, County of New York, on or about September
22, 1994 (Glenville Properties Incorporated v. RMS
Titanic, Inc. et al., 94/127087). The plaintiff
therein alleges Lone Star has assigned to it Lone
Star's rights under a promissory note (the "Note")
executed by the Company in favor of Lone Star in
May 1993, certain security interests granted to
Lone Star in connection therewith and other
contractual rights related thereto. The complaint
alleges, inter alia, that the Company breached its
obligations owed under the Note and its
obligations under the agreement granting a
security interest to Lone Star, misrepresented the
value of the property which is the subject of such
security interest and interfered with rights under
the agreements relating to the grant of such
security interest. The conversion by Lone Star of
$130,750 of the Note into 52,300 shares of the
Company's unregistered common stock is at issue in
such lawsuit. The relief sought is an award of
compensatory damages approximating $360,000,
punitive damages of a minimum of $1,080,000 and
declaratory and injunctive relief. The Company has
asserted counterclaims for a judgment declaring
the Note paid and additional counterclaims and
third party claims seeking an award of
compensatory and punitive damages. During January
1996, this case was referred to non-binding
mediation. The Company has denied the material
allegations of the complaint. Management of the
Company believes that it has a meritorious defense
to the claims against it and intends to defend its
position vigorously. The outcome of this lawsuit
cannot be reasonably determined at this time.
F-18
56
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
On February 20, 1996, a motion was filed pursuant
to Rule 60(b) of the Federal Rules of Civil
Procedure requesting the Court to rescind its June
7, 1994 judgment that named the Company the
salvor-in-possession of the Titanic (the
"Motion"). On May 10, 1996, the Court denied the
Motion and amended its June 7, 1994 order so as to
require the Company to make frequent periodic
reports to the Court as to the status of its
activities. Subsequently, the plaintiff filed a
notice of appeal and the Company cross appealed.
Management of the Company intends to defend its
position vigorously.
7. COMMITMENTS AND The Company and its former president entered into
CONTINGENCIES: an employment agreement, dated as of May 4, 1993,
which provided for, among other things, an annual
salary of $360,000, subject to annual salary
increases. The agreement also provided for the
payment of additional compensation for any
personal tax liability that may be incurred as a
result of the Company's acquisition of the
Management Agreement Option (see Note 2) and
granted the former president the right to secure
such obligation with a lien on the Company's
assets. The Company, based on an opinion from tax
counsel, believes that this transaction is not a
taxable event. Additionally, the agreement, as
amended, granted options to purchase 500,000
shares of the Company's common stock at an
exercise price of $1.25 per share, subject to
adjustment to prevent dilution. The options were
exercisable through May 4, 1998. No portion of the
former president's salary was paid.
On May 8, 1995, the Company accepted the
resignation of its former president and accepted
his agreement to terminate his employment
agreement, as amended effective January 31, 1995.
Pursuant to such termination agreement, such
officer waived his rights to all compensation,
including stock options, except for a salary of
$250,000 per annum retroactive to May 4, 1993, all
of which has been accrued at February 28(29), 1995
and 1996. At February 28, 1995, the Company
recorded a contribution to capital and a reduction
in accounts payable and accrued expenses of
$387,691 to reflect the retroactive adjustment of
the former president's compensation. It was
further agreed that such officer's compensation
will be paid at the discretion of the Board of
Directors of the Company when the Company has
sufficient funds to pay its creditors. Included in
accounts payable and accrued expenses at February
28(29), 1995 and 1996 are amounts payable to the
former president in the aggregate amount of
$458,333 and $500,000, respectively.
The Company and the Executive Director of
Corporate Public Relations (the "Executive") had
entered into an employment agreement, dated as of
May 4, 1993, which provided for, among other
things, an annual salary of $120,000.
Additionally, the agreement, as amended, granted
the Executive options to purchase 500,000 shares
of the Company's common stock at an exercise price
of $1.25 per share, subject to adjustment to
prevent dilution. The options were exercisable
through May 4, 1998. No portion of the Executive's
salary was paid.
On May 8, 1995, the Company accepted the
resignation of the Executive and accepted his
agreement to terminate his employment agreement,
as amended effective January 31, 1995. Pursuant to
such termination agreement, the Executive waived
his right to the stock options issued under his
employment agreement. Additionally, on May 8,
1995, the Executive was elected president of the
Company and will serve at a salary to be
determined by the compensation
F-19
57
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
committee of the Board of Directors. Included in
accounts payable and accrued expenses at February
28(29), 1995 and 1996 are amounts payable to the
Executive in the aggregate amount of $359,583 and
$479,583, respectively.
Compensation amounting to approximately $500,000,
$581,000 and $162,000 was charged to operations
during the years ended February 28(29), 1994, 1995
and 1996, respectively, under these agreements.
The Company has entered into a noncancelable
operating lease for its office expiring in
September 1998. The lease is subject to escalation
for (i) the Company's pro rata share of increases
in real estate taxes and (ii) increases in a
certain index. The approximate future minimum
rental commitments over the remaining term of the
lease are as follows:
Year ending February 28,
1997 $ 61,000
1998 61,000
1999 39,000
----------------------------------------------
$ 161,000
==============================================
Rent expense charged to operations amounted to
approximately $36,000, $57,000 and $64,000 for the
years ended February 28(29), 1994, 1995 and 1996,
respectively, and $168,000 from August 5, 1987
(inception) to February 29, 1996.
8. ACCOUNTS PAYABLE AND Accounts payable and accrued liabilities consist
ACCRUED LIABILITIES: of the following:
February 28, February 29,
1995 1996
----------------------------------------------------------------------------------------
Accrued compensation (see Note 7) $ 817,916 $ 979,583
Amount payable for professional fees and consulting 437,719 339,206
Amounts payable to foreign vendors 973,276 519,330
Accrued interest 49,335 25,335
Other miscellaneous liabilities 192,205 160,120
----------------------------------------------------------------------------------------
$2,470,451 $2,023,574
========================================================================================
In July 1994, the Company entered into an
agreement with IFREMER for the charter of
equipment to conduct the Company's third
expedition to the Titanic wreck site and was
charged $1,000,000. Pursuant to the agreement, as
amended, the Company paid IFREMER the sum of
$300,000 (proceeds from a convertible subordinated
debt, see Note 3) and was obligated to pay an
additional $700,000 in two installments of
$350,000 each, payable September 30, 1994 and
October 1, 1995. During the year ended February
29, 1996, the $350,000 installment due on
September 30, 1994 was paid and $70,000 was paid
on account of the $350,000 installment due on
October 1, 1995. The remaining balance of $280,000
was paid subsequent to February 29, 1996. At
February 29, 1996, the unpaid balance of
F-20
58
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
$280,000 has been included in accounts payable and
accrued expenses to foreign vendors.
9. OTHER RELATED PARTY A limited partner of TVLP, Taurus International
TRANSACTIONS: ("Taurus"), has provided services to TVLP as an
agent of TVLP in France. These services have
included securing legal representation, insurance
coverage, storage facilities and other
relationships required to maintain the Artifacts
while preservation work has been performed in
France by EDF. TVLP was charged fees for providing
these services amounting to approximately $127,000
from inception to February 29, 1996. Accounts
payable to Taurus amounted to $56,500 and $47,600
as of February 28(29), 1995 and 1996,
respectively.
During the year ended February 28, 1995, the
Company recognized approximately $30,000 of
expenses incurred by the Executive on behalf of
the Company. Such amount is included in accounts
payable and accrued expenses at February 28(29),
1995 and 1996.
10. EXHIBITIONS: On February 16, 1994, the Company and the Trustees
of the National Maritime Museum of Great Britain
(the "National Maritime Museum") entered into an
agreement for a six-month exhibition of Titanic
artifacts at the National Maritime Museum from
October 4, 1994 to March 31, 1995 (the "Prelude
Exhibition"). On March 1, 1995, the Company and
the National Maritime Museum agreed to extend the
Prelude Exhibition through October 1, 1995 (the
"Extension Period"). Pursuant to the Prelude
Exhibition agreement, approximately 150 to 200
Titanic artifacts were displayed. The principal
obligations of the Company with respect to the
Prelude Exhibition were to make the Titanic
artifacts available for the term of such exhibit;
provide photographs, video footage and other
information relating to the recovery of the
Titanic artifacts; provide models and plans of the
worldwide exhibition for display in the Prelude
Exhibition; and to consult with the National
Maritime Museum with respect to the design and
content of the Prelude Exhibition. The National
Maritime Museum was responsible for the design,
fabrication and operation of the Prelude
Exhibition ("Project Costs"), and such expenses
were subject to recoupment from revenue generated
by ticket sales and sponsorship sources. For the
period from October 4, 1994 to March 31, 1995, the
Company received 50% of revenue from ticket sales
from the Prelude Exhibition net of value added
tax, refunds and commissions ("Net Revenue") after
recoupment of Project Costs. During the Extension
Period, the Company received 20% of Net Revenue.
The Company entered into an arrangement with
Winterland Productions (UK) Limited ("Winterland")
to provide Titanic-related products
("Merchandise") in connection with the National
Maritime Museum. The net profits from the sale of
Merchandise were shared equally among the Company,
Winterland and the National Maritime Museum, as
defined.
At February 28, 1995, amounts due from the Prelude
Exhibition and from sale of Merchandise aggregated
$131,412. Such amount plus any additional Net
Revenue, if any, received in connection with the
Prelude Exhibition and sale of Merchandise were
first used to repay the outstanding note payable
to a law firm (see Note 3).
F-21
59
RMS TITANIC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
11. MARKETING AGREEMENT: The Company has entered into an agreement with an
unrelated third party to market and distribute the
coal recovered from the Titanic. The agreement
provides for the Company to receive 50% of the net
profits, as defined.
12. SUBSEQUENT EVENTS: Subsequent to February 29, 1996, the following
agreements were entered into:
a) The Company entered into a letter of agreement
with IFREMER for the charter of equipment to
conduct the Company's fourth expedition to the
Titanic wreck site in the Summer of 1996
("Summer of 1996 Expedition"). Pursuant to the
agreement, the Company will pay IFREMER the
sum of approximately $400,000 on June 20, 1996
and $420,000 on July 15, 1996. In addition,
the Company would be obligated to pay
additional amounts to IFREMER based upon a
percentage of the Company's future revenue, as
defined, up to a maximum of $980,000 due no
later than September 1, 2000. The artifacts
recovered during the Summer of 1996 Expedition
will serve as collateral for this debt.
In connection with the Summer of 1996
Expedition, the Company has entered into a
sponsorship agreement with Guinness Import
Company ("GIC"), whereby GIC has been
designated an official sponsor of the Summer
of 1996 Expedition. Pursuant to the agreement,
the Company will receive a sponsorship fee of
$150,000.
Additionally, the Company has entered into an
agreement with an unrelated third party, a
marketing company (see Note 11), to market
cruises to the site of the Summer of 1996
Expedition. The agreement provides for the
Company to receive 50% of the net profits, as
defined.
b) The Company entered into an agreement with
CRE-CO Finanz GmbH, a German company, for an
exhibition of Titanic artifacts in Europe in
1997. Pursuant to the agreement, the Company
will receive two-thirds of the net profits, as
defined, after recoupment of certain project
expenses, as defined. Additionally, the
Company received a $350,000 advance, less a
25% refundable withholding tax. The advance is
secured by a lien on the currency recovered
from the Titanic until the artifacts are
delivered.
F-22